Ameriquest Prepares to Settle States’ Probe;

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The Orange County mortgage giant allots $325 million to end an inquiry into allegations of loan abuses. The firm has denied wrongdoing.

Los Angeles Times

Ameriquest Capital Corp., the No. 1 lender to homeowners with bad credit, said Thursday that it had earmarked $325 million to help resolve a 30-state investigation into complaints of overcharges, hidden fees, puffed-up appraisals and fabricated borrower income statements.

No final settlement has been reached with the Orange-based parent of Ameriquest Mortgage Co., a task force of state attorneys general said in a statement.

But they said they “do not disagree” with Ameriquest’s estimate of its liability — a step toward resolving the largest of many legal disputes involving the politically influential company, a sponsor of Major League Baseball, Paul McCartney’s halftime show at the last Super Bowl and the Rolling Stones’ U.S. tour this fall.

Disclosure of the potential settlement sum came on the same day that President Bush nominated Ameriquest’s chairman and sole owner, billionaire Roland E. Arnall, to be U.S. ambassador to the Netherlands.

Arnall and his wife, who live on a 10-acre estate in the Holmby Hills neighborhood of Los Angeles, contributed $5 million to a pro-Bush committee in 2003 and chipped in $1 million for Bush’s second inauguration party.

Arnall also is a member of the Committee on the Present Danger, a foreign policy group that advocates a hard line against Islamic terrorists.

“I am humbled and honored by the confidence the president has placed in me,” Arnall, 66, said in a statement. “If I am confirmed by the Senate, I will devote all of my efforts to the important work ahead.”

The White House declined to comment on Arnall’s relationship to Bush or elaborate beyond a brief statement saying his nomination had been sent to the Senate. Arnall declined to be interviewed; an outside public relations advisor to Ameriquest said the timing of the nomination and the $325-million liability reserve was coincidental.

Ameriquest, founded by Arnall as Long Beach Savings in 1979, has faced off with consumer activists, regulators and private litigants in a series of disputes over its lending practices dating to 1996.

The company has paid millions of dollars in restitution and for borrower education, and it has adopted a series of “best practices” improvements to its operating policies.

However, Ameriquest has admitted no legal liability in its settlements; it has described them as the best way to avoid distracting and expensive litigation.

A Times story in February laid out complaints by former employees that unrelenting pressure to make loans created a “boiler room” atmosphere, causing some employees to deceive customers, forge loan documents and encourage borrowers and appraisers to misstate facts. The story reported that Ameriquest generated far more complaints to regulators than its competitors.

Ameriquest, whose slogan is “Do the right thing,” has denied that there has been a systematic pattern of lending abuses. Arnall and his executives have attributed problems to outside mortgage brokers and rogue employees who, Arnall has said, have been disciplined or fired when wrongdoing has been revealed.

A spokesman for Arnall said Thursday that his attitude was, “Try to learn from these situations, and constantly try to improve your practices.”

A $325-million settlement would be by far Ameriquest’s largest to date, dwarfing an agreement reached last month in San Mateo County Superior Court. In that case, the company agreed to pay as much as $50 million, plus $10 million to plaintiffs’ lawyers, to end a class-action lawsuit alleging that thousands of borrowers in California, Texas, Alaska and Alabama were victimized by “bait and switch” tactics that stuck them with more expensive loans than they had been promised.

The amount Ameriquest announced Thursday also would be the second-largest settlement ever by a lender to “sub-prime” borrowers — those who can’t get cheaper loans because of bad credit, heavy debt or other issues.

Household Financial Corp., now part of London-based HSBC Holdings, paid $484 million in 2002 to end an investigation into its sub-prime lending by a 50-state task force.

Also that year, Citigroup Inc. agreed to pay $240 million to settle allegations of lending abuses at its CitiFinancial finance unit. The charges were brought by the Federal Trade Commission and by a class-action lawsuit.

Despite Ameriquest’s recurrent legal run-ins, many analysts and competitors credit the firm with helping to generally bring down borrowing costs for sub-prime customers over the years. Using computers to streamline operations and assess the risk of loans, and finding an increasing appetite on Wall Street for securities backed by loan payments, Ameriquest and a few rivals have narrowed the gap in rates and fees between prime and sub-prime loans, the company says.

Ameriquest Capital says it originated more than $82 billion in mortgage loans last year through its various subsidiaries. The loans were mainly refinancings that let homeowners take cash out of their home equity.

Amid the U.S. housing boom, sub-prime mortgage originations totaled $530 billion nationwide last year, up from $95 billion in 1996, according to a report by brokerage Friedman, Billings, Ramsey & Co.

Ameriquest disclosed the $325-million set-aside in a filing with the Securities and Exchange Commission. Although the company has no public shareholders, it must make certain disclosures to holders of bonds backed by its loans.

Ameriquest said the reserve provision put it in technical default on its own borrowings from two of a dozen Wall Street firms that have provided financial backing, but the company added that it expected to receive a waiver from the firms.

Although the set-aside is large, Ameriquest and Arnall appear well able to make such a payment. Financial statements filed with regulators and obtained this week by The Times show the company raked in $7.6 billion in revenue from 2002 through 2004, and turned a profit of more than $2.7 billion during that period, after paying expenses.

Ameriquest’s profit last year alone was more than $1.3 billion — about four times the amount it put aside to cover its liability in the multi-state probe.

Ameriquest declined to comment on the financial statements. As a private firm, it is not required to publish them widely.

Arnall was ranked No. 321 on Forbes magazine’s latest list of the world’s billionaires. His net worth was listed at $2 billion.

Some consumer advocates said Thursday that the large settlements paid by major sub-prime lenders were beginning to look like just one more cost of doing business.

“If all they are doing with this settlement is compensating borrowers for their losses, there is no incentive to stop doing this,” said Ken McEldowney, executive director of Consumer Action in San Francisco. “The only thing that will clean up this industry are heavy punitive damages or criminal penalties.”

Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica, took issue with Arnall’s nomination to be ambassador to the Netherlands.

“His companies have engaged in unfair and deceptive practices too many times to count,” Heller said. “These executives should be headed to the pen, not some diplomat’s mansion.”

Margot Saunders, counsel to the National Consumer Law Center in Washington, said her concern in any settlement by Ameriquest would be preserving consumers’ rights to individually sue the company.

Ameriquest has said in previous SEC filings that the multi-state task force raised concerns about lending policies at two of the company’s smaller lending subsidiaries — Town & Country Credit and Bedford Home Loans Inc. — along with Ameriquest Mortgage.

Some attorneys general say a final settlement probably would include a new round of changes in the company’s practices, with court-ordered sanctions available if serious problems reemerged.

The problems go back “several years, and others are continuing to this day,” said Massachusetts Atty. Gen. Tom Reilly.

“Any resolution will require a significant payment by Ameriquest, including restitution to harmed consumers,” Reilly said, “and significant changes in the way Ameriquest does business.”
Special correspondent Mike Hudson contributed to this report.

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