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Thursday, Jan. 27, 2005 07:50 am

Penalizing homeowners

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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

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