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: