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By David F. Carr 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

-Touch Funding">

The system, however, cuts out many of the verifications used to make sure the information on the loan application—such as an applicant's salary or the description of the house being bought—is absolutely accurate.

With Empower, once an Ameriquest loan agent enters salary figures or other data into the system, there is no routine in the system that questions the entries to ensure there's supporting documentation, Bomchill says.

"They call it no-touch funding," says Al Bartello, vice president of sales for Fidelity National Information Solutions, the developer of the Empower system.

Which can mean no restraints as well. Khaliq and Taylor, in their statements for the class-action suit in San Francisco federal court, allege that income fields were changed by loan agents and processors to ensure that a loan would pass through the system without being rejected.

The result was that Ameriquest loan officers qualified borrowers for loans they otherwise wouldn't be approved for at annual interest rates at least 1 percent to 2 percent above the rate available to more creditworthy customers.

Bomchill says that what eventually led him to quit Ameriquest in 2003 was the unabashed joy his colleagues took in getting the highest possible rates from unsuspecting borrowers, many of whom were new to the mortgage lending industry and had less than perfect credit histories.

"These guys were cheering and high-fiving each other before the clients even got to their cars in the parking lot," he says. "They'd say things like 'I just [screwed] that couple for two [percentage] points.' It was just the atmosphere of the company. No one cared as long as the volume kept growing."

Ameriquest and other sub-prime lenders justify the higher interest rates charged to borrowers with less than stellar credit histories by the implied risk. Statistically, persons with lower credit scores are more likely to default on a loan.

Credit reports and scores used by mortgage lenders are generated by the three main credit bureaus: Equifax, TransUnion and Experian. In the 1980s, Fair Isaac Corp. developed the software used by each of the credit bureaus to give potential borrowers a rating known as a FICO score, essentially ranking the risk of a borrower defaulting on a loan.

This three-digit score ranges from 300 to 850. Those with scores of 850 have impeccable credit histories, low outstanding balances on credit cards and other loans, and have always made their payments on time and in full.

Depending on the mortgage lender and the specific FICO score selected (each credit bureau generates its own score based on slightly different criteria), lenders determine what class of loan a borrower is eligible to receive. Generally, scores in excess of 770 guarantee a borrower an "A" loan, with the lowest interest rates.

The lower the score, the higher the interest rate. Those scoring in the mid-600s might only get a loan from a sub-prime lender, usually at 1 to 2 percent above the rate available to the most creditworthy customers.

According to Bomchill, Ameriquest's boiler room-type atmosphere, where branch managers have been known to scream at, threaten and generally bully their loan agents around the clock, has pushed some agents to inflate credit scores and qualify risky borrowers for new loans.

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: Who's to say?

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    This article was originally published on 2005-09-09
    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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