NEW YORK: Ameriquest Mortgage Co., the largest lender to people with poor credit agreed to pay $325 million as settlement of a predatory lending case.
The lender was accused of malpractices in 49 states in the US. A seven-state inquiry led by Washington that lasted two years found that the firm's salespeople had inflated home appraisals and encouraged borrowers to provide false information about income and employment.
Ameriquest said “High pressure sales tactics may have been used” to achieve individual sales targets, but admitted to no wrongdoing. It however agreed to implement corrective measures and to monitor its sales staff.
The settlement money will benefit people who borrowed from Ameriquest between 1999 and 2005. $295 million will be paid as compensation to these consumers and $30 million will go towards legal costs and to change its practices.
A third party administrator has been appointed to contact those harmed by the salespeople's aggressive tactics and is currently calculating how much restitution is to be paid to each.
The investigation and negotiation were carried out by a team of state banking regulators and attorneys general from different states. Eliot Spitzer, AG from New York said "Abusive and predatory lending practices will not be tolerated”.
The AGs said that Ameriquest officials had cooperated in their investigation and have also agreed to implement corrective measures as ordered by them. These include: not concealing any terms of loan or refinancing, not encouraging borrowers to provide false information, selecting appraisers randomly, making sure sales people do not try to influence the appraisers, not inflating estimates, etc.
Tens of thousands of borrowers who resented having to make higher-than-expected mortgage payments will welcome the settlement and expect other subprime mortgage lenders to similarly toe the line. In Washington alone, as many as 11,000 borrowers are entitled to the restitution but they will have to continue paying their loans.
