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Ameriquest Settles Multi-State Probe

Ameriquest, the nation's largest sub-prime lender, has agreed to pay $325 million

Ameriquest, the nation's largest sub-prime lender, has agreed to pay $325 million to settle a 49-state investigation. The company agreed to pay $295 million in consumer restitution and reform its business practices.

The agreement ranks as the second-largest predatory lending settlement in history, right behind the $484 million agreement reached between most states and Household Finance Corporation in 2002.

President Bush last year nominated Ameriquest founder Roland Arnall as the next ambassador to the Netherlands.

Arnall and his wife, who live on a 10-acre estate in the Holmby Hills neighborhood of Los Angeles, contributed $5 million to a pro-Bush committee in 2003 and chipped in $1 million for Bush's second inauguration party, The Los Angeles Times reported.

"Our economic system cannot function properly unless businesses treat consumers fairly and honestly," said California Attorney General Bill Lockyer, who announced the settlement.

"Unfortunately, our investigation found that Ameriquest's prior lending practices too often violated those principles and harmed families. This settlement provides a good measure of justice by compensating victims of these previous practices and helping to ensure there are no victims in the future," Lockyer said.

Today's development culminates more than two years of investigation by the attorneys general, state lending regulators and local prosecutors, and more than one year of settlement negotiations.

Law enforcement officials and regulators received hundreds of complaints from Ameriquest customers across the country. The ensuing investigation uncovered widespread consumer protection problems in areas governed by the settlement.

The alleged improper practices included: inadequate disclosure of prepayment penalties, discount points and other loan terms; unsolicited refinancing offers, without adequate disclosure of prepayment penalties; improperly influencing and accepting inflated appraisals; and misrepresentations regarding consumers' credit ratings, and the availability and cost of future refinance loans.

In addition to the $295 million for consumer restitution, the settlement requires Ameriquest to pay $30 million to the settling states to cover their costs, and to fund consumer education and enforcement programs.

Of the $295 million in restitution, $175 million will go to eligible customers who obtained mortgages from January 1, 1999 through April 1, 2003, the date Ameriquest changed its loan pricing practices to eliminate some elements that misled consumers. Consumers' payments from the $175 million will be based on a formula set by the settling states and be distributed through a nationwide claims process.

Another $120 million in restitution will be allocated to the settling states based on the percentage of total Ameriquest loans, measured in dollars, held by consumers in each state.

The second restitution pot of $120 million will compensate Ameriquest customers who obtained mortgages between January 1, 1999 and December 31, 2005. Each settling state will determine which customers in its jurisdiction are eligible to receive money from this restitution fund.

The states can use some of their share of the $120 million to provide additional compensation to Ameriquest customers who receive payments from the $175 million pot.

Each state's exact share of restitution funds has not been determined. But California will receive the largest portion because, at 108,031 loans valued at $23.3 billion, it had the highest Ameriquest loan volume in the nation from 1999-2005.

Future Practices

The settlement also aims to protect future Ameriquest customers through provisions that mandate wide-ranging reforms of the lender's business practices. For example, the settlement requires full, clear disclosure regarding interest rates, discount points, prepayment penalties and other loan or refinancing terms.

Another major reform overhauls Ameriquest's appraisal practices. These provisions remove branch offices and sales personnel from the appraiser selection process, institute an automated system to choose appraisers from panels created in each state, limit Ameriquest's ability to get second opinions on appraisals, require Ameriquest to audit appraisers' work, and prohibit Ameriquest employees from influencing appraisals.

Ameriquest, founded by Arnall as Long Beach Savings in 1979, has faced off with consumer activists, regulators and private litigants in a series of disputes over its lending practices dating to 1996. The company has paid millions of dollars in restitution and for borrower education, and it has adopted a series of "best practices" improvements to its operating policies.

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