Financing the dream

GIVEN MONDAY’S NEWS THAT Ameriquest will pay $325 million to settle a predatory lending dispute with hundreds of thousands of customers, it’s easy to forget that in many ways the company provides a service to working-class consumers. Sub-prime mortgages, which charge higher-risk buyers a bit more to borrow -- an extra fee here, a higher interest rate there -- are helping to keep the American dream alive.

If outfits such as Ameriquest didn’t sell these loans, lots of folks with poor credit wouldn’t be able to get mortgages at all, much less the mega-mortgages needed to buy the “average” home today. In December, the median price of a house in the Los Angeles region reached $552,760. Try tackling that without access to financing.

But sadly, sub-prime lending -- which, at $530 billion, accounted for one in five U.S. mortgages in 2004 -- too often equals predatory lending. This week’s settlement came about after 49 state attorneys general accused Ameriquest, which is based in Orange, of a smorgasbord of misdeeds, including offering its salespeople incentives to push expensive and unnecessary loans. And Ameriquest is not alone. The Center for Responsible Lending, a research and policy group, has said that “abusive” sub-prime loans cost consumers more than $9 billion each year.

The sub-prime business gets sleazy in part because borrowers with poor credit don’t have the financial know-how of wealthier consumers. Take a cupful of home-buying eagerness and throw in a dash of naivete, and it’s not hard to see how such consumers wind up in the claws of greedy and unscrupulous lenders, who have no compunctions at all when it comes to obfuscating the terms of a loan, falsifying income information or pressuring property appraisers to inflate home values, as Ameriquest was alleged to have done.

Monday’s settlement, in which Ameriquest agreed to pay the $325 million but denied any systematic problems at the company, will not influence other lenders’ practices directly. Still, there’s hope it will set a standard for appropriate conduct.

To make sure that borrowers don’t get burned again, legislators and regulators must continue to push for transparency and honesty in the lending process. The battle is brewing in Washington, where two bills that aim to curb predatory lending are circulating in the House of Representatives. The bills differ in emphasis, but any law that winds up on the books should strike a balance between keeping finance options available and keeping them honest and fair.

The United States owes it to its hard-working citizens to keep the dream of homeownership alive -- especially these days, when a teeny-tiny bungalow will set you back a cool half a mil.