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July 27, 2005
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| Minnesota's attorney general, along with officials in other states, are investigating predatory lending practices of Ameriquest. (MPR file photo) |
Critics and disgruntled borrowers say Ameriquest inflated home appraisals and switched loan terms on customers. Earlier this month, Ameriquest settled a lawsuit filed by Connecticut which charged the company with predatory lending.
St. Paul, Minn. — A spokesman for Ameriquest says the mortgage company "continues to be engaged in discussions with a number of state attorneys general and regulators about the company's business practices. We are focused on resolving the issues under discussion."
Ameriquest is a familiar name because of its high advertising profile, with lots of television spots and sponsorship of the Super Bowl halftime show. Among other services, the company makes sub-prime home loans. Sub-prime means rates are higher, because the borrowers don't have a good credit rating.
Critics accuse Ameriquest and many other sub-prime lenders of unscrupulous lending practices. Earlier this month the Connecticut banking commissioner and Ameriquest agreed the company would pay $7 million to settle a suit alleging the company charges excessive home refinancing fees.
Explosive is one word to describe the sub-prime home mortgage market. It's grown from a sleepy little business of a few billion dollars in the early '90s, to a profit powerhouse totaling hundreds of billions of dollars, and accumulating 9 percent of this country's massive home mortgage market.
The growth of sub-prime lending has many roots. Two can be traced to decisions by Congress more than a decade ago, according to Alys Cohen, an attorney at the National Consumer Law Center in Washington, D.C.
She says the runup in home equity and second mortgage borrowing started growing when Congress eliminated the income tax deduction for interest payments on credit cards.
"It encouraged a lot of folks to borrow against their homes instead of taking out other kinds of loans," she says.
Second, Cohen says, the profit potential in sub-prime lending took off when Congress deregulated the home mortgage lending market. She says deregulation had the effect of removing the limits on how much interest lenders could charge.
"So state usury caps don't apply in first mortgage transactions, which means basically lenders can charge very, very high rates, and they're not subject to state law on that," says Cohen.
But at least one obstacle remained for sub-prime lenders. They needed their own banker -- investment companies willing to buy their loans and resupply them with cash to loan more money. Cohen says the obstacle was removed when Wall Street investors saw the profits being made.
"Wall Street started profiting off this, and at the same time funneling more money back to the lenders making the loans," says Cohen. "So there was a real mechanism for these finance companies to continue making the loans they were making."
The result is sentiment runs very hot and very cold about sub-prime home mortgage lending companies such as Ameriquest. Critics acknowledge they've opened the door to homeownership for millions of Americans who would not qualify for money in the prime lending market.
However the practices of some of the companies -- high pressure sales pitches, bait-and-switch loan terms, very high fees -- have drawn a chorus of protests. The result is Minnesota, Maryland, New Jersey, North Carolina and a handful of other states have enacted anti-predatory lending laws, or have told state regulators to investigate sub-prime lending practices.
Twin Cities attorney Scott Miller says all the activity has not necessarily helped people who believe they are predatory lending victims. Miller, whose practice includes defending lenders, says there are plenty of laws on the books to arm regulators who want to rein in unscrupulous lenders and others.
"Deceptive Trade Practices act, the licensing of originators and services of mortgages. There are criminal statutes, there's common law fraud, there's banking laws on the state and federal level," says Miller.
The problem, Miller says, is many states, including Minnesota, don't have the resources to enforce the laws.
Miller says the biggest regulatory help would be for Congress to enact a single set of standards, and one place for victims of predatory lending to file their complaints.
However, a bill before Congress that purports to do that has run into a storm of criticism. Its sponsors say the proposal sets minimum standards for behavior of lenders.
Critics say the standards are well below what some states, including Minnesota, already require. Worse, the critics say, the proposal pre-empts state anti-predatory lending laws, which in many cases are stronger than anything Congress has approved.
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