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Tighter Controls

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

But now Ameriquest is seeking greater control over how it configures and manages loan data in its system.

Ameriquest says it implemented a new software system in 2002 called SNAP, for Sales Navigation and Accelerated Production.

The program was to help enforce fair and uniform loan pricing, validate appraisals and enforce the distribution of legally required disclosure documents to consumers.

By coding rules for loan pricing into software, Ameriquest says it has limited the ability of sales representatives to raise interest rates or points arbitrarily, or to engage in what could be construed as bait-and-switch schemes.

In most cases, Ameriquest officials say, the loan pricing is set by the software, not the salesperson.

Executives describe these changes as part of a "continuous improvement" process at the company, but the new systems also helped address some of the fraudulent or unfair lending practices Ameriquest has been accused of in the past.

Bartello says the Empower system was originally configured with the minimum amount of constraints on the application and pricing portion, the fields that allow agents to input the fees and rates for a specific loan.

Then Ameriquest replaced a hodgepodge of lead and contact management applications with SNAP, which operates through a Web browser.

SNAP was created with help from Tavant Technologies, a software development consulting firm with offices in Santa Clara, Calif., and Bangalore, India, that Ameriquest uses partly for its offshore development resources.

Although Tavant is an independent private company, Ameriquest chairman Roland Arnall owns a majority of its shares and Sarago was Tavant's chief technology officer before Ameriquest hired him as CIO in 2003.

SNAP overlaps with Empower at the front end of the loan origination process and includes a complete product and pricing engine that allows agents to adjust rates and fees at their discretion, Bartello says.

Sub-prime lenders typically add a 1 percent fee to the cost of a loan because of the higher risks in extending loans to these applicants. But the original Empower system was configured to allow loan agents at Ameriquest considerable freedom in pricing loans for their clients.

"We can make it completely restrictive if a client wants, or leave it open and apply the basics to allow adjustments," Bartello says. "Ameriquest left it open to the loan officer. Our view is that once they buy the car, they can do what they want with it. They have the tools themselves."

"SNAP does everything that Empower doesn't," Sarago says. In particular, it goes beyond merely recording loan applications to helping mortgage salespeople close more business by making it easier for them to track contacts and sales leads, and then select the loan products most likely to appeal to each customer. Previously, different branches used different sales software systems.

"The goal is to have consistency throughout all the branches," Sarago says.

Former Ameriquest loan agents and mortgage software vendors who are familiar with Ameriquest's systems see SNAP as a step toward replacing Empower with a custom, Web-based system with more safeguards, such as standardized pricing. For now, Empower remains the dominant system in Ameriquest's underwriting department, while sales offices primarily use SNAP.

But Sarago says Empower could remain in place at Ameriquest for years to come. Even so, Ameriquest says it has deployed other new software systems that it maintains will cut down on problems with loans.

In interviews, Sarago confirmed or clarified information gleaned about its system by Baseline. He also denied the software was responsible for any allegations made in the class-action suits.

For example, he says Ameriquest has implemented fraud prevention systems, but would not say either what those prevention techniques are or even whether the company is working with any of the antifraud software or information services vendors that focus on the mortgage industry.

Customers, however, do care about the details.

More than 1,800 borrowers in California, Texas, Alabama and Alaska claimed in a suit originally filed in 2000 in San Mateo County, Calif., that Ameriquest agents misled them about the cost and terms of their loans and, in some cases, fraudulently misrepresented their financial information, including their annual salaries and the value of their investment portfolios and other assets. In March 2005, Ameriquest agreed to settle the San Mateo suit.

The company finalized the settlement in June, agreeing to pay up to $50 million to borrowers who allegedly were victimized by bait-and-switch tactics, such as adding prepayment fees to loans after the initial loan terms were determined.

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: Penalties for abuse.

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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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