FOR IMMEDIATE RELEASE FROM
THE WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS

Contact
Lyn Peters, Director of Communications
PH (360) 349-8501 or CommunicationDir@dfi.wa.gov

01/23/2006

Attorney General Rob McKenna and the state Department of Financial Institutions (DFI) today announced a $325 million nationwide settlement with Ameriquest Mortgage Company. The agreement resolves allegations of widespread fraud by the company as part of a high-pressure scheme to sell mortgages that trapped consumers into debt and put them at risk of losing their homes.

Today's announcement is the result of a two-year investigation and one year of settlement negotiations. Washington was one of six states that led negotiations. As a result, thousands of Washington homeowners will share approximately $6.5 million in restitution. The Attorney General’s Office and DFI will also receive $2.5 million for legal and investigative costs -- the majority, of which, will be funneled to consumers.

"The Attorney General's Office and the Department of Financial Institutions have a history of working together to enforce Washington’s consumer protection laws,” Governor Chris Gregoire said. "Just two years ago, Washington led the nation in similar actions against Household Financial. Now, we firmly repeat our message to the industry – when companies take advantage of Washingtonians, we take action."

Ameriquest made nearly 13,500 loans totaling $2.7 billion to Washington residents between 1999 and 2005, the period covered by the settlement. DFI received more than 100 complaints about the company’s business practices.

The states alleged that Ameriquest deceived consumers, inflated home appraisals, and fabricated employment and income information in order to make the largest possible profit. Consumers were tied into loan balances significantly higher than the true value of their homes, which ultimately blocked them from refinancing with other lenders or selling without taking a substantial loss.

"Ameriquest's technique of misleading consumers preyed on some of our most vulnerable families – those in the sub-prime lending market," said Scott Jarvis, director of the Department of Financial Institutions. "This investigation puts the mortgage industry on alert that unfair and deceptive practices will not be tolerated in Washington."

McKenna said the settlement not only is a victory for consumers, but for the entire free-market economic system.

"Ameriquest can be commended for coming to the table to negotiate a pact that should transform the company into a model for other lenders," McKenna said. "Ameriquest's prominence among mortgage providers makes this a particularly important case for establishing tough, new standards for the home financing industry. Financial companies and consumer advocates should seize the opportunity to educate homebuyers about ethical lending practices."

The $325 million payment ranks as the second-largest state or federal consumer protection settlement in history.

In the agreement, Ameriquest denied all allegations raised by the states but agreed to:

  • Pay $295 million in restitution to consumers in participating states who obtained mortgages between Jan. 1, 1999, and Dec. 31, 2005. An additional $30 million will be paid to the states for legal costs, consumer education and programs to enforce consumer protection laws.
  • Provide full disclosure regarding interest rates, discount points and penalties; and provide the same interest rates and discount points for similarly situated consumers.
  • Revise its compensation system to eliminate employee incentives for prepayment penalties or other fees. Also limit prepayment penalty periods on certain variable rate mortgages.
  • Not encourage borrowers to falsify income sources or levels.
  • Not solicit customers with refinancing offers within 24 months of the start of their original loan.
  • Use independent loan closers and appraisers, and initiate a review process to ensure appraisals are accurate.
  • Adopt policies to protect whistle-blowers and facilitate reporting of improper conduct.
  • Pay for an independent monitor who will oversee compliance with the settlement terms and submit compliance reports to attorneys general during the next five years.

Consumers do not need to take any action at this point to pursue recoveries. Those eligible for restitution will be notified by letter within the next year as specific recovery terms and plans are determined. Consumers are asked to be patient; administration of a settlement of this size is a complex and time-consuming task.

McKenna, Assistant Attorney General David Huey and DFI’s Director of Consumer Services Chuck Cross, flew to Los Angeles to announce the settlement on Monday. They were joined by attorneys general and financial investigators from six of the 48 other states that participated in the settlement.