No Money Down! A Lifetime to Pay!

Welcome, friend, to the booming field of "subprime" mortgages. Think you can't afford a house? You're probably right, but that won't stop us from putting you in one!

According to documents Ameriquest filed with federal regulators, the complaints include allegations that Ameriquest inflated appraisals, misstated borrowers' incomes, deceived borrowers about its fees and loan terms, and applied inappropriate policies regarding loans for properties on Indian reservations. Based on past settlements by other predatory lenders and on the amount Ameriquest has agreed to pay to settle a class-action lawsuit in four states, American Banker magazine estimates the company has set aside up to $500 million in anticipation of paying refunds and damages.

In March, the U.S. House of Representatives began considering a bill that would further curtail state officials' power. The measure would create nationwide standards for the subprime mortgage industry, but would also require that federal law trump state rules.

Founded in 1979 as Long Beach Savings and Loan, Ameriquest is owned by billionaire financier Roland E. Arnall. Last month, Bush nominated Arnall to be U.S. Ambassador to the Netherlands. According to the campaign finance watchdog group the Center for Responsive Politics, Arnall and his wife Dawn contributed nearly $943,000 to Democrats and more than $1.1 million to Republicans between 1999 and 2004.

The Arnalls and their employees have been particularly generous to George W. Bush. According to Roll Call, last year they contributed $5 million to Progress for America, a group that paid for ads supporting Bush. They donated an additional $1 million to his inaugural committee, $1.8 million to Laura Bush's library fund, and earned the status of Bush-Cheney campaign "rangers" by soliciting more than $200,000 from others. Ameriquest employees, meanwhile, gave $150,000 to Bush. (The Arnalls seem to be more opportunistic than ideological: During the 2004 election cycle, they contributed $360,000 to the Democratic National Committee and $1,000 each to John Kerry and Hillary Rodham Clinton.)

In May, federal bank regulators issued "guidance" warning against the newer, riskier mortgages. In July, however, the New York Times reported that the cautionary words had virtually no impact because the agencies wouldn't take action. "We don't want to stifle financial innovation," was one explanation quoted by the paper. "We have the most vibrant housing and housing-finance market in the world, and there is a lot of innovation."

"We're not trying to set off alarms that we see broad issues," another regulator assured the Times. "We are seeing examples of practices that need to be tightened down a bit."

One more reason why lenders aren't likely to suffer too many ill consequences from irresponsible lending: Economists note that banks learned a great deal from the savings and loan crisis of the '90s. Consumers' willingness to embrace adjustable rate mortgages means much of the risk for banks of rising interest rates has been shifted onto borrowers. Similarly, because so many of the mortgages are now sold as securities, much of the negative effect of rising foreclosure rates will fall on investors.

Unless elected officials suddenly take as much interest in people like the Marolts as they do the Arnalls, credit guru Dahlheimer doesn't see much changing. "The profit margin on a grocery store is about 1 percent," he says. "You have to sell a lot of lettuce. If you can make 29 percent by moving money around, that's 28 times more profitable. If you have 100 clients, and 50 of them go into bankruptcy, you're still making 14 percent.

"Unregulated free market capitalism is a race to the bottom in terms of ethics. That's why we have regulations. Regulated capitalism is a thing of beauty," he continues. "When you break those rules you set people up for failure. You take away their seatbelt and say, 'Drive happy.'"

As for the Marolts, having very little credit seems to be what ultimately works. They're both working part-time at the supermarket. Now, they pay off their credit cards every month. There's a year of payments left on Rosalie's car, a 2002 Saturn, "and then that's it for the debt." •


City Pages intern Peter Madsen contributed research for this story.

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