Look, up in the sky! It’s Airship
Liberty, one of two blimps in Ameriquest Mortgage Co.’s
inflatable fleet.
And wasn’t that Ameriquest’s logo
on the All-Star Game ballots during the 2004 baseball season, and
on the walls when the highlight reels took us to Ameriquest Field
in Arlington, where the Texas Rangers play? Sure was.
Topping it all, on Feb. 6 we’ll be
treated to Paul McCartney headlining the “Ameriquest Mortgage
Super Bowl XXXIX Halftime Show” at Alltel Stadium. Ameriquest
reportedly paid $15 million to snag the world’s most
prestigious advertising slot, topping America Online’s $10
million payment last year. That’s quite a catch for a
California company that started out in 1980 as a bit player in the
then-tiny subprime-lending market, which makes high-fee,
high-interest loans to people with tarnished credit or irregular
incomes.
Ameriquest’s portfolio of loans has
tripled in the past three years, and the company now holds about
500,000 mortgages. It leads the fast-growing subprime-lending
market and is ranked eighth among all mortgage companies, according
to Inside Mortgage Finance magazine, dishing out about $55 billion in
loans during the first nine months of 2004.
Sponsoring the Super Bowl halftime show is
part of what Ameriquest vice chairman Adam Bass has called
“our long-term vision . . . to become the lifelong mortgage
company of every homeowner in America.”
The company’s marketing blitz
“feels like it’s an attempt at legitimization,”
says Kevin Stein, associate director of the California Reinvestment
Coalition, which has studied and criticized Ameriquest’s
practices. “ ‘We’re mainstream! We’re at
the Super Bowl!’ ”
A look at Ameriquest’s loans, though,
shows that many borrowers get hamstrung with loans that lock them
into stifling debt payments that increase over time, leaving them
one bad bounce from foreclosure.
With a daughter approaching her teens, Curt Hildenbrand wanted to set
down roots. So in 2002 he decided to buy the modest three-bedroom
walk-up he’d been renting in Pittsburgh.
“Our credit wasn’t great,”
Hildenbrand says. He’d suffered several heart attacks, which
had set the family back financially. Ameriquest, though, promised
to make him and his wife homeowners for about the same
$700-and-something a month they’d been paying in rent, he
says. The loan agent even said they could get some cash out of the
deal, Hildenbrand says.
The final mortgage papers told a different
tale. The monthly payment on the $99,000 loan would be $962, not
including taxes and insurance. Ameriquest would pocket six fees
totaling $4,281. And instead of getting cash, Hildenbrand would
have to put down $2,618, wiping out the family’s savings.
“At one time, our credit was good enough to get money back,
and then suddenly it wasn’t,” Hildenbrand says.
“I didn’t want to go through with it, but my wife
wanted to do it, and my daughter wanted to do it . . . Owning a
house is a big thing, and you get excited.”
Had the Hildenbrands gotten a mortgage at
then-current bank interest rates of 7 percent, instead of the 11.3
percent rate Ameriquest gave them, their monthly payment would have
been $300 less. That’s a difference of $108,000 over the
course of a 30-year loan. The cost could be higher. After two years
at 11.3 percent, their interest rate may start rising, to as high
as 17.3 percent, depending on the interest rates bankers in London
charge each other. Their monthly payment could hit $1,400. Their
rate can never go below 11.3 percent.
Hildenbrand says Ameriquest’s loan
officer told him he could refinance into a lower-rate loan after a
year. But the mortgage includes a prepayment penalty of around
$5,000 that kicks in if he tries to refinance during the
loan’s first three years. Such penalties are rare in bank
loans but common in subprime loans.
In January 2003, Hildenbrand was laid off.
Throughout that year and early 2004, he worked sporadically, until
cleanup from last summer’s hurricanes created work. For a
while he paid the mortgage, but that extra $300 a month in interest
didn’t help. “You can’t pay your gas. You
can’t pay your light. Your phone gets shut off,” he
says. He asked Ameriquest for some leeway. “There was no
working with them,” he says. In October 2003, he could pay no
more. That winter, the furnace broke down, and for a month while
the Hildenbrands scraped together money to fix it, they relied on
their living-room fireplace to heat the house.
Ameriquest filed for foreclosure in February.
The Hildenbrands subsequently filed for bankruptcy reorganization.
They say that their interest rate and payment have gone up, but
they’re not sure how much because the bankruptcy court
processes their payments. Their dream of setting down roots
hasn’t gone as planned. “We never had to go through
this in our lives,” Hildenbrand says, “and now our
daughter has to go through this.”
Ameriquest didn’t respond to
calls and e-mails seeking information for this story. The
company’s filings with the Securities and Exchange
Commission, documenting 90,820 of its mortgages made between July
2003 and November 2004 (including 3,541 that originated in
Illinois), show that the Hildenbrands got what the California
Reinvestment Coalition’s Stein calls Ameriquest’s
“bread-and-butter product.” The filings show a pattern
of lending to the hilt, ensuring that payments will only go up, and
penalizing those who try to escape their loans.
Of those 90,820 borrowers, 44 percent
got mortgage payments that ate up 40 to 55 percent of their
incomes. “When people get into the forties, they’re
generally on thin ice,” says Allen Fishbein, director of
housing and credit policy at the Consumer Federation of America.
Eighty percent of the borrowers got
interest rates well above industry averages, despite
Ameriquest’s claim in press releases that it’s
“moving beyond our nonprime roots” toward
prime-mortgage lending. Twelve percent got interest rates that
started out 3 to 6 percentage points above average mortgage rates
at the time, adding $200 to $400 to the monthly payment on a
$100,000 mortgage.
Seventy-three percent of the mortgages
were adjustable-rate loans that can go up — usually by as
much as 6 percentage points — but can never dip below their
original rates. By contrast, most banks’ adjustable-rate
mortgages can fall below their original rates if average interest
rates fall.
Sixty-six percent of the loans had
prepayment penalties that kicked in if the borrower tried to sell
the house or refinance during the first three years.
Many borrowers with high debt levels, high
adjustable rates, and prepayment penalties “would find their
finances stretched to the breaking point” says Keith Ernst, a
researcher at the North Carolina-based Center for Responsible
Lending, a nonprofit advocacy group.
The formula has apparently served Ameriquest
well. National Mortgage News has estimated that Ameriquest earned about $1
billion in 2003 — a rate of profitability about seven times
greater than that of the nation’s biggest mortgage lender,
Countrywide Finance.
One lousy month cost James Mazza
his home. A handyman and father of three who started selling houses
in 1994, Mazza decided in 2000 that he should finally buy one
himself. He spotted a brick three-bedroom home in West View, Pa.,
near Pittsburgh, for just $63,000. Because his income as a
real-estate agent and handyman was irregular, and he had declared
bankruptcy in 1995, Mazza turned to a subprime-lending company for
a mortgage. After two years, he decided to refinance. “This
girl from Ameriquest called me,” he says. “I said,
‘What can you do for me?’ ”
Ameriquest gave him an $86,000
adjustable-rate mortgage at 12.1 percent interest rate with the
potential to increase to 18.1 percent. A mortgage that would have
cost $561 a month at bank rates instead started out at $895 a month
and had the potential to increase to $1,307 a month.
The Coalition for Fair and Affordable
Lending, which represents subprime lenders, explains on its Web
site that subprime loans “are priced somewhat higher than
prime loans due to the higher risk.” The experiences of some
nonprofit lenders, though, suggest that subprime lending
doesn’t have to involve sky-high interest rates.
Neighborhood Housing Services of Chicago
lends to subprime borrowers. After putting them through a class on
financial management, NHS charges about half a percentage point
more in interest than banks do. NHS doesn’t charge prepayment
penalties and makes sure that the monthly payments consume no more
than 42 percent of the borrower’s income. The result: Of
about 1,500 first-lien mortgages NHS of Chicago made in the past
six years, just eight went to foreclosure, says Jim Wheaton,
associate director for lending and homeownership services for NHS
of Chicago. That’s almost identical to the half-percent
foreclosure rate of prime loans nationally.
By contrast, the Mortgage Bankers Association
of America reported in December that 4 percent of private
companies’ subprime loans were in foreclosure.
Ameriquest’s filings with the SEC show
that as of mid-2004, exactly 9,504 of its mortgages were in
foreclosure. That’s 2 percent of its borrowers. That
foreclosure rate “would be higher and could be substantially
higher,” according to Ameriquest’s filings with the
SEC, except that many of the company’s loans are too new to
have had a chance to reach foreclosure. As of June 30, two-thirds
of Ameriquest’s loans were less than 18 months old.
The ranks of the foreclosed have since grown
by at least one: Mazza. In December 2002, bad weather shut down the
real-estate business for a month. “I wanted to give
[Ameriquest] a half-a-month payment, and they didn’t want it.
They said, ‘You either make the whole payment or pay
nothing.’”
Ameriquest filed for foreclosure in July,
adding $11,530 in interest, fees, and legal costs to Mazza’s
loan balance. Faced with a prepayment penalty, a balance bigger
than his home’s value, and decimated credit, Mazza had no way
to refinance or sell the house.
Mazza, his wife, and a daughter now live in a
two-bedroom apartment.
Subprime lending has grown more
than 10-fold in the past decade, and reports of unfair
“predatory” lending have multiplied. Borrowers who feel
mistreated and consumer groups that sympathize have descended on
statehouses and city halls. As a result, 37 states and 14
municipalities — Illinois and Chicago among them — have
passed anti–predatory-lending laws. Many of those laws do
little more than reiterate the modest consumer protections set
forth in federal laws. Others, such as those in North Carolina,
Georgia, New Jersey, New Mexico, and Massachusetts, have won praise
from consumer groups for curbing subprime lending’s excesses.
Some state and local laws make mortgages too
expensive or unavailable for those most in need, says Wright
Andrews, executive director of the industry’s Coalition for
Fair and Affordable Lending. “The industry doesn’t like
to broadcast this,” he says, “but some loans are
costing more” because of state regulations.
Andrews hopes the new Congress will pass a
law that replaces all state and local anti–predatory-lending
laws with a federal standard. In Congress, Ohio Republican Robert
Ney and Pennsylvania Democrat Paul Kanjorski are working on just
such a proposal, says Kanjorski.
Andrews says he doesn’t represent
Ameriquest and professes having “no idea what their practices
are.” Nonetheless, they seem likely to be allies.
Andrews’ wife, Lisa Andrews, is Ameriquest’s senior
vice president for government affairs, and Ameriquest is an
increasingly heavy hitter in Washington.
During the 2004 election cycle, the
company’s executives and its political-action committee gave
$594,250 to federal candidates, according to the Center for
Responsive Politics, a Washington, D.C.-based campaign-finance
watchdog group. That was tops among mortgage lenders, and 83
percent of it went to Republicans.
The company can likely claim the ear of
President George W. Bush. Ameriquest’s chief owners, Roland
and Dawn Arnall, collectively attained the rank of
“Ranger” in the Bush campaign by rounding up at least
$200,000 in contributions, according to Texans for Public Justice,
which monitors the president’s fundraising. In addition, Dawn
Arnall gave $5 million to Progress for America, a group that
focused on re-electing Bush. Ameriquest contributed $250,000 toward
Bush’s second inaugural.
Such spending power could overpower consumer
complaints, resulting in a law that does little or nothing for
borrowers, says the Consumer Federation of America’s
Fishbein.
“There’s only a handful of
consumer advocates arrayed against [the lending industry],”
he says. “Public attention to the issue is the only way we
can prevent a total disaster.”
Renee Schopper is a data clerk at a
car dealership, and her husband, Russell, teaches at a private
school. With three daughters, ages 10 to 14, money’s tight.
By early 2004, they were $4,400 behind on property taxes and
figured that banks wouldn’t help because Russell had a
bankruptcy in his past. Renee Schopper called Ameriquest. “When I called them, it was,
like, ‘I’m sure we can help you,’” she says.
Schopper mentioned to the loan officer that
she was having a hysterectomy on Feb. 27. He scheduled the closing
for the day before. Even at closing, she wasn’t sure that a
$172,800 mortgage was a great idea for a home the county says is
worth $138,800. When she saw the terms — a 9.75 percent
interest rate that can increase to 15.75 percent and a $1,485
monthly payment that can only go up — she got scared.
“I remember sitting in [the loan officer’s] office
crying because I wasn’t sure that I should do it. And he
smoothed me into it. And to this day, I could kick
myself.”
Shortly after Schopper arrived at the
hospital the next day, her husband called, saying Ameriquest was
withholding payment and demanding further documentation of his
retirement savings. The delay sent checks bouncing, costing the
family at least $400 in fees, says Schopper. When they complained
that the fees left them with no grocery money, Ameriquest sent $200
in grocery-store gift certificates.
Their monthly payment “doesn’t
seem very manageable anymore,” Schopper says. Had they been
able to get a similarly sized bank-rate loan, their monthly
mortgage payment would have been $482 lower. A $6,000 prepayment
penalty effectively prevents them from refinancing until 2007. If
her payment increases in the meantime, she says, “I’m
going to be extremely worried.”
Schopper’s Ameriquest experience,
coupled with the company’s advertising blitz, have taken some
of the fun out of watching baseball and football, she says.
“I’m paying all this money to a
mortgage company, and look what they’re doing with it,”
she says. “Who’s reaping the benefits? Not me.”
Ameriquest and Illinois
Ameriquest Mortgage Co. may have left a bad
taste in the mouths of some borrowers, but don’t tell that to
officials with the state of Illinois, who see the company as one of
the few bright spots in an otherwise difficult economy.
Thanks to a commitment of $25 million in state
tax credits and other assistance, the California-based lender
agreed in November to open a loan processing center in Schaumburg,
a northwest suburb of Chicago.
Ameriquest and its affiliate Argent Mortgage
Co. pledged to employ as many as 2,100 people as part of the deal,
which was hailed by Gov. Rod Blagojevich as “a strong
validation of our tireless efforts to ensure economic
prosperity.”
Questions about Ameriquest’s
controversial lending practices were a backdrop to the
announcement.
Andrew Ross, a Chicago spokesman for the
Illinois Department of Commerce and Economic Opportunity, says the
state reviewed Ameriquest’s lending practices before
approving the subsidy and had no concerns.
“There was nothing to indicate that we
couldn’t move ahead,” Ross says.
Back in the late 1990s, Illinois ACORN —
the Association of Community Organizations for Reform Now —
accused Ameriquest and other subprime lenders of exploiting
low-income homebuyers. In 2000, Ameriquest negotiated an agreement
with ACORN, promising to support buyer-education programs and make
$30 million in loans to poor families in 10 cities, including
Chicago.
The agreement was the activist group’s
first with a major company accused of predatory lending, says
Madeline Talbott, head organizer for Illinois ACORN.
“We were pleased that Ameriquest was
willing to come to the table and negotiate at all when other
lenders were not,” Talbott says.
Since that agreement, ACORN has negotiated
even better terms with other major subprime lenders, such as
Household International. The group has now has returned to
Ameriquest, hoping to negotiate a better agreement, Talbott says.
“We’re not ready to claim victory
in this campaign yet,” she says.
Ameriquest has operated in Illinois for a
decade, but the bulk of its loan-origination offices are the
Chicago area. Its Argent affiliate, a national wholesale mortgage
lender, opened its Central Division production center in Rolling
Meadows in 2002.
Most of the state’s $25 million
financial commitment came in the form of the Department of Commerce
and Economic Opportunity’s EDGE (Economic Development for a
Growing Economy) tax credits, which are based on job-creation
projections over a two-year period.
Ñ Roland Klose
This article appears in Jan 27 – Feb 2, 2005.
