NoBy David F. Carr | Posted 2005-09-09 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.
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