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Ameriquest Settlement Worries Brokers

NAMB discusses agreement at legislative conference

March 29, 2006

Washington, D.C., correspondent for MortgageDaily.com

WASHINGTON -- The chairman of a mortgage broker trade group warned that the landmark settlement reached earlier this year with Ameriquest Mortgage Co. has big implications for mortgage brokers.

Joe Falk, chairman of the National Association of Mortgage Broker's Government Affairs Committee, made the comments earlier this week at the group's Legislative and Regulatory Conference.

The California-based lender settled charges of predatory lending by agreeing to pay $325 million to consumers and the state Attorneys General. The agreement is the second largest settlement with a financial services company in the United States.

"It is important to note the ground breaking nature of this settlement," Falk said, adding that NAMB became "highly concerned" when Iowa Attorney General Thomas Miller, in announcing the settlement, suggested mortgage brokers are next.

"We are very sensitive to this settlement because we do see it as a template for how attorney generals across the United States will be looking at your shop and looking at mortgage brokers and mortgage broker transactions in the coming years," Falk told the audience.

Falk mentioned several parts of the agreement and suggested that mortgage brokers take note. Under the agreement, Ameriquest is now required to provide the same interest rate and discount points for similarly situated consumers. Reminding the audience that the Equal Credit Opportunity Act provides protection for classes of individual consumers, he cautioned mortgage brokers to be careful when dealing with people who are members of the protected classes defined by the federal law.

The agreement prohibits companies from paying incentives to sales personnel when adding prepayment penalties and other fees and charges to mortgage loans. Falk said this means that the attorneys general settled with Ameriquest on the basis that loan officers should not be compensated for upselling rates, terms and fees.

"So it broaches the area of loan officer compensation, flexibility and pricing by the loan officer and the price flexibility afforded to loan officers by the lending or the mortgage broker company," Falk said. "We fear that the attorney generals are now involved in the relationship between employer and employee on how they are being paid."

Ameriquest's loan officers are not allowed under the agreement to encourage prospective borrowers to misstate their income. They are not supposed to tell consumers to go to salary.com to get figures for adequate income for their occupations. "We're not supposed to counsel consumers to make up their income levels to meet the loan target," he said.

Consumers should be honest about their income, he added, and loan officers should provide accurate good faith estimates.

Loan officers under the agreement are not allowed to engage in refinancing solicitations during the first 24 months of the mortgage loan. This means no refinance mailings within the first 24 months, Falk said.

Ameriquest's loan officers must use independent loan closers and can not put pressure upon appraisers.

Falk noted that it was interesting that Argent, the mortgage broker channel owned by Ameriquest, was not included in the settlement agreement.

Discussing the settlement at a later session, another speaker said that, although there was no effort to go after individual loan officers in the Ameriquest case, "that's the next step." He said that, at some point, the states' attorneys general will be making criminal cases against individual loan officers instead of the companies that hire them.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]

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