Magazine article American Banker

Viewpiont: Settlement Terms Point the Way for Subprime

Magazine article American Banker

Viewpiont: Settlement Terms Point the Way for Subprime

Article excerpt

Ameriquest, the nation's largest subprime lender, recently agreed to the second-largest settlement in American history by a mortgage company: $325 million. (Household International's 2002 settlement was $484 million.)

Many consumer groups have complained that an average of less than $500 for each of the estimated 725,000 victims is grossly inadequate, that the settlement amount should have been more like the one in the recently announced AIG fraud settlement, $1.6 billion.

But instead of focusing on the dollar amount agreed to by 33 state attorneys general, consumers should look at the new "best practices" required of Ameriquest.

These practices will probably influence the behavior of the 20 largest unregulated subprime lenders and all of the largest regulated subprime lenders - companies like Citigroup, JPMorgan Chase, Wells Fargo, and Washington Mutual. The growth of these pro-consumer practices might even convince Bank of America to reenter subprime once consumers have confidence in that market.

One element of the Ameriquest settlement that has particularly encouraged consumers is the appointment of an independent monitor and compliance committee for the next five years.

No other subprime lender will volunteer to having a long-term independent monitor report to 33 state attorneys general, but some may wish to agree to a one-time independent audit. This would inspire consumer confidence and might give these lenders a huge competitive advantage.

Two Ameriquest best practices could also help subprime lenders secure a competitive edge:

*The centralizing of appraisals to ensure that they are independent and avoid putting borrowers at risk, especially if housing prices fall. …

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