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Ameriquest in Hot Water Over Lending Practices

LA Times reports class action settlement, multi-state investigations

March 16, 2005

By MortgageDaily.com staff

Ameriquest Mortgage Co. has agreed to settle a California class action lawsuit and is in talks with dozens of states over alleged abusive lending practices, the Los Angeles Times reported.

The company said Monday that it had agreed to pay up to $50 million to settle a class-action suit filed in the Superior Court of California in San Mateo County that alleges it scammed thousands of borrowers in four states, according to the LA Times article.

The subprime lender also said authorities in 25 states had inquired about its lending practices, including the accuracy of its appraisals and how loan terms are described in oral statements to borrowers, according to the publication. Ameriquest said it was in discussions with the state authorities and had "valid responses" to their concerns.

The class-action lawsuit reportedly accuses the Orange, Calif.-based company of deceiving borrowers into closing and increasing loan costs at the closings. The class includes borrowers in California, Texas, Alabama and Alaska who closed from 1996 until early 2004. Some borrowers might qualify for five-figure refunds, according to the article.

Ameriquest has made an initial settlement offer and is scheduled to again meet with state authorities later this month. "In April we'll have a better sense of whether we settle or sue," a state government source reportedly told the publication.

Under terms of the proposed deal, Ameriquest would pay a minimum of $15 million, the Times said.

The proposed settlement will go before a judge June 24 for final approval, and if approved, individual borrowers could opt out of it to pursue individual lawsuits.

An attorney for Ameriquest said the company's offer to settle the case does not admit any liability, the Times reported.

Class members whose preliminary loan disclosures did not include a prepayment penalty could be entitled to a 50% refund of any prepayment penalties, the Times said. Ameriquest has identified 1,671 class members may fall into this category.

An Ameriquest spokesman reportedly told the Times that he anticipated there would be few refunds, as it had been determined that in nearly 70% of the loans, the annual percentage rate decreased between the time of the good-faith estimate and the closing.

Ameriquest's disclosures follow a Feb. 4 article by the Times accusing Ameriquest of running "boiler room" operations. The publication interviewed several Ameriquest loan agents who complained that pressure to close loans prompted some employees to forge documents, hide fees and push appraisers to inflate home values so that borrowers could qualify for mortgages.

Ameriquest initially revealed that it had been in talks with officials in 25 states in a Feb. 23 Securities Exchange Commission filing, which was a prospectus for RMBS investors.

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