In the fall of 2005, well before the mortgage meltdown hit, Roland Arnall was trying to become an ambassador.

President George W. Bush had nominated the founder of California-based Ameriquest Mortgage to head the U.S. Embassy in the Netherlands. But some in the U.S. Senate questioned whether Arnall was the right choice.

Jessica McGowan/AJC (ENLARGE)

The Andronica family: Taylor, 5; David; Nicholas, 2; Kelly; and Matthew, 9, enjoy a spagetti dinner together at their Cumming home on Feb. 24. The Andronicas have been fighting with Ameriquest Mortgage for several years and now face foreclosure.

Jessica McGowan/Staff (ENLARGE)

Kelly Andronica (holding daughter Taylor, 5) and her husband, David (with son Matthew, 9), are fighting refinancing terms set by Ameriquest Mortgage, yet still face foreclosure.

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Attorneys general in states across the nation had accused Ameriquest of predatory mortgage lending practices that left thousands of consumers with troubled home loans.

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With the pressure on, Arnall's company agreed early in 2006 to a $325 million settlement with the states. Within a few weeks, the Senate blessed Arnall's nomination, clearing the way for the self-made billionaire to pack his bags for the Netherlands.

The settlement was hailed as a significant victory for consumers. But as it turns out, it did very little to ease the huge financial hit experienced by thousands of Americans still trapped in Ameriquest loans.

The settlement offered Ameriquest homeowners a token payment. For Georgians who qualified and agreed not to sue the mortgage company, checks that averaged $1,000 began arriving late last year, as the mortgage meltdown was forcing thousands into foreclosure.

For homeowners stuck with fraudulent Ameriquest mortgages, the government's settlement offered no revision of the terms of the loans.

Consumer advocates say that Ameriquest customers at risk of foreclosure have great difficulty winning modifications to their mortgages now, even though the Bush administration has encouraged lenders to make reasonable changes to keep families in their homes. Federal Reserve Chairman Ben Bernanke last week called on lenders to cut the balance due on mortgages that exceed the value of homes, a common problem for consumers who borrowed from Ameriquest.

Gary Leshaw, a Decatur consumer attorney who has contested Ameriquest mortgages, said the much-heralded settlement was a failure.

"They sent the victims a few dollars, but they're still stuck with their fraudulently made loans," he said. "And the guy in charge is now an ambassador."

Floating, not fixed-rate

In 2004 David and Kelly Andronica were already looking into refinancing the mortgage on their four-bedroom house in Cumming when they got a call "out of the blue" from a salesman for Ameriquest.

"He was just speaking real clear and I felt like he was being real nice to me and Kelly," David Andronica recalled. "He acted like your best friend."

The Andronicas went through with a refinance with Ameriquest. They thought everything was fine until Kelly put in a call to the company to find out why their property taxes had not been paid.

Kelly said the customer service agent asked her to verify some figures from her loan application, including an annual income for Kelly in excess of $60,000.

"I haven't made that much money in my entire life," said Kelly, a 31-year-old mother of three.

Her W-2 statement, which she had supplied to the mortgage company, shows the housewife earned $1,408 working part time at a day care center.

But the Andronicas were to find worse news. They discovered they had signed for an adjustable-rate mortgage instead of the 30-year fixed rate they say they wanted. And, the appraisal Ameriquest ordered significantly overstated the home's value.

An appraiser hired by Ameriquest said the family's house was worth $283,000, much higher than the $209,000 value an appraiser hired by the Andronicas had set just two months before. David said that when he told his contact at Ameriquest that the value sounded high. "He was like 'No, everything's fine'."

Jason Farmer, who supervised the higher appraisal, said in an interview that he stood by all the home values determined by his Blue Ridge-based company. However, he said that his company stopped doing business with Ameriquest because the lender tried to inappropriately influence appraisals.

"Ameriquest was particularly bad about pressure for values," Farmer said. "A lot of times they would stipulate, 'Well, we are looking at at least this value'."

The more the Andronicas learned about Ameriquest, the worse things got. They started looking for a lawyer.

Tough law weakened

Roland Arnall amassed his fortune as a hard-charging businessman. An immigrant who once peddled flowers on street corners in Los Angeles, Arnall started in the mortgage business in 1979.

Ameriquest and its sister company, wholesale lender Argent Mortgage, together became the largest subprime mortgage lenders in the nation. Arnall had previously faced accusations that his company was mistreating consumers. Long Beach Mortgage, Ameriquest's predecessor, paid $4 million in 1996 to settle federal charges that it was gouging women, minorities and elderly borrowers.

Arnall and his wife, Dawn, are well-known in California as philanthropists and have been heavy contributors to both political parties. During the 2000, 2002 and 2004 election cycles, Arnall and his immediate family gave $2 million to federal candidates and party committees, according to the Center for Responsive Politics, an organization that tracks federal campaign contributions.

In 2002, Ameriquest joined a slew of lenders that lobbied heavily against the Georgia Fair Lending Act, which was billed as the toughest anti-predatory lending law in the nation.

Ameriquest, like some other lenders, halted lending and vowed to leave the state if the law did not change. The General Assembly in 2003 gave the industry what it wanted when it weakened the law's provisions.

"If that law had stayed in place and was not modified, maybe those people would not have come back to Georgia, which would have been the most wonderful result — Ameriquest out of Georgia for good," said William J. Brennan, a veteran attorney at Atlanta Legal Aid and one of the nation's foremost experts on mortgage lending laws.

By 2004, Iowa Attorney General Tom Miller had spent enough time investigating Ameriquest's practices that attorneys general in other states joined the effort. Eventually, 49 states and the District of Columbua signed on to a case alleging that Ameriquest used deception and high-pressure sales tactics to reach sales quotas. The investigation found that the company regularly inflated appraisals, falsified income information and did not properly disclose the terms of loans.

"They had a culture of sell, sell, sell — do whatever it takes to sell," Miller said.

The $325 million settlement was one of the largest consumer protection settlements ever. A total of 486,000 Ameriquest borrowers were eligible, including 7,394 in Georgia. About 4,500 of those in Georgia accepted the deal.

The Andronicas said they were told they would get $543 from the settlement. They declined, knowing that agreeing to the deal would block any lawsuit they might want to file in the future.

"That wouldn't have helped us at all," Kelly Andronica said.

Miller, the Iowa attorney general, acknowledged that the $325 million didn't come close to covering most consumers' losses.

"To fully compensate them, it probably would have taken billions," Miller said. "There was no way to get that out of the company."

Miller also would have liked to have ordered massive changes in mortgages like the Andronicas'. But that wasn't possible.

"Ameriquest had sold the loans to secondary market investors, as did almost all subprime lenders at the time," said Iowa Assistant Attorney General Patrick Madigan. "As much as we would have liked to require Ameriquest to modify the loans, legally it was not an option available to us."

Foreclosure still possible

Today, Ameriquest barely exists. Like many subprime lenders, the company closed its lending operations last year when the mortgage meltdown hit.

In September, Citigroup bought the assets of the mortgage servicing company owned by Ameriquest's parent, ACC Capital Holdings. It also bought the assets of Argent Mortgage. That deal gave Citigroup the servicing rights for the Andronicas' mortgage and $45 billion in other loans.

While Citigroup manages the mortgages made by Ameriquest, they are still owned by investors.

Citigroup and other mortgage servicers face legal impediments when trying to modify investor-owned loans because of the rules that govern the investment vehicles.

But in cases of fraud, consumers advocates say, such modifications are clearly called for.

That's the only way homeowners like the Andronicas will avoid foreclosure, which hurts investors and homeowners alike.

Because of the adjustable rate, the Andronicas can no longer afford their mortgage. They stopped making payments months ago.

Chris Orlando, an Ameriquest spokesman, said the company tried for more than a year to work out a resolution with the Andronicas.

Leshaw, the family's attorney, said Ameriquest never made a reasonable offer. "They never wanted to address the fraud," he said.

Orlando refused to comment about any specific problems found, but said companywide changes were made to Ameriquest's operations as part of the settlement with the attorneys general.

He said the Ameriquest employee involved in the Andronicas' loan is no longer with the company. He would not comment on whether that employee acted improperly.

After temporarily suspending the family's mortgage payments, the company went to court in July to foreclose. The filing said the couple owed $295,000 plus interest and attorneys' fees. That's more than the $254,700 the couple borrowed when it refinanced in 2004.

The family filed a counterclaim alleging mortgage fraud. Ameriquest and Citigroup in December withdrew the foreclosure action. But the Andronicas still face possible foreclosure, as do many other families.

"Loans everyone admits are fraudulent are still subject to foreclosure," said Leshaw.

The Atlanta law firm handling Ameriquest foreclosures will not say how many it is working on. But local court dockets suggest that dozens are pending. Citigroup has pledged to do what it can to modify Ameriquest loans, when appropriate, to avoid foreclosure.

But consumer advocates say the massive lender is not doing what it should.

"Of all the servicers out there, they have been one of the worst. Absolutely." said Bruce Marks, chief executive of the nonprofit Neighborhood Assistance Corporation of America, a leading consumer advocate on mortgage issues.

Marks said Citigroup should dramatically decrease what the Andronicas owe because fraud was involved in making the loan. A Citigroup spokeswoman said Friday that the lender was awaiting information from the Andronicas to "determine their eligibility for a modification."

Bernanke, the Federal Reserve chief, added pressure last week by pushing lenders to reduce mortgage balances. But like the other actions taken by the federal government, compliance with that proposal is purely voluntary.

Kelly and David Andronica think Citigroup should make things right, especially since the problems with Ameriquest loans were well known when Citigroup decided to buy the Ameriquest servicing company.

The Andronicas do not want to leave the neighborhood they love or pull their children out of school and away from their friends.

A deal with Citigroup or a lengthy legal battle are their only options. They can't refinance because the mortgage is higher than the real value of their home. They can't sell without taking a huge loss.

Kelly Andronica summed it up: "We're stuck."

Last week, Arnall stepped down from his ambassadorship at the same time Forbes magazine published its 2008 list of billionaires.

Arnall was No. 785 in the worldwide rankings, with an estimated net worth of $1.5 billion.