Rhode Island residents are among consumers nationwide who will receive a total of $295 million as a result of a settlement entered into by 49 states and the District of Columbia with Ameriquest Mortgage Company, state Attorney General Patrick C. Lynch announced Monday.
As part of the settlement, Ameriquest will make sweeping reforms of practices, which, the states alleged, amounted to predatory lending. Ameriquest also will pay to the states a total of $30 million for costs of the investigation, and for consumer education and enforcement.
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The $325 million payment – through which wronged Rhode Island consumers will share more than $3 million in payment funds – ranks as the second-largest state or federal consumer protection settlement in history, after the $484 million predatory lending agreement reached in 2002 between most states and Household Finance Corporation.
In the agreement, Ameriquest denies all allegations raised by the states but agrees to adopt new standards to prevent what the states allege were unfair and deceptive practices.
Ameriquest primarily makes “sub-prime” refinancing loans to existing homeowners who are hoping to consolidate credit card and other debt into their new home mortgage and thereby reduce overall monthly bills. Borrowers who don’t have the best credit ratings may turn to sub-prime loans, which often have higher interest rates and other costs attached.
In launching their investigation, the attorneys general uncovered improper practices by Ameriquest that included inadequate disclosure of prepayment penalties, discount points, and other loan terms; unsolicited refinancing offers that did not adequately disclose prepayment penalties; improperly influenced and inflated appraisals, and encouraging borrowers to lie about income or employment to obtain loans.
Consumers will be contacted by states in the months ahead as specific recovery terms and plans are determined. Of the $295 million in restitution, $175 million will be distributed in a nationwide claims process to eligible Ameriquest customers who obtained mortgages from Jan. 1, 1999, through April 1, 2003, with payments based on a formula set by the settling states. Another $120 million in restitution will be allocated to the states based on the percentage of total Ameriquest loans, measured in dollars, held by consumers in each state and will be used to compensate Ameriquest customers who obtained mortgages between Jan. 1, 1999, and Dec. 31, 2005. Each settling state will determine which customers in its jurisdiction are eligible to receive money from this restitution fund.
Although each participating individual state’s share of payment funds has not been determined, a rough estimate is that wronged consumers in Rhode Island may share in an amount slightly exceeding $3 million. Individual consumer payments will depend on numerous factors, such as how many Ameriquest borrowers there were in each state, the size of the loans, and other factors.
All participating states will file the settlement, along with consumer protection lawsuits resolved by the settlement, in their respective state courts by March 15.
