Long Beach Mortgage Company Response to 2002 Lawsuit by uka17873

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ameriquest4feb0405,1,5202756.story?coll=la-home-headlines&ctrack=2&cset=true

Workers Say Lender Ran 'Boiler Rooms'
Critics say Ameriquest, touted as an industry model, fabricated data, forged documents
and hid fees. The company denies wrongdoing.

By Mike Hudson and E. Scott Reckard
Special to The Times

February 4, 2005

Mark Bomchill says he'd like to forget the year he spent hustling mortgages for
Ameriquest Capital Corp. in suburban Minneapolis.

Slugging down Red Bull caffeine drinks, sales agents would work the phones hour
after hour, he said, trying to turn cold calls into lucrative "sub-prime" mortgages --
high-cost loans made to people with spotty credit.

The demands were relentless: One manager prowled the aisles between desks like "a
little Hitler," Bomchill said, hounding agents to make more calls and push more
loans, bragging that he hired and fired people so fast that one worker would be
cleaning out his desk as his replacement came through the door.

"It was like a boiler room," said Bomchill, 37. "You produce, you make a lot of
money. Or you move on. There's no real compassion or understanding of the
position they're putting their customers in."

Indeed, Bomchill -- who said he left Ameriquest because he didn't like the way the
company treated its employees and customers, and now works as a mortgage broker
-- contends that the drive to close deals and grab six-figure salaries led many
Ameriquest employees astray: They forged documents, hyped customers'
creditworthiness and "juiced" mortgages with hidden rates and fees.

Such claims are not unusual against sub-prime lenders, which are a frequent target
of consumer groups.

Ameriquest, however, has been held up as an industry model since agreeing in 2000
to establish a fund for needy borrowers and to adhere to a list of "best practices."
The company says it holds itself "to the highest standards" and does not tolerate
unethical or improper behavior by its employees.

The nation's largest sub-prime mortgage lender, based in Orange, has sought to
burnish its image as it moves into prime, or mainstream, mortgage lending. It has
increased its political profile, donating heavily to various campaigns, including in
Sacramento. The privately held company, which may be considering a public stock
offering, committed $75 million to have the Texas Rangers ballpark dubbed
Ameriquest Field. And on Sunday it should gain even more recognition when it
sponsors the halftime extravaganza at Super Bowl XXXIX.

"At Ameriquest," the company likes to say, "we never forget that our customers
deserve respect, fairness and honesty."

Yet a far different picture emerges from public records, interviews and dozens of
consumer lawsuits:

* Ameriquest customers filed more complaints with the Federal Trade Commission
from 2000 through 2004 than did those of two of its biggest competitors combined,
the agency said -- 466 compared with 101 for Full Spectrum Lending (Calabasas-
based Countrywide Financial Corp.'s sub-prime unit) and 51 for Irvine-based New
Century Financial Corp.

* From 2000 through 2004, 134 complaints (including allegations of fraud and
unfair business practices) were registered against Ameriquest with the California
Department of Corporations, compared with 39 for New Century and 21 for Full
Spectrum.

* Recent lawsuits filed by consumers in California and at least 20 other states allege
a pattern of fraud, falsification of documents, bait-and-switch sales tactics and other
violations. Six of these suits seek class-action status to represent large groups of
borrowers; such status has been granted for a 2001 suit filed in Redwood City, Calif.
In a sworn declaration in that case, a former loan officer named Kenneth Kendall
said Ameriquest managers encouraged employees to "promise certain interest rates
and fees, only to change those rates at the time of the closing."

Ameriquest says it doesn't comment on pending litigation. But it notes that since
2003, it has had in place automated systems that allow loan officers to lower rates
but not to raise them.

* In court documents and interviews, 32 former employees across the country say
they witnessed or participated in improper practices, mostly in 2003 and 2004. This
behavior was said to have included deceiving borrowers about the terms of their
loans, forging documents, falsifying appraisals and fabricating borrowers' income to
qualify them for loans they couldn't afford.

Five of these former employees made their claims as part of employment
discrimination lawsuits that they filed against Ameriquest. Three other ex-
employees gave sworn statements in connection with other lawsuits against the
company. Among the other ex-employees, most were referred to the Los Angeles
Times by people who had worked in the offices where alleged improprieties
occurred. The newspaper sought them out so as not to rely solely on information
provided by those in litigation with the company.
* Two ex-workers at an Ameriquest office in Sacramento that focuses on retaining
existing customers said people often were solicited to refinance loans that they had
for less than two years. In adopting a best-practices standard in 2000, Ameriquest
pledged not to resolicit its customers for two years to discourage "flipping," or
pushing new loans simply to generate fees and commissions.

Nearly one in nine mortgages made by Ameriquest last year was a refinance of an
existing company loan less than 24 months old, according to an analysis of public
records by DataQuick Information Systems done at the request of The Times. That
was a higher rate than for any of six competitors included in the analysis.

Ameriquest says that it doesn't solicit refinancings from its customers within two
years, but that many of its borrowers contact the company on their own seeking a
new loan.

* On Jan. 10, the Connecticut Department of Banking said it would seek to bar
Ameriquest from doing business in the state for allegedly charging excessive fees
and repeatedly violating a state law aimed at preventing loan flipping. Ameriquest is
challenging the action.

Consumer activists say the company, a big-time donor to both Democrats and
Republicans and the No. 1 contributor to the 2005 Presidential Inaugural
Committee, has also been lobbying against state legislation aimed at countering
alleged abuses by sub-prime lenders.

"They try to paint themselves as the good guys -- that they've adopted best practices
and they're kind of the gold standard for the industry," said Norma Garcia, a
California lobbyist for Consumers Union. "But really, when you look at what they're
doing to try to fight predatory- lending legislation, it shows exactly where they're
coming from."

For its part, Ameriquest has maintained that so-called anti-predatory lending laws
hurt the poor by making it harder for them to get credit.

Courting Politicians

Ameriquest executives declined requests for interviews, asking instead for a written
list of questions. The company answered some of those questions in writing and also
offered a general statement about its practices.

"In its 25-year history, Ameriquest has helped hundreds of thousands of
homeowners purchase or refinance their homes, making it possible for them to
achieve their financial goals and enhance their quality of life," the statement said.
"We are proud of our role in helping increase homeownership to historic levels. We
are a nationwide lender and our goal is to be an industry leader.
"Ameriquest pioneered innovative best practices in the mortgage industry," the
statement continued. "We have procedures and internal controls in place that are
designed to ensure that underwriting standards, pricing policies and property
valuations are fair and accurate. We act promptly to resolve any issues that arise."

The company is headed by Chairman Roland E. Arnall, a developer and financier
who in 1977 helped found the Simon Wiesenthal Center, a Jewish human rights
organization, and served for 16 years on the California State University board of
trustees.

Arnall, 65, a media-shy billionaire, has made headlines in recent years by buying a
10-acre Los Angeles estate for $30 million from singer Engelbert Humperdinck and
a ranch in Aspen, Colo., for $46 million from movie mogul Peter Guber. Attendees
at Arnall's holiday party late last year included Gov. Arnold Schwarzenegger and his
wife, Maria Shriver, along with the couple they replaced in Sacramento, Gray and
Sharon Davis. Also mingling at the soiree were other politicians from both sides of
the aisle, including Atty. Gen. Bill Lockyer, a Democrat.

Ameriquest is among the largest political donors in California, spending $3.8
million in the 2003-04 election cycle on state candidates and ballot measures.
Schwarzenegger was the largest benefactor, picking up $1.18 million of the
company's money for his various campaign bank accounts, among them his
reelection committee and one he uses to promote ballot measures.

In response to the barrage of lawsuits, the company has pointed to signed documents
from customers saying they understood the terms of their loans. In a Florida lawsuit
seeking class-action status, for example, Ameriquest asserts that the plaintiffs
"distorted the actual facts concerning the underlying transactions." The allegation
that borrowers didn't receive proper disclosures, Ameriquest says, is "directly belied
by the fact that each plaintiff acknowledged in writing that they had received such
disclosures."

But the plaintiffs in those cases contend that loan salespeople used fast talk and
sleight-of-hand paper shuffling to get them to sign documents without knowing the
consequences.

An East Palo Alto resident, Sara Landa, said Ameriquest employees tricked her into
signing a mortgage that required her to pay $2,494 a month, more than she earns
cleaning houses. All the negotiations were in Spanish, according to Landa's lawsuit,
but all the loan documents were in English -- a language in which she's not
proficient.

"The only thing she ever got from Ameriquest that was in Spanish was a foreclosure
notice," said her lawyer, Nathaniel McKitterick.
Landa and Ameriquest reached a confidential settlement in December. Ameriquest
did not admit wrongdoing. In its response to The Times, the company said it went to
"great lengths to ensure customers are fully informed about loan terms so there are
no surprises at the closing table."

Allegations of falsified documents are a common thread in the borrower lawsuits
and in more than two dozen accounts from ex-workers.

In a suit filed Jan. 14 in U.S. District Court in San Francisco, Nona Knox claims that
Ameriquest qualified her and her late husband, Albert, for a loan by fabricating
documents showing that he earned $6,800 a month as proprietor of Knox Music
Academy. At the time of the loan, the suit says, Albert Knox was 79 and suffering
from terminal cancer. The music school never existed, the suit says.

"Mr. Knox had never played a musical instrument," said Aaron Myers, an attorney
for Nona Knox, whose complaint against Ameriquest centers on other issues,
including allegedly excessive closing costs. "This was truly made up out of whole
cloth without their knowledge or consent, or any suggestion from them."

The company has not yet formally responded to Knox's lawsuit, which seeks class-
action status. Before the suit, Ameriquest wrote to her attorneys denying anything
was amiss with the loan.

Closing the Loan

Fifteen hundred miles away in suburban Kansas City, Kan., ex-employees describe a
similar ploy: Ameriquest staffers allegedly fabricating borrowers' income and
falsifying appraisals to make loans go through.

"Whatever you had to do to close a loan, that's what was done," said Brien Hanley, a
former loan agent at the company's Leawood, Kan., branch. "If you had to state
somebody's income at $8,000 a month and they were a day-care provider, who's to
say it wasn't?"

Hanley said he quit because he was fed up with conditions at the company. He now
works as a mortgage broker elsewhere.

Lisa Taylor, a former loan agent at Ameriquest's customer-retention office in
Sacramento, said she witnessed documents being altered when she walked in on co-
workers using a brightly lighted Coke machine as a tracing board, copying
borrowers' signatures on an unsigned piece of paper.

Taylor contends in a lawsuit filed in Sacramento County Superior Court that she was
fired for complaining about sexual harassment and widespread falsification of
documents. Ameriquest has not filed a response to Taylor's allegations. Both sides
have agreed to have an arbitrator decide the case.
Meanwhile, appraisers in six states said in interviews that Ameriquest had tried to
bulldoze them into inflating home values and, in some cases, lying about property
defects.

"Ameriquest is the king of this kind of thing," said Greg Boyd, an appraiser in
Hopland, Calif. "The loan officers are ... aggressive, pushy, they talk fast. They
know how to put the pressure on."

Ameriquest says it has "tight controls and policies to help ensure accurate property
valuations."

Several former loan officers said employees frequently abused the company's "stated
income" loan program, which requires only a letter from the borrower declaring how
much he or she makes. Borrowers were told what their income had to be to qualify,
these ex-workers said, and they were often coached to invent fictitious side jobs,
such as home-based computer consulting, to hit the mark.

Nearly one out of every six Ameriquest mortgages sold to Wall Street investors in
2004 was a stated-income loan, according to a Times analysis of 90,000 Ameriquest
mortgages listed in filings with the Securities and Exchange Commission.

Many of the ex-employees likened Ameriquest's culture to the rough-and-tumble
world of "Boiler Room," a 2000 movie about fast-talking, young stock swindlers
who revel in their powers of anything-goes salesmanship.

The comparison is more than happenstance: "That was your homework -- to watch
'Boiler Room,' " Taylor said. Managers and employees passed around the film to
keep themselves fired up, she and others explained. Kendall, in a sworn declaration
in the Redwood City class-action case, said that watching "Boiler Room" was part of
his Ameriquest training.

It was all about "the energy, the impact, the driving, the hustling," Taylor said.

Bomchill, who worked as a loan officer in the Minneapolis suburb of Plymouth in
2002 and 2003, said Ameriquest managers often discouraged questionable practices
-- but with a wink: "It was kind of ... see no evil, hear no evil."

Three other former workers at the branch said Bomchill's description was accurate.

"I really don't think they have the customers' best interest in mind at all," said Troy
Huston, a former colleague of Bomchill's who now works as a broker for Access
Home Finance in Bloomington, Minn.

"They really are all about making the dollar and dealing with the consequences
later."
Not everyone, though, shares that view. One former employee at the Plymouth
branch disputed Bomchill's account of widespread misdeeds. The employee, who
asked not to be named, said he believed some appraisals might have been inflated.
But overall, he said, "we had a respect for the rules and wanted to do things
honestly."

Several of the former employees who were interviewed also stressed that no one at
Ameriquest encouraged them to violate laws.

"I truly do believe that nothing illegal was done," said Brock Fegan, a loan officer at
Ameriquest's Grand Rapids, Mich., branch in 2004.

Still, Fegan said he was concerned about how Ameriquest targeted "poorly informed
customers" and stocked its branches with ill-trained loan officers who "a lot of times
don't know what they are doing." As a result, he said, many customers -- including
some with excellent credit histories -- end up slammed with high rates and excessive
fees.

Ameriquest says its training system "equips our associates with the tools and
information they need" to do their jobs properly.

Denouncing Tactics

The allegations against Ameriquest are the latest for the sub-prime industry, which
charges higher fees and interest rates to customers who may have missed mortgage
payments, run up huge credit card debts or struggled with job losses and
bankruptcies.

Many such clients are financially unsophisticated, increasing the chance of their
being exploited.

"There is a huge imbalance of power and knowledge between the people making
these loans and the borrowers," said Benjamin G. Diehl, a specialist in lending abuse
with the California attorney general's office.

Sub-prime lenders made $587 billion in new mortgages last year, up from $390
billion in 2003, according to National Mortgage News. During the first nine months
of 2004, Ameriquest's slice of that was about $37 billion, including $16 billion in
the third quarter, the trade publication estimated. (The company stopped releasing its
lending figures in late 2003.) At that pace, Ameriquest's total for the year was set to
exceed $50 billion.

Ameriquest traces its roots to Long Beach Savings & Loan, a thrift headed by Arnall
during the 1980s. The bank moved to Orange in 1991 and was converted to a pure
mortgage lender in 1994.
In 1996, the company, renamed Long Beach Mortgage Co., paid $4 million to settle
a Justice Department lawsuit accusing it of gouging older, female and minority
borrowers. Prosecutors accused it of allowing mortgage brokers and its employees to
add a fee to these customers of as much as 12% of the loan amount.

The company later reorganized as Ameriquest Capital. Its Ameriquest Mortgage Co.
unit makes direct loans to customers, and its Argent Mortgage Co. works with
independent brokers.

In the late 1990s, the company's sub-prime lending drew the attention of a national
housing advocacy group, Assn. of Community Organizations for Reform Now, or
ACORN. The group's president, Maude Hurd, denounced the company as a
collection of "slimy mortgage predators." About the same time, the Federal Trade
Commission began an investigation into its lending practices.

In July 2000 Ameriquest worked out a cease-fire with ACORN.

The deal included a commitment to make $360 million in low-interest, low-fee loans
to customers in the largely minority neighborhoods where ACORN operates.
(Ultimately, according to ACORN, Ameriquest made only a small fraction of those
loans because the group found other firms offering better terms for community
residents. Ameriquest says it continues to work with ACORN on the program.)

Soon after, the FTC called off its investigation. Fair lending advocates, including the
National Community Reinvestment Coalition and the Leadership Conference on
Civil Rights, hailed Ameriquest as a progressive force in the sub-prime market.

With its regulatory and image problems behind it, Ameriquest embarked on an all-
out marketing offensive that now includes an Internet advertising blitz and two
blimps that hover over major sporting events.

According to the ex-loan officers interviewed by The Times, however, the
company's growth has been generated more by hard-sell tactics than by slick
marketing. They described 10- and 12-hour days punctuated by "power hours" --
nonstop cold-calling sessions to lists of prospects burdened with credit card bills; the
goal was to persuade these people to roll their debts into new mortgages on their
homes.

Employees who put up big numbers, they said, were rewarded with trips to Hawaii
and the Super Bowl and, in some cases, with $100,000-plus salaries. No matter how
many loans they peddled, however, the pressure rarely eased, ex-employees said.

"I don't think there's a day that went by that I wasn't told I was going to be fired,"
recalled Omar Ross, who said he was a top producer when he worked for
Ameriquest in Grand Rapids in 2003 and 2004, quitting the company that year. "I
was told I was going to be fired at least 200 times."

Supervisors didn't let up even when he was meeting his quota, Ross said. "They
would tell everybody: 'Omar did 10. How come everybody else can't do 10?' Then in
private they would turn around and say: 'Why can't you do more? You're slacking.
You're capable of doing more.' "

In such a rabid atmosphere, several ex-employees said, abuses become inevitable.

"You close fast because the longer somebody has to sit and think about it, the longer
they have to think about the numbers," said Dave Johnson, a former branch manager
in suburban Detroit. "You don't want somebody to get buyer's remorse before they
close."

*

Hudson is a journalist based in Roanoke, Va., and Reckard is a Times staff writer.
Times research librarian John L. Jackson, news assistants Chris Tinkham and Todd
Leibensperger and staff writer Dan Morain contributed to this report.

*

(BEGIN TEXT OF INFOBOX BELOW)

Ameriquest Capital Corp.

Founded: 1979 as Long Beach Savings & Loan

Headquarters: Orange

Branch offices: 298 in 38 states

Employees: More than 12,000

Subsidiaries: Ameriquest Mortgage Co., Argent Mortgage Co., Ameriquest
Mortgage Securities, Long Beach Acceptance Corp., Town & Country Credit

*

Sources: Ameriquest Capital Corp., Hoover's

								
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