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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

about First Alliance Mortgage Company, a California-based mortgage lender. Con-
sumers complained that they had been deceived into taking out loans with hefty fees.
The company was then packaging the loans and selling them as securities to Lehman
Brothers, Madigan said. The case was settled in , and borrowers received 
million. First Alliance went out of business. But other firms stepped into the void. 
State officials from around the country joined together again in  to investi-
gate another fast-growing lender, California-based Ameriquest. It became the na-
tion’s largest subprime lender, originating  billion in subprime loans in
—mostly refinances that let borrowers take cash out of their homes, but with

hefty fees that ate away at their equity. Madigan testified to the FCIC, “Our multi-
state investigation of Ameriquest revealed that the company engaged in the kinds of
fraudulent practices that other predatory lenders subsequently emulated on a wide
scale: inflating home appraisals; increasing the interest rates on borrowers’ loans or
switching their loans from fixed to adjustable interest rates at closing; and promising
borrowers that they could refinance their costly loans into loans with better terms in
just a few months or a year, even when borrowers had no equity to absorb another
refinance.” 
Ed Parker, the former head of Ameriquest’s Mortgage Fraud Investigations De-
partment, told the Commission that he detected fraud at the company within one
month of starting his job there in January , but senior management did nothing
with the reports he sent. He heard that other departments were complaining he
“looked too much” into the loans. In November , he was downgraded from
“manager” to “supervisor,” and was laid off in May . 
In late , Prentiss Cox, then a Minnesota assistant attorney general, asked
Ameriquest to produce information about its loans. He received about  boxes of
documents. He pulled one file at random, and stared at it. He pulled out another
and another. He noted file after file where the borrowers were described as “an-
tiques dealers”—in his view, a blatant misrepresentation of employment. In another
loan file, he recalled in an interview with the FCIC, a disabled borrower in his s
who used a walker was described in the loan application as being employed in
“light construction.” 
“It didn’t take Sherlock Holmes to figure out this was bogus,” Cox told the Com-
mission. As he tried to figure out why Ameriquest would make such obviously fraud-
ulent loans, a friend suggested that he “look upstream.” Cox suddenly realized that
the lenders were simply generating product to ship to Wall Street to sell to investors.
“I got that it had shifted,” Cox recalled. “The lending pattern had shifted.” 
Ultimately,  states and the District of Columbia joined in the lawsuit against
Ameriquest, on behalf of “more than , borrowers.” The result was a  mil-
lion settlement. But during the years when the investigation was under way, between
 and , Ameriquest originated another . billion in loans, which then

flowed to Wall Street for securitization.
Although the federal government played no role in the Ameriquest investigation,
some federal officials said they had followed the case. At the Department of Housing
and Urban Development, “we began to get rumors” that other firms were “running