A basic analysis of Ameriquest Mortgage's expense to settle charges of predatory lending with the states indicates that the hundreds of millions of dollars paid to borrowers will come right out of the pockets of the thousands of employees recently laid off by the subprime lender.
Nonprime mortgage bankers saw their fortunes decline during the fourth quarter, and the first quarter saw little improvement.
While Ameriquest, a privately-owned lender, does not publicly report income or production figures, several nonprime lenders reported a decrease in first quarter production and net income.
New Century Financial Corp.'s volume fell about 15 percent from the fourth quarter to $13.4 billion and its net earnings of $103.7 million tumbled by about $12.9 million. Washington Mutual's Long Beach Mortgage Co. saw originations slide one-third to $6.4 billion on a quarter-to-quarter basis and net income for WaMu's home loans group of $38 million shrunk about 35 percent.
Meanwhile, mortgage banking giants including Wells Fargo & Co., JPMorgan Chase and Countrywide Financial Corp. all reported declines in originations from the fourth quarter.
In a January conference call, Countrywide suggested fourth quarter profit margins were hindered by competitive pricing pressures from mortgage players who priced loans too low as a means to retain market share.
"We had some irresponsible players," a Countrywide executive said. "No question the key players there [were] Ameriquest and New Century."
"I've been doing this for 53 years," he added. "I've never seen that situation sustained over a long period of time. Eventually they gag on it."
At the time, Countrywide said it could already see "a little crack in the armor," pointing to Ameriquest's wholesale staff reductions made in November 2005 and subsequent settlement with the states.
The settlement, which Ameriquest reached in January with 49 states to resolve charges of alleged predatory lending, cost the Orange, Calif.-based lender $325 million.
Faced with such a difficult lending environment, Ameriquest announced earlier this month it would close 229 retail branches and cut 3,800 jobs in the process -- noting the move would "improve efficiency and leverage the strengths of the company's retail mortgage origination business."
At the time of the layoffs, the subprime lender said the centralization and staff reduction represented the "best strategy for improving our cost structure and increasing our ability to price loans competitively -- changes that are critical to our long-term success."
But had Ameriquest not been burdened with the cost of the settlement, it would have had enough capital to pay the terminated employees for as long as 24 months.
Using a hypothetical compensation figure of $42,750 for each employee laid off, Ameriquest, which did not respond to MortgageDaily.com's request for a comment, would have paid the group $325 million in compensation over the next two years -- about the same amount as the settlement.
Ameriquest noted the "strategy and business practices of our new retail model are well aligned with our commitment to consumer friendly lending policies and with the business enhancements included in our multi-state agreement."
Ameriquest Finalizes Settlement
The process of selecting our next ambassador to Amsterdam may now proceed.
Ameriquest Lays Off 3800
Ameriquest has pursued a centralized business model that will help it better operate in today's lending environment. The transition, however, has left 3,800 people unemployed.