THOMAS CALLAHAN
‘A slap on the wrist’
Ameriquest Mortgage Co. might not have admitted to any guilt in its multimillion-dollar settlement last week, but in the eyes of hundreds of Massachusetts residents who filed complaints against the mega-lender, the company did do something wrong.
And according to Thomas Callahan, executive director of The Massachusetts Affordable Housing Alliance, the punishment does not fit the crime.
“In some ways, this is just a slap on the wrist for them,” said Callahan.
Accused of falsifying home values and borrower incomes and using high-pressure tactics – trapping consumers in debt as a result – Ameriquest settled with attorney generals and regulators from 49 states, agreeing to pay $325 million, of which $295 million will go toward consumer restitution and the remaining $30 million will cover the states’ costs.
The $325 million settlement is the second largest ever reached with a lending company. It is also the third largest consumer protection settlement.
The settlement was announced last Monday, following an investigation stretching back into six years of the subprime lender’s activity. The investigation found employees of the mortgage company were encouraged to engage in unethical practices viewed by many in the industry as predatory lending.
The settlement is expected to flow an estimated $12.2 million to as many as 15,000 Massachusetts homeowners. The Bay State is receiving the seventh-highest payout out of the 49 states.
But Callahan said the cost to Ameriquest is not going to really teach such a large company a lesson or necessarily serve as a warning to other mortgage companies conducting business in questionable ways. “That sounds like a big number, but when you add up all the victims, it’s not a lot,” said Callahan. “It’s just not enough to have other companies really worried.”
Massachusetts homeowners who received mortgages from the company would be paid about $813 each in restitution. “I think the jury is still out on whether these settlements have an effect on the industry or not,” Callahan said. “I think the message isn’t strong enough.”
‘Widespread’ Problems
“We regret those occasions when our associates have not met this ideal to our customers’ expectations,” said Aseem Mital, chief executive officer of ACC Capital Holdings Corp., parent company of Orange, Calif.-based Ameriquest Mortgage Co., in a statement released by the company.
Mital called the agreement fair for the company. He said the company is implementing new safeguards to ensure such activity stops, but at the same time admitted the settlement will not leave the company in any sort of financial trouble.
“This agreement is good for consumers and fair to the company. It provides a framework for new lending policies that improve and enhance our ability to serve our customers and are a model for the industry,” he said. “At the same time, Ameriquest remains on a solid financial footing and we’re well positioned to move forward with our plans for disciplined, orderly growth. In fact, we believe these customer-friendly measures will help us earn the trust of even more consumers and allow us to compete even more effectively for their business.”
Callahan, however, voiced another opinion.
MAHA officials are hoping to see new regulations for mortgage companies adopted by the state. The proposed Home Investment Act goes beyond the 2004 Predatory Lending Act. It would hold mortgage companies accountable for lending obligations the same way the Community Reinvestment Act does for banks. It also would mean they were being watched with a closer eye, according to Callahan, who added that he believes it could have made a difference in the Ameriquest case and thinks it would cut abuse in the future. The Home Investment Act was filed for a second time in 2005.
“It extends beyond Ameriquest,” Callahan said. “I think these types of problems are widespread in the industry. If we didn’t think that, we wouldn’t have proposed this legislation.”
While banks are subject to CRA regulations, they, combined with credit unions, only handle about 22 percent of the mortgages, he said, adding that 78 percent of the lending is done by mortgage companies, which are not as heavily monitored.
“That has dramatically changed,” he said. “Mortgage companies as a whole are doing the majority of the lending.”
Steven L. Antonakes, Massachusetts commissioner of banks, said a more investigative approach has been called for to monitor mortgage companies in recent years. In some cases a regulator may make a surprise appearance at a random closing just to make sure a bait-and-switch – when a consumer is promised one thing but the paperwork presented at the last minute is for something different – or other predatory lending acts are not taking place. Antonakes said that is a practice the state’s Division of Banks started a few years ago, but mortgage companies may be seeing more of it.
Antonakes said there is something wrong when loan closings are taking place at 10:30 or 11 p.m. such as reported with Ameriquest.
Antonakes added that such cases do tend to shed some negative light on the industry.
“It will probably be a black eye for a while that people will have to deal with,” he noted. “It doesn’t change things too much from an enforcement point of view.”
Antonakes also said the DOB decided not to issue a cease-and-desist order when it learned of some of the aggressive sales and closing tactics at Ameriquest because regulators were concerned about retrieving some of the consumers’ money. So instead, Ameriquest was reported to the Attorney General’s Office. Antonakes said there are not any similar referrals currently pending before that office.
But Callahan said he has trouble believing the situation is going away.
“I am not sure we’re seeing a real lessening of this type of behavior in the industry,” said Callahan. “It seems to actually be increasing.”
He said the problem is not that every behavior such companies engage in is illegal. It is not illegal to give a higher interest loan to people with good credit, he said, but it may be considered unethical and far from good business practices.
Not everyone who is taken advantage of by a lender reports it. Callahan said it is hard to say how many victims do not come forward, but he can understand why they might stay silent.
“Part of the problem is it happens to people, but they chalk it up to bad luck,” he said. “On one hand, they blame the company; on the other, they blame themselves. And it’s all very personal. You are talking about you finances, your house.”
But at the same time, there have been many homeowners who stood up to Ameriquest. A Kingston woman reported she was duped into signing a loan 1.5 percent higher than the 7 percent interest rate she was promised. She also accused Ameriquest of significantly inflating her husband’s income without their knowledge, qualifying the couple for a mortgage they possibly should not have been able to obtain.
High on the list of complaints about Ameriquest was hidden prepayment penalties. A Whitman homeowner complained of a $6,000 penalty to end her arrangement with Ameriquest after the company failed to live up to its promise of letting her refinance a fixed-rate mortgage after six months of a high-interest adjustable-rate mortgage. She ended up turning to another company to refinance but not without paying a price. She also claimed Ameriquest inflated the value of her home to allow her to borrow more money.
“We think these types of agreements call for new legislation. We think the one-off type efforts and law would make an impact,” said Callahan. “I think that it would have strong weight. The goal is not to have more of these suits, but nip [the issue] in the bud.”
