LAT: Ameriquest fabricated data, forged documents and hid fees

February 4, 2005
latimes.com : Business

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

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