It wasn’t much — a run down New Englander with peeling paint on a quiet Pembroke street — but to William Bouley, “it was the first home I’ve had in 40 years. I came from the streets, and here I am, and here is all that I’ve got.”
Now Bouley, at 50, may have to face those streets again, thanks to an ill-fated refinancing loan from Ameriquest Mortgage Company that resulted in Bouley and his wife paying more than 60 percent of their limited income toward their mortgage. Yet while AMC, Ameriquest’s servicing arm, threatens to foreclose on the Bouleys’ home, the company is pressing for him to go even deeper into debt with yet another mortgage refinancing.
Despite signed releases, Ameriquest “will not comment on any borrower’s financial dealings,” said company spokesperson Alan Maltun, but he stressed that Ameriquest policy is to clearly disclose loan terms, to allow customers to back out of the loan a week after closing “and when a problem does arise, it does its very best to work things out.”
Added Maltun: “The vast majority of our customers are satisfied.”
But several class action lawsuits along with regulators from some 30 states charge such problem loans are not mere glitches of the company’s intentional pattern of predatory lending.
Predatory lending targets poorly educated, risky borrowers with high-cost, high-interest loans. They are given not based on their ability to pay back the loan, but on the basis of being able to collect on the collateral, through the forced sale or foreclosure of their house.
Ameriquest vehemently disputes this charge, arguing that most of its customers are solidly middle-class borrowers with spotty credit reports who are happy to get a sub-prime mortgage, even though it might cost more than a conventional loan.
The company points to its best practices, which it says, insures that loan terms are clearly disclosed. Still, while the company is fighting such accusations in the press, and the law suits in courts, it also has been willing to come to terms.
It settled one suit last May in California for as much as $60 million and in July settled a banking complaint in Connecticut for $7 million. It also has disclosed in a Securities and Exchange Commission filing that it was setting aside $325 million for other potential state settlements. (New Hampshire is one of those states, said sources close to the multi-state negotiations, who added - at deadline - that a large settlement with Ameriquest might be announced in the near future.)
Such negative publicity can’t be desirable for the image of a company that bills itself in a recent commercial plugging the Ameriquest-sponsored Rolling Stones tour as the “proud sponsor of the American Dream.”
More than expected
Brought up in foster home after foster home, William Bouley was a drifter all his life, even winding up in prison from 1988 to 1992 on an assault charge. But he has been trouble-free since and met his wife (who asked that her name not be used), and bought their house - a 110-year-old maroon seven-room New Englander - in 1995.
“I looked it over like a kid in a candy store. If I knew what we had to do when we walked into this house, I’m not sure we would have bought it,” he said. “We had to redo the plumbing, the electricity ...”
He enumerated all the work he put into the place, pointing with particular pride to how he cleared out the backyard, lined the walkways with lilies, and even planted a miniature peach tree.
But a degenerative spinal disease made it hard for Bouley, who now walks with the help of a cane, to keep up with the maintenance or mortgage. Not only is his income limited to roughly $700 a month from Social Security, he also owes about $10,000 in medical bills. In addition, his wife, a part-time data entry clerk, lost her second job. So when Ameriquest offered to tie up all their debt at a lower interest rate in the summer of 2003, the Bouleys thought it would help them out.
But, Bouley said, the final loan papers didn’t reflect what company representatives originally explained. First of all, Bouley said he thought it was a fixed loan, not an adjustable loan. The rate is fixed for two years, and then it is allowed to rise based on the prime rate.
Bouley also maintains that he didn’t know that the couple’s car debt was included in the loan. So, since the car loan became a 30-year debt, his monthly payments actually went up, not down.
“I was already paying $400 a month for the cars. I never would have told them to pay an extra $200. We didn’t tell them to take the car on the loans,” Bouley maintains.
Thirdly, the loan application reports the Bouleys monthly income at $5,888, nearly twice the amount - they said — that they told them they earned. The application said Bouley’s wife earned $2,698 in “other income” in addition to her job. Both Bouleys dispute that they ever told Ameriquest loan officers this, and that it could have easily been verified by documents that were provided to the company.
After all the papers were signed, the Bouleys traded in a $137,400 mortgage for a $184,000 mortgage.
The Bouleys paid some $14,300 to close on that subprime loan, including a $9,200 “discount fee” to get an adjustable mortgage that started at nearly 8 percent and just shot up to 9.625 percent. The resulting monthly payment ($1,951.43) amounts to more than 60 percent of their income.
“We were paying $1,100 and $1,200. It went up to $1,700, and now we are paying even more. I don’t see how we can do this,” he said.
Yet these are the terms of the loan stated clearly on the mortgage papers. But the Bouleys, who came to the closing without a lawyer, said they really had no idea what they were signing.
“If I tried to read all those forms before I signed them, then I’d probably still be here reading them,” said Bouley.
(While not commenting on the Bouleys’ case, Maltun said it is the company’s policy to add simplified disclosure statements to the large stacks of loans. It also stated that its initial lending documents suggest that the borrower consult with an attorney or professional before agreeing to any loan.)
As the Bouleys fell behind, Ameriquest’s servicing arm, AMC Mortgage Services, began sending out foreclosure notices. But at the same time, Ameriquest offered another refinancing package, rolling all the couple’s debt into an even larger loan.
The new proposal, which was first offered at the end of last year, would increase the loan amount to $211,638, capitalizing the amount of back payment plus another $10,255 in closing fees, including $6,922 in discount fees. While the initial monthly payment would go down, it would shoot up again in 2007 to $1,619 - lower than the amount they are paying now, but only if the prime rate continues to remains the same. (Their interest rate however would not go below the original amount should the prime rate drop).
“The left hand says your loan is in default,” said Bouley. “The right hand says we will clear this matter up if you refinance right now — on our terms.”
(Maltun said that the company’s policy is not to offer unsolicited refinancing until two years into a mortgage - which coincides when most of its adjustable mortgages shoot up.)
The Bouleys say they have been called repeatedly by both Ameriquest and AMC — as many as 12 times a day, according to their phone log, and once three times in 90 minutes.
“We told them to stop calling,” he said. “It was like harassment. They even got a hold of my wife’s cellphone number.”
The Bouleys are reluctant to sign this deal, not wanting to get any deeper in the hole. On the other hand, if they go elsewhere, they would have to pay a large prepayment penalty.
That leaves them a choice to sell the house before they lose it all in foreclosure, but Bouley said he doesn’t even have enough cash in the bank at this point to hire an appraiser. And even if they could get another loan, how would they get another house with today’s prices and their credit rating?
“We have nowhere to go,” said Bouley.
The Bouleys, took their complaints to CATCH, the Concord Area Trust for Community Housing - a nonprofit group based in Concord, which in turn forwarded it to the New Hampshire Banking Department.
They weren’t the only ones to complain. Ameriquest was the subject of 10 complaints in New Hampshire last year, more than any other banking or mortgage company. That number amounts to a small percentage of the 1,835 loans made in New Hampshire by the company last year, stressed Maltun, who added that, because Ameriquest services its own loans, the complaint numbers will be higher than those other large companies that don’t.
While the Banking Department refuses to release any details concerning other complaints in New Hampshire, the Bouleys’ charges are similar to complaints of class action suits around the nation.
For instance, a class action suit filed in February in U.S. District Court in Boston accuses Ameriquest of using “bait-and-switch tactics or similar deception by which Ameriquest misrepresented or failed to fully disclose important aspects of the loan terms until closing.”
The tactics, according to the suit, include a “confusing variable interest rate structure in which the original rate could not only increase, but not decrease … a large number of discount points added to the principal of the loan even though Ameriquest provided no discount in the transaction.”
Borrowers who complained about the loan terms at the closing, or immediately afterward, the suit alleges, “were uniformly promised early refinancing on more favorable terms.”
The large amount in discount points both from the early loan and the new loan, became “de facto prepayment penalties” because they would drive up the effective interest rates and loan amounts, according to the lawsuit.
Regulators’ concerns also focus on these discount points as well as “the accuracy of state income and appraisal valuations, and oral statements to borrowers relating to loan terms and disclosures” according to Ameriquest’s SEC filing.
Ameriquest’s filing says “its best estimate of ultimate financial liability” was $325 million.
In its settlement with the Connecticut Department of Banking, Ameriquest, the department found “imposition of prepaid finance charges in connection with internal refinancing of first mortgage loans which were less than two years old,” exceeding state law limiting such charges to 5 percent of the principal amount of the initial loan or $2,000.
(Such high-cost loans are legal in most states, but the federal government requires that companies make special disclosures when the discount points amount to more than 8 percent of the loan.)
Ameriquest’s policy is not to make loans with more than 5 discount points, said Maltun, so its loans aren’t technically classified as high cost.
The question is whether such a large subprime lender like Ameriquest can lend to people with substandard credit without having such situations arise.
Jason Zavala, president of MitiGate, a mortgage-risk education group in Vermont, thinks that they can. Ameriquest, he said, should be complemented for “stepping into a marketplace that nobody is stepping into,” he said. And it takes more heat than its smaller rivals because “when you are that big you are an easy target.”
While there are abuses and misrepresentations, “I don’t think it is solely the fault of Ameriquest. It could be more to do with the brokers that are out there,” he said.
Still, Ameriquest could do more to make sure that its representatives follow the law and should be willing to pay more to put things right, he said.
For instance, a $325 million settlement is not going to help many borrowers, who could lose their homes by the time they see any of the settlement.
“That may seem like a lot of money, but it’s a blink of the eye to them,” Zavala said.
This article appears in the August 19 2005 issue of New Hampshire Business Review