Banking Commissioner Peter C. Hildreth and Attorney General Kelly A. Ayotte 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 harmed consumers,” Hildreth said. “But they’ve agreed to change the way they do business. This is a landmark agreement that will change Ameriquest’s practices, and it will set standards we expect other mortgage lenders to follow. We commend Ameriquest for reaching this settlement,” he said.

The $325 million payment ranks as the second-largest state or federal consumer protection settlement in history, after the $484 million predatory lending agreement reached in 2002 between most states and Household Finance Corporation. “We fully expect Ameriquest will comply with our laws in the future,” Hildreth said. “There are valid reasons to believe this. Ameriquest has instituted many changes already. They do not want to repeat the experience that we are concluding today, and the States and a monitor will be watching them carefully.”

In the agreement the company agreed to a battery of new standards to prevent what the states alleged were unfair and deceptive practices.

“Our view was that Ameriquest employees deceived consumers as part of high-pressure tactics to sell mortgage refinances,” Attorney General Ayotte said. “We believe these high-pressure sales tactics were used to reach desired sales levels and high monthly individual sales quotas, and were induced by a lopsided commission structure. We believe this agreement will correct these practices.”

The settlement with the states includes ACC Capital Holding Corporation (the holding company), and its subsidiaries Ameriquest Mortgage Company, Town & Country Credit Corporation, and AMC Mortgage Services, Inc., formerly known as Bedford Home Loans. The company is based in Orange, California, near Los Angeles. Astronomical growth over the last few years has made Ameriquest the nation’s largest sub-prime mortgage lender.

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.

“Questionable practices in the sub-prime industry can be very harmful to ordinary consumers,” Ayotte said, “and that’s one reason why this is so important. Most of these folks have little or no economic cushion and already may be holding down two or three jobs.”

• 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.