LARA - Ameriquest to Pay $325 Million and Reform Lending Practices

Ameriquest to Pay $325 Million and Reform Lending Practices

FOR IMMEDIATE RELEASE
January 23, 2006
Contact OFIS Directly (toll-free): 877-999-6442
Media/Press calls: Andy Schor: 517-335-1700

Michigan Involved in Multi-State Investigation that Prompted Change

Governor Jennifer M. Granholm and Office of Financial and Insurance Services (OFIS) Commissioner Linda A. Watters announced today that Ameriquest Mortgage Company, the nation's largest sub-prime lender, has agreed to pay $295 million in restitution to consumers and make sweeping reforms of practices that states allege amounted to predatory lending. Michigan consumers will receive roughly $12,153,000 of this settlement. Ameriquest also will pay a total of $30 million to the states participating in the settlement agreement for costs of the investigation and consumer education and enforcement. Michigan is expected to receive $310,000 from this portion of the settlement.

"Ameriquest engaged in unfair and deceptive lending practices that harmed Michigan consumers," Granholm said. "Consumer protection is a top priority of my administration, so I'm pleased to announce that we're providing $12 million in relief to Michigan consumers."

Law enforcement officials and regulators initiated their investigation after receiving hundreds of complaints from Ameriquest customers across the country, including many in Michigan. The alleged improper practices included: inadequate disclosure of prepayment penalties, discount points and other loan terms; unsolicited refinancing offers that did not adequately disclose prepayment penalties; improperly influenced and inflated appraisals; and encouraging borrowers to lie about income or employment to obtain loans. The ensuing investigation uncovered consumer protection problems in many of these areas.

"Questionable practices in the sub-prime industry can be very harmful to our most vulnerable consumers and threaten Michigan's economy, so this action is very important," said Watters. "Many of these borrowers have little or no economic cushion and already may be holding down two or three jobs."

OFIS actively participated in this multi-state action to ensure restitution for our citizens who were harmed by Ameriquest.

Of the $295 million in restitution, $175 million will be distributed in a nationwide claims process to eligible Ameriquest customers who obtained mortgages from January 1, 1999, through April 1, 2003 with payments based on a set formula.

The remaining $120 million in restitution will be allocated to the settling states based on the percentage of total Ameriquest loans (measured in dollars) held by consumers in each state and will be used to compensate Ameriquest customers who obtained mortgages between January 1, 1999, and December 31, 2005.

Consumers do not need to take any action at this point to pursue recoveries because they will be contacted later by a firm administering the settlement in the months ahead as specific recovery terms and plans are determined. This administrator will be paid for by Ameriquest.

The $325 million payment ranks as the second-largest state or federal consumer protection settlement in history, after the $484 million predatory lending agreement reached in 2002 between most states and Household Finance Corporation.

"I firmly believe that Ameriquest employees deceived consumers as part of high-pressure tactics to sell mortgage refinances," Watters said. "These high-pressure sales tactics were used to reach desired sales levels and high monthly individual sales quotas, and were induced by a lopsided commission structure. This multi-state agreement will correct these practices."

Astronomical growth over the last few years has made Ameriquest the nation's largest sub-prime mortgage lender. Ameriquest primarily makes refinancing loans to existing homeowners who are hoping to consolidate credit card and other debt into their new home mortgage and come out ahead with overall monthly savings. Borrowers who don't have the best credit ratings may turn to sub-prime loans, which often have higher interest rates and other costs.

"Ameriquest has agreed to make changes and fully comply with our laws in the future, and have signed on to this settlement. This is a landmark agreement that will change Ameriquest's practices, and will set the standards we expect from mortgage lenders."

In the agreement, Ameriquest denies all the allegations raised by the states, but the company agreed to a battery of new standards to prevent what the states allege were unfair and deceptive practices.

The settlement with the states includes ACC Capital Holding Corporation (the holding company), and its subsidiaries Ameriquest Mortgage Company, Town & Country Credit Corporation, and AMC Mortgage Services, Inc., formerly known as Bedford Home Loans. The company is based in Orange, California, near Los Angeles.

Injunctive Relief:

About half of the 49-page agreement with the states spells out "injunctive relief" -- wide-ranging reforms of the company's lending practices to resolve the concerns of the states.

Under the agreement, Ameriquest is required to:

Provide the same interest rates and discount points for similarly-situated consumers.
Not pay sales personnel incentives to include prepayment penalties or any other fees or charges in the mortgages.
Provide full disclosure regarding interest rates, discount points, prepayment penalties, and other loan or refinancing terms.
Overhaul its appraisal practices by removing branch offices and sales personnel from the appraiser selection process, instituting an automated system to select appraisers from panels created in each state, limiting the company=s ability to get second opinions on appraisals, and prohibiting Ameriquest employees from influencing appraisals.
Not encourage prospective borrowers to falsify income sources or income levels.
Provide accurate, good faith estimates.
Not engage in refinancing solicitations during the first 24 months of a loan, unless the borrower is considering refinancing.
Use independent loan closers.
Adopt policies to protect whistle-blowers and facilitate reporting of improper conduct.

Ameriquest already has implemented several of these requirements. For example, Ameriquest began providing the same interest rates and discount points for similarly-situated consumers before the States' investigation began.

The agreement also provides for appointment of an independent monitor to oversee Ameriques's compliance with the settlement terms. The monitor will have broad authority to examine Ameriquest's lending operations, including access to documents and personnel. The monitor will submit periodic compliance reports to the Attorneys General during the next five years. Ameriquest will pay the monitor's costs.

The settlement was signed by officials of 49 states (Virginia had no Ameriquest loans and is not eligible) and the District of Columbia.

Each signing state will file the settlement, along with consumer protection lawsuits resolved by the settlement, in their respective state courts within 45 days. The courts must approve the settlement before it becomes final. This settlement culminates about two years of investigation by the Attorneys General, state banking regulators and local prosecutors -- and a year of settlement negotiations.

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