All the Devils Are Here [128]
By 2004, the AGs were targeting another lender, one that Cox called the “prototype” of the new breed of subprime lenders. Its loan volume was enormous. “We had these spreadsheets showing all the loans,” Cox says. He recalls thinking to himself, “Oh my God. The scope of their lending is unbelievable.” The company was Roland Arnall’s Ameriquest.
That summer, Cox first started hearing complaints from consumers that Ameriquest had inflated the value of their homes, qualifying them for loans they couldn’t afford. In fact, all over the country, complaints were flooding in that Ameriquest had not only inflated appraisals, but had encouraged customers to lie about their income or their employment and had misled borrowers about the fees embedded in their loans. They had promised people they’d be able to refinance out of expensive loans without disclosing that Ameriquest had stuck on hefty prepayment penalties if they did so. And on and on.
By then, Cox knew not to expect help from federal regulators. He started calling the OCC the “Office of Corporate Counsel” for the banking industry. The Fed, he says, viewed the AGs as “mosquitoes.” After all, those smart bankers on Wall Street wouldn’t securitize subprime loans if they were that terrible—would they? “Who do you trust?” Cox says. “A bunch of stupid public service lawyers who mostly aren’t even making six figures, or the people on Wall Street who are making eight or nine figures? It was an easy answer for the Fed.” He adds, “The regulators were totally uninterested in looking on the ground at what was happening to actual human beings. We were the only cops on the beat. And we were the people with the smallest hammer.”
In August of 2004, a group of Ameriquest executives, including general counsel Tom Noto, flew to Iowa to meet with Iowa attorney general Tom Miller and several others. The Ameriquest executives were cooperative. Their response to the complaints was consistent: “We don’t do that”; “That’s not the kind of company we are.” When faced with a particularly ugly loan, they’d say, “That’s an outlier.” How could that be, the AGs wondered, when the horror stories were so uniform—and came from all over the country? “I think they were clever,” says one participant. “This was a clever company led by an exceedingly clever man. I mean clever in the sense of shrewd, street smart.”
In early 2005, as the negotiations were getting under way, the Los Angeles Times published a scathing exposé of Ameriquest. The headline read “Workers Say Lender Ran ‘Boiler Rooms.’” Among other things, the story noted that lawsuits filed by consumers in California and at least twenty other states “allege a pattern of fraud.” One person who read the article was Robert Gnaizda, the general counsel of the Greenlining Institute. Over the years, Gnaizda had become friendly with Arnall, seduced by his charm and his seemingly sincere commitment to good lending practices. “He said they were trying to be the best subprime lender in the country, and I thought, ‘This guy could do it,’” Gnaizda recalls. His nonprofit had taken grants from Arnall for affordable housing and was in discussions with Arnall about an additional $1.5 million grant.
When the Times’s expose was published, Gnaizda called Arnall. One of Arnall’s executives called him back and told him the story was all wrong. “I said, ‘This is too disturbing,’” says Gnaizda. “I need a written refutation, or I’m out.” He also insisted that Arnall call for an independent investigation of the allegations. Arnall refused. Gnaizda sent back a $100,000 check that Greenlining had received from Ameriquest. “I was told that Roland was infuriated.” He adds, “I got to know Arnall very well, I got to like him, and then I was very disappointed by him, to put it mildly.”
As the negotiations with the