The Globe reports this morning that 49 states, including Massachusetts, have entered into a $325 million settlement with Ameriquest Mortgage Co. regarding Ameriquest’s predatory lending practices (UPDATE: you can read the agreement here). Ameriquest is a “subprime” lender focusing heavily on borrowers with bad credit or who otherwise wouldn’t qualify for traditional mortgages. Allegedly, Ameriquest charged unreasonably high fees, engaged in deceptive marketing (e.g., by not making clear that the interest rate on the loans would rise), and otherwise behaved badly in the course of making these loans, which predictably resulted in foreclosures when borrowers couldn’t make their payments.
Massachusetts is eligible for $12 million to compensate about 15,000 borrowers, the seventh-largest share of the settlement. Affected borrowers will have the option to opt out of the settlement and continue their own lawsuits if they choose to do so, and the Globe reports that some attorneys involved in the litigation believe that the settlement is inadequate.
This is a big deal for the Governor’s race, for several reasons. First, Attorney General Tom Reilly was heavily involved in negotiating this settlement, and you can bet that he’ll be loudly trumpeting his ability to bring an evil predatory lender to its knees. (His quote in the Globe article: “A pattern of consumer deception and fraud ends right here with this settlement.”) And there’s nothing wrong with that.
Second, and more intriguingly, Deval Patrick is on the board of Ameriquest’s parent company (there’s background and some links here). And he heartily endorsed President Bush’s nomination of Roland Arnall, the company’s CEO, to serve as Ambassador to the Netherlands – a nomination that has been stalled largely over allegations of Ameriquest’s naughty lending practices. When the news of Patrick’s backing of Arnall broke, Patrick defended himself by saying that (1) he had joined the board at Arnall’s invitation to help clean up the mess, and (2) Arnall was a good man trying to do the right thing. Similarly, he’s quoted in today’s Globe article as follows:
Patrick lauded the settlement in a statement as “very, very good for consumers in Massachusetts” and nationwide, and he credited Reilly and other state officials “for working together to reach such a constructive conclusion.” “I am proud to be a part of it and hope that this will be a model for reform that raises standards for lending practices not only at Ameriquest but in the entire industry,” he said.
That’s all well and good, but Patrick has to realize that his involvement with a company like Ameriquest – particularly in light of his past extensive involvement with Coke and Texaco (not on everyone’s A-list of responsible corporate citizens) – makes some people nervous. So here’s some friendly, unsolicited advice to Mr. Patrick: get out in front of this story NOW. Loudly, and proudly, explain in detail the reasons you joined this company’s board, your involvement in the settlement, why you think it will resolve the issues, etc.
Put out a press release. Talk up how you personally steered the company toward a multimillion dollar settlement. But for heaven’s sake, don’t assume that this story is a one-day headline. It’s not (for one thing, the Arnall nomination is going to be back in the national press with the news of this settlement). Tom Reilly is going to run hard with this story – as he should, and as he would even if his primary opponent weren’t involved – and you need to be ready.
And I think he should do so with some bravado, by pointing out that the best way to reform corporate culture is for concerned and progressive businessmen like himself to be on corporate boards and steer them toward social responsibility.
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He should also call for other big lenders (I’m talking to you, East/West) to reform their practices. I’ve heard the default rate in communities in northern Mass (Lowell) is something like 60% on all loans underwritten over the past five years. That’s a scary figure.