Press Release
Banking Department Joins Regulators and Law Enforcement Officials from 48 Other States in Announcing Settlement Agreement with Ameriquest Mortgage Company

January 23, 2006

New York: The New York State Banking Department today joined regulators and law enforcement officials from 48 other states and the District of Columbia in announcing that Ameriquest Mortgage Company, the nation’s largest sub-prime lender, has agreed to pay $295 million to consumers and make sweeping reforms of its lending practices. Ameriquest will also pay a total of $30 million to the participating states for costs of the investigation. The Banking Department plans to apply its share of the investigation funds to consumer education programs.

As a member of the five-state settlement negotiating committee, the Banking Department joined representatives from California, Illinois, Iowa and Washington in crafting the $325 million settlement. The settlement agreement covers approximately 725,000 loans valued at more than $109 billion made by Ameriquest from January 1, 1999 to December 31, 2005. More than 38,000 New Yorkers negotiated loans worth approximately $8 billion with Ameriquest during this six-year period, making New York State the fourth largest in terms of the number of loans made and third largest in terms of loan value.

“Homeownership is our primary means for building personal equity – deceptive lending practices hurt all of us,” said New York State Banking Superintendent Diana L. Taylor. “My hope is that the rest of the mortgage industry will look at today’s settlement and the commitments Ameriquest has made to protecting consumers, and will use it as a model for doing business.”

Settlement Details

According to the settlement agreement, the $295 million allocated for nationwide consumer restitution will be divided between two groups of Ameriquest borrows: Sub-Fund A and Sub-Fund B.

Consumers in Sub-Fund A are those who negotiated loans with Ameriquest from January 1, 1999 to April 1, 2003. During this time period, regulators and law enforcement officials believe Ameriquest used a loan pricing model that did not correlate the discount points a consumer paid to the reduction in the overall interest rate of the loan. This meant consumers were paying a premium for discount points yet deriving very little benefit in return. In many instances, Ameriquest employees were given commissions based on how high the loan was priced.

Restitution to consumers in Sub-Fund A will be made based on the size and cost of the loan as well as the overall level of consumer participation in the settlement. According to the terms of the national settlement, $175 million of the $295 million will be set aside for Sub-Fund A. There are currently more than 13,000 New Yorkers in Sub-Fund A. Borrowers in Sub-Fund A who sign on to the settlement will be paid a minimum of $600.

Although Ameriquest changed its loan pricing model after April 1, 2003, state regulators and law enforcement officials continued to receive complaints regarding unfair discount point-to-interest rate correlations in addition to other deceptive tactics being used by Ameriquest employees. These included changing the terms of the loan at the time of the closing and inadequate disclosure of pre-payment penalties.

The remaining $120 million will be allocated to borrowers in Sub-Fund B according to criteria that will be developed by the Banking Department and the New York State Attorney General. Some of this restitution money may also be used to supplement restitution payments for consumers in Sub-Fund A.

The Department estimates that New Yorkers from both Sub-Funds A and B will receive approximately $17 million in restitution once the reimbursement formulas are finalized and agreed upon.

“The $295 million in restitution is only the beginning: as a result of the agreement, Ameriquest has agreed to make significant changes in its lending practices and significantly improve the quality and amount of information in its loan disclosures,” said Superintendent Taylor. “Today’s agreement is a testament to a growing nationwide commitment to consumer protection. I commend everyone involved in today’s settlement and I’m proud to stand with my colleagues in letting consumers know we are on your side.”

The remaining $30 million in settlement monies will be divided among the states to cover costs involved in conducting the investigation, and for consumer education and enforcement programs. New York State is expected to receive $2.5 million from this fund which will be divided between the Banking Department and the New York State Attorney General’s office. The Banking Department is planning to use its share of this money to support financial education initiatives throughout the state.

The Banking Department is advising consumers that they do not need to take any action at this point in time in order to pursue recoveries. They will be contacted in the months ahead as specific recovery terms and plans are determined. Consumers who are deemed eligible to claim restitution under the settlement agreement will be required to sign a release waiving their right to make future claims against Ameriquest in regards to their mortgage loan. The release will not prohibit consumers from making claims in the event of a foreclosure.

Injunctive Relief

More than half of the 49-page settlement agreement addresses specific “injunctive relief” reforms Ameriquest has agreed to implement in order to resolve the concerns of the states.

Under the agreement, Ameriquest is required to:

• Provide the same interest rates and discount points for similarly-situated consumers.
• Not pay sales personnel incentives to include prepayment penalties or any other fees or charges in the mortgages.
• Provide full disclosure regarding interest rates, discount points, prepayment penalties, and other loan or refinancing terms. (While laws differ from state to state, New York Banking Law limits pre-payment penalties to the first year of the loan).
• Overhaul its appraisal practices by removing branch offices and sales personnel from the appraiser selection process, instituting an automated system to select appraisers from panels created in each state, limiting the company ’ s ability to get second opinions on appraisals, and prohibiting Ameriquest employees from influencing appraisals.
• Not encourage prospective borrowers to falsify income sources or income levels.
• Provide accurate, good faith estimates.
• Limit prepayment penalty periods on variable rate mortgages.
• Not engage in refinancing solicitations during the first 24 months of a loan, unless the borrower is considering refinancing.
• Use independent loan closers.
• Adopt policies to protect whistle-blowers and facilitate reporting of improper conduct.
• Appoint an independent monitor to oversee its compliance with the settlement terms

The New York State Banking Department is the regulator for all state-chartered banking institutions, virtually all of the United States offices of international banking institutions, all of the State’s mortgage brokers, mortgage bankers, check cashers and budget planners. The aggregate assets of the companies and institutions supervised by the Banking Department are more than $1.3 trillion.

See Draft Final Settlement Agreement (Please Note: this version does not include official dates and signatures - the Banking Department will post the signed version as soon as it becomes available)