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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

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Brien Hanley, who worked as a loan agent in suburban Kansas City, Kan., said in his court statement that he witnessed Ameriquest employees fabricating borrowers' income and falsifying appraisals to make loans go through.

"Whatever you had to do to close a loan, that's what was done," he said in documents filed in the San Francisco court. "If you had to state somebody's income at $8,000 a month and they were a day-care provider, who's to say it wasn't?"

Hanley and Khaliq said loan agents took advantage of the company's "stated income" loan program, which required only a letter from the borrower declaring how much he or she earned.

According to these loan officers, borrowers were told what their income had to be to qualify and were often coached to invent fictitious side jobs, such as home-based computer consulting, to reach that number.

Nearly one of every six mortgages that Ameriquest brokered and then sold to Wall Street investors in 2004 was a stated income loan.

In a sworn statement filed in a recently resolved class-action suit in Redwood City, Calif., former loan officer Kenneth Kendall said Ameriquest managers encouraged employees to "promise certain interest rates and fees, only to change those rates at the time of the closing." And the Empower system made it easy to bypass these and other safeguards in favor of fulfilling Ameriquest's relentless sales quotas.

Ameriquest refuses to talk about the specifics of how its systems work.

"We're a very, very successful organization," Sarago says. "We're very comfortable with what we're doing as an organization. There are a lot of misconceptions out there. It's not up to me to clarify these misconceptions. We're a privately held company and we just don't talk about these [information-technology] issues publicly."

"Ameriquest is very tight-lipped about how they use the [Empower] system," Bartello says.

But Bartello recalls the implementation vividly because Ameriquest was the first major sub-prime lender to install the system, which "put us [Fidelity National] on the map."

Bartello says that after implementing the system for 2,500 employees at Ameriquest, the project's success helped Fidelity National became a leading vendor of loan origination software systems.

He says that 24 of the top 100 lenders in the U.S. are using some version of Empower, including Accredited Home Lenders Holding Co. in San Diego; Fieldstone Investment Corp. in Columbia, Md.; and National City Corp. in Cleveland.

"Ameriquest originally identified about 50 steps in the process, from the beginning to the end, where actual people had to handle documents and verify information," Bartello explains.

"They wanted to speed up the rate that they process these loans. The Empower system allowed them to automate about 30 of those steps."

But along with the automation came a lack of queries by the system for supporting documentation, which increased the possibility of faulty business practices.

Before software programs came along, manual processing of loans would typically require a sheaf of key financial documents to be attached to the loan application all the way from the initial prequalification stage to the underwriting phase.

At each stop, different employees in different departments would have the physical copies of W-2 reports and paycheck stubs staring them in the face, Bartello says.

Even if employees weren't inclined to make substantial inquiry into each of the thousands of loans processed at any Ameriquest branch in a given month, there was ample opportunity to even accidentally notice discrepancies in the financial paperwork provided, Bomchill says.

Now, all of this data is managed electronically, leaving employees at each stage of the loan process to rely solely on the authenticity of the information displayed on the screen.

Indeed, the quality and integrity of the financial data entered by the loan agent into the initial application is rarely if ever verified as the loan winds its way through the system.

"The idea is that once the data is entered, it can be used again and again electronically without being touched or reviewed by others as the loan is processed," Bartello says.

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: Tighter controls.

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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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