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Ameriquest Settlement Yields Lending Lessons

NHEMA conducts conference call on settlement

February 28, 2006

By MortgageDaily.com staff

Ameriquest Mortgage learned a few things from its recent $325 million settlement with the states, and it shared some of that knowledge with other subprime lenders.

The insight, given in a recent teleseminar conducted by the Law Committee of the National Home Equity Mortgage Association, included presentations from Adam Bass, general counsel for Ameriquest and principal negotiator in reaching the settlement, and Alan Kaplinsky, an attorney who specializes in defending consumer financial services providers in class action lawsuits and government enforcement proceedings, according to a NHEMA newsletter report.

"The presentations were so good that the teleseminar participants felt as though they had a seat at the negotiating table," Law Committee Chair Loretta Salzano said in the report.

A highlight from Bass's portion of the two-hour conference included discussion of about 15 salient points of the settlement that benefit both consumers and mortgage companies, NHEMA reported. He stressed the three points attorneys general find most important -- the independence of the closing agent and their certification at closing of the borrower's income; a nationwide, same-rate loan processing; and a centralized appraisal process.

Bass also reportedly provided a detailed description of how the settlement was handled. The attorneys general utilized the National Association of Attorneys General to carry forward the negotiations, Ameriquest had its team of attorneys, including several former attorneys general, and once the initial posturing was largely over, the parties worked to carry out the settlement together.

Kaplinsky, on the other hand, "made clear that investigations such as these are at the very least a major public relations problem for the industry, not to mention the financial ramifications," and thus, litigation should be avoided, if possible, according to the newsletter.

Consumer satisfaction is not necessarily at the heart of what motivates attorneys general to conduct their investigations, the attorney said, pointing out that attorneys general gain political and public relations benefits, as well as financial benefits. In this settlement, $30 million to cover their costs, will whet a number of appetites, he reportedly said.

"We're likely to see some pause in the action," Kaplinsky said. "This was a lot for the states' AGs to digest. However I know for a fact that they have targeted other companies and you will be hearing about other settlements in the future."

Kaplinsky suggested attorneys general are going to turn their attention to the wholesale side of the industry, adding that investors may insist lenders adopt the Ameriquest settlement provisions in both retail and wholesale channels.

The best defense is good offense in terms of maintaining a strong customer service program to address consumer complaints immediately and effectively is the best defense in such cases, he reportedly advised.

Litigation with attorneys general can often be a no-win scenario, particularly for a publicly traded company. Plus, injunctive relief may become the "gold standard" for companies in order to inoculate themselves from such actions, Kaplinsky reportedly pointed out.

While mortgage companies' first response to an inquiry from an attorney general may not be positive, as there "is always a period of acrimony at the beginning of the investigation," keeping a good attitude is key. It is valuable to engage the attorney general and the state banking department in dialogue and have a working relationship with consumer activist groups, as these often instigate attorney general "investigations against companies they don't like," Kaplinsky reportedly said.

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