Ameriquest Mortgage Co. has agreed to pay $7.25 million and to change its business practices to settle allegations by Connecticut Banking Commissioner John Burke that it violated a state lending law.
According to the settlement agreement, signed by Ameriquest executives on June 15 and by Mr. Burke on June 23, Ameriquest paid the agency a $1 million dollar civil fine; $250,000 to meet the agency's expenses in investigating the company; and another $1 million of seed money for a "Connecticut Housing Assistance Fund." It agreed to contribute $1 million a year to the fund from 2006 to 2010.
Mr. Burke had charged that Ameriquest, of Orange, Calif., broke the law by refinancing 295 customers within two years of originating the first loan. The company said Thursday that apart from the settlement, it voluntarily gave each of those customers $500 and refunded to each 5% of the principal of their initial Ameriquest loan or $2,000, whichever was greater.
As part of the settlement, Ameriquest will undergo semiannual reviews of its compliance with Connecticut state lending law for two years. After that the banking commissioner will decide whether the company has complied fully enough with the law that the reviews are no longer necessary.
Ameriquest also has to conduct monthly post-funding audits of all refi loans it makes in the state. The auditor will have to submit a written report to the agency for each audit.
The penalties will also get steeper if the problem ever occurs again. If the company makes any more mistakes in the state, the fines per loan will grow to $5,000 to $10,000 (depending on the number of mistakes) plus a $1,000 a loan administrative fee, and the commissioner "may take enforcement action without an administrative hearing," according to the settlement.
If future violations occur, it will also have to inform the agency and refund some prepaid finance charges.
This was not Ameriquest's first settlement with Connecticut or the first time it had refinancing problems in the state.
A few years ago it was discovered that Ameriquest had resolicited Connecticut customers too soon for refinancing. In a Jan. 22, 2004, settlement with Mr. Burke, it agreed to pay $603,552 of refunds, an additional $500 to each borrower (totaling $62,000), and a $5,000 civil penalty to the state.
According to a source with knowledge of the situation, Ameriquest and several affiliates made unintentional technology errors when programming their origination systems the first time around and failed to correct them the second time.
Earlier this year, after the problems resurfaced, the Department of Banking threatened to take away Ameriquest's license.
Another term of the settlement is that the company also must use unaffiliated third-party title companies to perform a "24-month bring-down" on titles, showing all mortgages (past, present, paid in full). And it must conduct regression testing following each and every programming change to ensure that no inadvertent change will occur to its compliance programming.
