Ameriquest employees admit to scams
By: David Gibbons, Zillow Director, Community Relations | May 16, 2007
A common theme when discussing the sub-prime mortgage implosion is
the question: "Who could be stupid enough to have taken a loan they
could not afford?" I’ve even used similar logic to predict that the
sub-prime shake-out would not be widespread. This post illustrates why
that prediction could be wrong.
Yesterday, NPR broadcast interviews with several ex-employees of the mortgage company Ameriquest.
Their stories are evidence that the sub-prime shake-out is not just the
result of some bad math or stupidity. Some of the homeowners facing
foreclosure today were intentionally deceived.
The candor of Tyson Russum, one of the loan officers interviewed by
NPR, is refreshing. Russum explains how part of his first day’s
training at Ameriquest included watching the film Boiler Room (in which a hard-charging team of securities brokers sells fake equities to private investors). Note to Russum: this really should have been a red flag.
According to Russum, the "training video" set the tone for the year he
spent at the company. Only extensive due diligence could have saved
Ameriquest clients from the scams described in the interview:
- Falsifying loan applications was such a common practice that the
process became known as "sending papers to the art department." - The
first few pages of fixed rate mortgage agreements were attached to the
front of adjustable rate contracts in a ploy to confuse borrowers. - Customers who took ARMs that reset after two years (these represent
the bulk of Ameriquest’s sub-prime mortgages) were told that their
rates were fixed for "as long as they wanted."
According to NPR, these exact same scams were confirmed by multiple
branch managers. Since this was common practice, it is now fair to
assume that a significant number of Ameriquest mortgages could end
badly. As I think about the impact of the sub-prime implosion on house
values, I can’t help but wonder if these scams are unique to Ameriquest
or whether we will hear similar stories about other lenders.
Customers and former employees of Ameriquest are preparing a class action law suit against the company.
If you’re an Ameriquest client, you should take the time to ensure you
understand your mortgage payment schedule. If you are buying a home,
beware that your lender has no legal responsibility to ensure that your
loan suits your financial position. Be careful whom you trust and
please: read your mortgage agreement before you sign it.
- Stumble it!
- Categories: Home Mortgage, Real Estate, Real Estate Industry
Comments
5 Comments so far
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Sunil Sethi on May 17, 2007 2:14 am
What Ameriquest was doing is unspeakable and I hope all the top officers and loan officer involved face criminal charges. However besides the cases of bad lenders and loan officers, there are also bad borrowers (the Casey Serin’s of the world) who refuse to take good advice.
most of time when I tell people they can’t afford to borrow as much as they ask for, they understand it would be in there best interest to not buy that house or take that much debt. But then there’s that other group that’s been told by someone else that you’re qualified for as much as you want.
When these people later get in over their head, I have no sympathy for them.
Even with all the talk of foreclosures and stated income loan abuse I still find people making bad decisions.
ProspectZone Mortgage on May 17, 2007 10:24 am
“The first few pages of fixed rate mortgage agreements were attached to the front of adjustable rate contracts in a ploy to confuse borrowers.”
That is the worst part of the whole thing. Sure it’s good to read the whole document before signing- but what if the document itself is wrong? Intentionally wrong? That’s horrible.
Ted Janusz on June 9, 2007 7:53 am
The Top 10 Mistakes Mortgage Borrowers Make
“Given how easy it is to get skinned on a mortgage deal, it’s amazing anyone ever buys a home,” says Liz Pulliam Weston, personal finance columnist for MSN Money.
“But buy we do — and then refinance, and refinance again. Our ignorance of how the mortgage process works and the many ways mortgage pros rig the system in their favor lead many of us to pay far more than we should.”
Taking Ms. Weston’s comments into consideration, here is the key information from a former senior loan officer that mortgage lenders don’t want borrowers to know:
1. Not knowing which mortgage fees the borrower can — and cannot — negotiate. Or how the lender actually makes money on you. Without this understanding, a smooth operator could bilk you out of thousands of extra dollars . . . in mere seconds, since you don’t actually write a check for these costs. Remember, the loan officer is different from your friendly bank teller. The bank teller is probably paid a salary to be courteous and helpful. The loan officer’s job is to make money and is probably paid on commission.
2. Choosing and trusting the first loan officer the borrower interviews. Just like you probably wouldn’t say yes if someone asked you to marry them on your first date. You are looking at a commitment here of the largest single investment you will ever make. In fact, it will probably last longer than most marriages!
3. Using an interest-only or “payment option” adjustable-rate loan primarily to qualify for a more expensive house than you could normally afford. In the current market of slowing appreciation and falling prices, such a loan could leave you with a mortgage balance that could be more than the value of your home. And if the payment adjusts from a below-market teaser rate, you may be paying hundreds or even thousands of dollars more per month or may even no longer be able to afford the mortgage. You may be looking at a foreclosure and the loss of your biggest investment.
4. Thinking the interest rate is always the main thing. Most so-called astute mortgage shoppers think they should call around to shop rates. And rate envy is common, especially among male borrowers. But what closing costs will you need to pay to get that fabulous advertised rate? Do comparison shopping not just on the interest rate but on all of the loan costs.
5. Not comparing the final fees listed on the closing documents to the up-front estimates to avoid the lender “packing” the loan with added-on fees without the borrower’s knowledge. It is relatively easy for the lender to do this because there will be a ream of forms that you will need to examine and sign at closing. A deceitful closing agent may also use various tactics to distract you from the inflated figures so you won’t even notice.
6. Not knowing if the mortgage has a pre-payment penalty - until it’s too late. Else you could find yourself in a Catch-22: You may need to refinance the mortgage so you can afford the monthly payment, but you may not be able to afford the prepayment penalty to allow you to refinance!
7. Thinking that renting is always just throwing money away. At least in the short run, it can cost thousands less to rent. For instance, don’t buy a starter house. If you will be living in the area for less than five years or are unsure of how long you will be in your current job or marital status, you could potentially save thousands by staying in your apartment. Closing costs alone on a house (if you negotiate properly) may be $1,500 to $2,500. You may also be looking at a Realtor fee to sell your house of 6%. On a $200,000 house that’s an additional $12,000. And the moving van hasn’t even pulled up to your door yet!
8. The borrower does not know if he or she is paying a back-end yield spread or Service Release Premium. These are fees paid to brokers and loan officers (the ” kickback”) for upselling the interest rate to borrowers.
9. Paying for mortgage life insurance, credit insurance or other expensive lender add-ons to increase the amount of kickbacks the lender can receive from various vendors.
10. Paying hundreds of dollars to have a company set up a biweekly mortgage payment plan, something the borrower can generally do for herself or himself — for free.
From “Kickback: Confessions of a Mortgage Salesman,” one of the best-selling books on mortgages on Amazon.com.
Jack Payne on September 5, 2007 11:42 pm
It looks like equity stripping by the foreclosure “rescue” boys is about to run into over-extended flippers, and ARM reset victims. Promises to be quite a crash.
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