Attorney General Larry Long and the South Dakota Division of Banking Sign Agreement with Ameriquest to Reform its Lending Practices to Resolve States’ Investigations

PIERRE, S.D. - Attorney General Larry Long and the South Dakota Division of Banking announced today that Ameriquest Mortgage Company, the nation’s largest sub-prime lender, has agreed to pay $295 million to consumers and make sweeping reforms of practices that states alleged amounted to predatory lending. Ameriquest also will pay a total of $30 million to the 49 states and D.C. that are participating in the settlement agreement for costs of the investigation and consumer education and enforcement.

"We believe that Ameriquest engaged in unfair and deceptive practices that directly affected South Dakota consumers," said Long. "High pressure sales tactics were used to reach desired sales quotas and to sell mortgage refinances. We believe that this agreement will correct these practices and will provide restitution to these consumers."

"We are pleased that Ameriquest has agreed to implement changes in their lending practices," said Roger Novotny, Director, South Dakota Division of Banking. "This agreement will allow for new industry standards for other mortgage lenders."

In the agreement, Ameriquest denies all the allegations raised by the states, but the company agreed to a battery of new standards to prevent what the states alleged were unfair and deceptive practices.

Ameriquest primarily makes refinancing loans to existing homeowners who are hoping to consolidate credit card and other debt into their new home mortgage and come out ahead with overall monthly savings. Borrowers who don’t have the best credit ratings may turn to sub-prime loans, which often have higher interest rates and other costs.

Under the agreement, Ameriquest is required to: 

• Provide the same interest rates and discount points for similarly-situated consumers. 
• Not pay sales personnel incentives to include prepayment penalties or any other fees or charges in the mortgages. 
• Provide full disclosure regarding interest rates, discount points, prepayment penalties, and other loan or refinancing terms. 
• Overhaul its appraisal practices by removing branch offices and sales personnel from the appraiser selection process, instituting an automated system to select appraisers from panels created in each state, limiting the company’s ability to get second opinions on appraisals, and prohibiting Ameriquest employees from influencing appraisals.  
• Not encourage prospective borrowers to falsify income sources or income levels. 
• Provide accurate, good faith estimates. 
• Limit prepayment penalty periods on variable rate mortgages. 
• Not engage in refinancing solicitations during the first 24 months of a loan, unless the borrower is considering refinancing. 
• Use independent loan closers. 
• • Adopt policies to protect whistle-blowers and facilitate reporting of improper conduct.

The agreement also provides for appointment of an independent monitor to oversee Ameriquest’s compliance with the settlement terms. The monitor will submit periodic compliance reports to the Attorneys General during the next five years. Ameriquest will pay the monitor’s costs.

The company will pay $325 million – $295 million for consumer restitution and $30 million to settling states to cover their costs and fund consumer education and consumer protection enforcement programs. Consumers do not need to take any action at this point to pursue recoveries. They will be contacted in the next few months by the states as specific recovery terms and plans are determined.

Of the $295 million in restitution, $175 million will be distributed in a nationwide claims process to eligible Ameriquest customers who obtained mortgages from January 1, 1999, through April 1, 2003 with payments based on a formula set by the settling states. 

Another $120 million in restitution will be allocated to the settling states based on the percentage of total Ameriquest loans held by consumers in each state and will be used to compensate Ameriquest customers who obtained mortgages between January 1, 1999, and December 31, 2005. Each settling state will determine which customers in its jurisdiction are eligible to receive money from this restitution fund.

Individual states’ exact share of restitution funds has not been determined, but a reasonable estimate is that South Dakota’s share will be over $92,000. The estimated number of affected South Dakota consumers is 394. The settlement was signed by the Attorneys General of 49 states and the District of Columbia, and by banking regulators of 45 states. Each signing state will file the settlement, along with consumer protection lawsuits resolved by the settlement, in their respective state courts within 45 days. The courts must approve the settlement before it becomes final.

Today’s development culminates about two years of investigation by the Attorneys General, state banking regulators and local prosecutors. Law enforcement officials and regulators initiated their investigation after receiving hundreds of complaints from Ameriquest customers across the country. The ensuing investigation uncovered consumer protection problems in areas governed by the settlement. The alleged improper practices included: inadequate disclosure of prepayment penalties, discount points and other loan terms; unsolicited refinancing offers that did not adequately disclose prepayment penalties; improperly influenced and inflated appraisals; and encouraging borrowers to lie about income or employment to obtain loans. 

If you need any additional information regarding this settlement call the Consumer Protection Division at 1-800-300-1986, or send email to consumerhelp@state.sd.us.

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