WASHINGTON - The head of one of the nation's largest subprime lenders said Wednesday that he is willing to sacrifice millions of dollars to prove his business is legitimate.

Ameriquest Mortgage Co. committed itself to lending $360 million to approximately 10,000 low-income families in 10 cities over the next three years. Under an agreement with the Association of Community Organizations for Reform Now, the company will keep points and fees under 3%, prohibit prepayment penalties and balloon payments, and offer interest rates that are 50 basis points below its competitors'.

On the surface, Ameriquest president Kirk Langs seemed merely to be doing what a lot of lenders do when their business is under fire: strike a deal with a community group.

Mr. Langs said he agreed to the program to settle once and for all the debate between activists and the industry over which came first: high delinquency rates among subprime borrowers, or the higher rates and aggressive collection practices used by lenders.

"It's the chicken versus the egg," he said. "We say that the borrowing habits of our customers make us charge high rates to make up for the risk we take. Acorn claims that if there were lower rates, there would be fewer delinquencies. We want to see if they can prove that. I hope they can."

Mr. Langs, however, predicted that his company will lose money on the program. "I have to charge a lower price, can't recapture money on fees, and originate the loan. But unless we resolve this debate, we can never move forward."

Acorn will handle all advertisement and marketing of the loans and will provide financial counseling for each borrower. The program will be limited to a single ZIP code in each city, but activists are hoping it will prove low-income families do not default as often if they are given reasonable rates and advice.

Maude Hurd, president of Acorn, hopes the program will become a model for other lenders. "This program will deliver loans to meet [low-income community] needs - and it will do so offering the strongest safeguards and the best terms in the industry," she said. "Just as important, this initiative will help raise the bar for the rest of the subprime industry."

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