Settling Up

By David F. Carr  |  Posted 2005-09-09 Print this article Print

No mortgage loan gets made without a processor; and no processor makes a loan without running the applicant's personal and financial background through software that can—in theory, if not in practice—reject those borrowers who can't legitimately

In fact, Reilly and Blumenthal, as well as investigators in other states, say Ameriquest agents violated state and consumer laws by using bait-and-switch tactics, such as hiding prepayment penalties and falsifying borrowers' income.

In August, Ameriquest reached a tentative agreement to pay $325 million to borrowers in 30 states. In Massachusetts alone, more than 133 complaints had been filed with the attorney general's office since 2002.

Between 2000 and 2004, Ameriquest borrowers filed 134 complaints with the California Department of Corporations, compared to 39 complaints filed in the same period against competitor New Century Mortgage Corp.

A month earlier, Connecticut's Department of Banking reached a $7 million settlement with Ameriquest for exceeding loan fee limits established by the state.

Albert and Nona Knox of East Palo Alto, Calif., detailed their experience with an Ameriquest loan agent in a pending class-action lawsuit filed in San Francisco.

According to their testimony, Mr. and Mrs. Knox received an unsolicited telephone call from an Ameriquest loan agent in early 2002. Eager to refinance their home to pay off some credit card debt and remodel their bathroom, they agreed to meet with loan agent Richard Valle at their home.

Mrs. Knox says Valle filled out the entire loan application for the couple, not once having either borrower write down any information. Mrs. Knox then presented Valle with bank statements, Social Security check stubs and pension information that documented a monthly income of $4,000.

Only after the loan was approved did Mr. and Mrs. Knox discover Valle had recorded their monthly income as $6,800.

Lisa Taylor, a former Ameriquest loan agent in the Sacramento branch, says the atmosphere at her office was very similar to the environment portrayed in the 2000 movie Boiler Room, starring Giovanni Ribisi and Vin Diesel. In fact, one manager used the film as a teaching model.

"That was your homework. Watch Boiler Room," Taylor said in her statement.

According to Taylor, promoting the anything-to-get-the-deal mentality resulted in abuses. One time, she says, she walked in on co-workers using a brightly lit Coca-Cola vending machine as a tracing board where loan agents were copying borrowers' signatures onto blank documents.

Ameriquest executives say they will no longer "tolerate any of the bad apples" and have fired employees for these types of abuses. But Ameriquest would not provide any specifics on how it conducts this improved vigilance.

"The vast, overwhelming majority of our employees are out to do the right thing every day," says Adam Bass, the company's senior executive vice president and vice chairman.

Out of 17,000 employees, the possibility that someone could manipulate the system to make a sale can never be eliminated, he says, "but when we find those people, we terminate them, and we [try to] make right everything that was wrong."

Attorneys general Reilly and Blumenthal, the investigators in states such as Florida and California, former Ameriquest employees such as Bomchill, and complainants such as Albert and Nona Knox in the class-action lawsuit filed in San Francisco, blame the company's business processes and ethics for the behavior of its loan agents.

And Bomchill and other former loan officers say Ameriquest's loan processing software, which it deployed in 2002 to help its agents speed the processing of loans, facilitated their actions.

"Ameriquest agents would use the software to qualify people for loans they weren't qualified for in the first place and were always two or three percentage points higher than they would have paid elsewhere," says a former Ameriquest employee who worked at an Ameriquest branch in Florida but spoke on the condition of anonymity. "It was standard operating procedure."

Story Guide:

  • Ameriquest Home Loans: Cracking Under Pressure: Even in a fertile market, it's possible to set your sales goals too high.
  • Loan Rangers: Ameriquest became unusually successful digging up loan candidates others may have overlooked.
  • Settling Up: Ameriquest's hard-sell tactics worked but, say investigators, violated a series of consumer-protection laws.
  • Riding the Sub-Prime Wave: As the house market heated up, borrowers stretched themselves to foreclosure-threatening lengths; and lenders helped them.
  • No-Touch Funding: Believing in your applicants can go too far, and get you both in trouble.
  • Who's to Say: Automation was supposed to make loan approvals faster, easier and more accurate; did the system fail, or did the officers handling the loans?
  • Tighter Controls: Making requirements stiffer only works if enforcement gets tighter as well.
  • Penalties for Abuse: Ameriquest denies wrongdoing, relies on IT for process improvements, and may face penalties in the hundreds of millions from class-action suits.
  • Avoiding the New Restrictions: It's one thing to let borrowers overextend themselves; it's something else to deceive them into doing it.
  • Ameriquest's Business, By the Numbers

    Next page: Riding the sub-prime wave.

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    David F. Carr David F. Carr is the Technology Editor for Baseline Magazine, a Ziff Davis publication focused on information technology and its management, with an emphasis on measurable, bottom-line results. He wrote two of Baseline's cover stories focused on the role of technology in disaster recovery, one focused on the response to the tsunami in Indonesia and another on the City of New Orleans after Hurricane Katrina.David has been the author or co-author of many Baseline Case Dissections on corporate technology successes and failures (such as the role of Kmart's inept supply chain implementation in its decline versus Wal-Mart or the successful use of technology to create new market opportunities for office furniture maker Herman Miller). He has also written about the FAA's halting attempts to modernize air traffic control, and in 2003 he traveled to Sierra Leone and Liberia to report on the role of technology in United Nations peacekeeping.David joined Baseline prior to the launch of the magazine in 2001 and helped define popular elements of the magazine such as Gotcha!, which offers cautionary tales about technology pitfalls and how to avoid them.

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