By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER AND
MORTGAGE BROKER LICENSING
Docket No. 2004-006

CONSENT ORDER


In the Matter of
NEW ENGLAND MERCHANTS CORP.
Arlington Heights, Massachusetts

Mortgage Lender License No. ML0201; et al
Mortgage Broker License No. MB0243; et al


WHEREAS, New England Merchants Corp., Arlington Heights, Massachusetts ("New England Merchants" or the "Corporation"), a licensed mortgage lender and mortgage broker under Massachusetts General Laws chapter 255E, section 2 has been advised of its right to Notice and Hearing pursuant to General Laws chapter 255E, section 7(a), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("CONSENT AGREEMENT") with representatives of the Division of Banks ("Division") dated April 19, 2005, whereby, solely for the purpose of settling this matter, and without admitting any allegations or implications of fact or the existence of any violation of state or federal laws and regulations governing the conduct and operation of a mortgage lender and/or a mortgage broker, New England Merchants agrees to the issuance of this CONSENT ORDER ("ORDER") by the Commissioner of Banks ("Commissioner");

WHEREAS, an examination/inspection of New England Merchants was conducted pursuant to Massachusetts General Laws chapter 255E, section 8, as of November 6, 2002, to assess the Corporation's level of compliance with applicable Massachusetts statutes and the Division's regulations governing the conduct of those engaged in the business of a mortgage lender and a mortgage broker, respectively, in the Commonwealth; and

WHEREAS, on or about October 16, 2003, New England Merchants submitted to the Division a copy of the Corporation's written operating procedures entitled 'Branch Operation Rules with Frequently Asked Questions' ("Branch Operation Rules") for the purpose of supplementing the mortgage lender and mortgage broker license renewal applications which had previously been submitted by the Corporation to the Division on or about March 26, 2003;

WHEREAS, on November 5, 2003, representatives from New England Merchants and the Division attended an informal conference held at the Division's office in Boston, Massachusetts to discuss matters revealed during the Division's examination/inspection of the Corporation as of November 6, 2002;

WHEREAS, on December 1, 2003, the Division conducted an inspection of New England Merchants to confirm certain representations made during the informal conference referenced above and to examine the implementation and execution of the Corporation's Branch Operation Rules; and

WHEREAS, the Report of Examination/Inspection (the "Report") issued pursuant to the Division's examination/inspection of New England Merchants as of November 6, 2002 alleged certain failures to comply with applicable state and federal statutes, rules, and regulations governing the conduct of those engaged in the business of a mortgage lender and mortgage broker in Massachusetts.

ORDER

NOW COME the parties in the above-captioned matter, the Division and New England Merchants, and stipulate and agree as follows:

  1. New England Merchants shall immediately cease engaging directly or indirectly in the business of a mortgage lender and/or mortgage broker at any location in the Commonwealth for which New England Merchants has not previously obtained a license from the Commissioner for such location in accordance with Massachusetts General Laws chapter 255E, section 2.

    1. As of the effective date of this ORDER, New England Merchants shall cease soliciting or accepting residential mortgage loan applications from consumers for residential property located in Massachusetts from any additional location, other than the Corporation's main office, whether licensed or unlicensed by the Commissioner, where such location is operated by an independent corporation, partnership, association, or other legal entity that is separate and distinct from the legal entity of New England Merchants and where such other entity is doing business, either in whole or in part, in the name of New England Merchants; it being understood, however, that the Corporation may do business in a manner consistent with the provisions of this ORDER from additional locations as long as New England Merchants has previously received from the Commissioner a license to engage in the licensed activity from such additional location. Notwithstanding the provisions of this subsection of the ORDER, the Corporation may engage independent contractors who are natural persons to conduct any of the Corporation's licensed business as long as such individuals are "associated with" the Corporation as that term has been interpreted by the Division in applicable published opinions, including without limitation, Opinions 96-221, 97-061, and 97-222 and which may from time to time be revised and enforced by the Commissioner. Any such independent contractor shall engage in the licensed activity exclusively under the Corporation's name. The provisions of subsections (2)(a) through (2)(g), inclusive, of this ORDER shall be considered in determining whether an individual location shall be subject to the prohibitions contained in this Section of the ORDER;

    2. Within fifteen (15) days of the effective date of this ORDER, the Corporation shall certify to the Commissioner, in writing, that all residential mortgage loan applications which were originated by an independent contractor engaged in the business of a mortgage broker as a corporation, partnership, limited liability company, or other similar entity on the Corporation's behalf, where such application was submitted prior to the effective date of this ORDER by applicants who meet the standard underwriting policies and procedures of lenders with which the Corporation regularly deals, have been placed with a qualified lender with no expense to applicants other than fees, costs and expenses associated with obtaining a mortgage loan which are consistent with the Corporation's experience and industry norms. The Corporation will maintain files, while this ORDER is in effect, related to each such application containing evidence confirming placement of the application with a qualified lender consistent with the foregoing;

    3. Within fifteen (15) days of the effective date of this ORDER, the Corporation shall certify to the Commissioner, in writing, that, in all transactions in which the Corporation was performing in the capacity of a mortgage lender through an independent contractor conducting business as a corporation, partnership, limited liability company, or other similar entity on the Corporation's behalf, the Corporation has carried out its activities in accordance with the Corporation's standard underwriting policies and procedures. The Corporation will maintain files, while this ORDER is in effect, related to each such transaction containing evidence confirming the Corporation carried out its mortgage lending activities consistent with the foregoing; and

    4. New England Merchants shall not engage in the business of either a mortgage broker or a mortgage lender from any additional location other than the Corporation's main office without (i) establishing, implementing, and maintaining internal operating procedures to achieve and monitor the Corporation's compliance with the provisions of this ORDER and (ii) obtaining the prior written approval of the Commissioner to engage in the licensed activity at each location.

  2. Within sixty (60) days of the effective date of this ORDER, the duly authorized senior officers of the Corporation shall conduct and complete a review of the supervisory functions and controls maintained by New England Merchants' which are intended to monitor the Corporation's mortgage lender and mortgage broker operations in Massachusetts. In accordance with its review, the senior officers of the Corporation shall prepare and submit to the Commissioner, within fourteen (14) days after the completion of such review, but in no event later than ninety (90) days after the effective date of this ORDER, a written report which shall address, at a minimum, the following:

    1. New England Merchants shall refrain from engaging or retaining an existing, separate corporation, partnership, limited liability company or other similar entity that conducts business as a mortgage lender or mortgage broker as an additional licensed location of the Corporation or allowing such entity to originate or broker residential mortgage loans under a license obtained from the Commissioner in the name of New England Merchants;

    2. New England Merchants shall adopt or revise, as applicable, standard operating rules to ensure that the management personnel (herein, the "branch operator") of any additional licensed location, other than the Corporation's main office, shall not be required to individually bear the expenses of such location, except to the extent that such natural persons are independent contractors "associated with" the Corporation under General Laws chapter 255E, section 2 as that term has been interpreted by the Division in published Opinions 96-221, 97-061, and 97-222; it being understood that independent contractors are generally required as a matter of state law to pay their own expenses. The contractual relationships established and maintained with vendors at the additional licensed locations, other than the Corporation's main office, shall be entered in the name of New England Merchants, the licensee. The expenses referenced in this Section of the ORDER shall include, but shall not be limited to, expenses arising from the leasing, renting, or ownership of the licensed premises, telephones, utilities, advertising, marketing, any third party mortgage-related fees such as title, appraisal, and credit report fees, and any capital expenses incurred at the additional licensed location. Such expenses, unless excepted by the provisions of this subsection of the ORDER, shall appear as obligations of New England Merchants and shall be paid from an operating account maintained by, and in the name of, New England Merchants;

    3. New England Merchants shall ensure that the Corporation, and its additional licensed locations, refrain from representing to any third party vendors that any additional licensed location is an independent corporation, partnership, association, or other similar entity that is separate and distinct from the legal entity of New England Merchants. New England Merchants shall ensure that any business shall at all times be conducted in the name of the Corporation as it appears on the license for the additional licensed location;

    4. In any instance in which New England Merchants retains a natural person to engage in the licensed business on the Corporation's behalf as an independent contractor associated with and under the direction of the Corporation, New England Merchants shall submit to the Division a completed Statement of Accountability and an Exclusivity Affidavit, signed by the individual sought to be exempted from the applicable license requirement, at least five (5) days before such individual begins engaging in the licensed business on New England Merchants' behalf. The Statement of Accountability and Exclusivity Affidavit shall be completed in the form that such documents appear on the Division's website at www.mass.gov/dob/acctxmpt.doc doc format of acctxmpt.doc
, without alterations or deletions. The provisions of this subsection of the ORDER shall necessarily prohibit any such qualifying independent contractor from employing, or otherwise compensating, any other natural person or legal entity to engage in the licensed business on behalf of either the independent contractor or New England Merchants as such person or entity would be required to separately obtain the relevant license from the Commissioner. However, the provisions of this ORDER shall not prohibit New England Merchants from co-brokering mortgage loans with an unassociated, licensed mortgage broker, provided that the co-brokered transaction is conducted in a manner permitted by applicable federal and state law;

    5. New England Merchants shall refrain from either directly, or indirectly, issuing or accepting any fee, payment, any portion thereof, or any other form of compensation, to or from any entity which is required to be licensed under Massachusetts General Laws chapter 255E, section 2 and which New England Merchants knows, or through reasonable efforts could know, has failed to obtain the relevant license from the Commissioner;

    6. New England Merchants shall adopt or revise, as applicable, standard operating rules to ensure that the branch operator shall not be obligated to reimburse the Corporation, either directly or indirectly, for licensing fees incurred in the conduct of the mortgage lender or mortgage broker business at the additional licensed location. Further, the branch operator shall not otherwise be responsible to indemnify New England Merchants from his or her own funds, or other account which is not maintained in the name of New England Merchants, for the operating expenses incurred in the conduct of the business at the additional licensed location, if such branch operator is an employee of the Corporation. All such expenses shall be entered in the financial records and accounting ledger of the Corporation and shall be treated as an obligation of New England Merchants. Any funds advanced to a branch operator employee, loan originator employee, or other employee shall be reported on the Corporation's financial statements in accordance with generally accepted accounting principles when submitted to the Division;

    7. The Corporation shall provide the Division with a written summary, completed in reasonable detail, which describes the general duties to be performed on New England Merchants' behalf, for compensation or gain, by any person(s) attempting to assist the Corporation in negotiating, placing, making, or finding a mortgage loan on residential property located in Massachusetts who is not primarily conducting such activities from a licensed location maintained by New England Merchants. The summary shall include, but shall not necessarily be limited to, any employee or independent contractor associated with New England Merchants who conducts such activity from the individual's own residence;

    8. New England Merchants shall adopt or revise, as applicable, quality control standards contained in policies and procedures that will ensure that branch operators, loan originators, and other employees operating on behalf of New England Merchants are adequately supervised to ensure compliance with all state and federal laws and regulations applicable to those engaged in the business of a mortgage lender and mortgage broker in Massachusetts. Such quality control standards shall provide for a loan review process to assess the compliance of New England Merchants, and those engaged as independent contractors to operate on New England Merchants behalf, with (a) the statutes, regulations, regulatory bulletins, and other relevant provisions of law applicable to those engaged in the business of a mortgage lender and mortgage broker in Massachusetts and (b) the provisions of this ORDER; and

    9. The Division will review the Corporation's written report provided pursuant to this Section of the ORDER, to determine whether the terms of the written report comply with the requirements of General Laws chapter 255E, section 2, the Division's published Opinions, and the Division's regulation 209 CMR 42.00 et seq. or whether additional measures are required to ensure compliance with the applicable mortgage lender and mortgage broker licensing standards.

  3. (a.) New England Merchants shall review the origination and processing functions of the Corporation to address and correct the matters identified by the Division and detailed in the Report on pages 1-5 through 1-7, inclusive, relative to the Corporation's disclosure of all fees and premiums charged and collected as compensation by New England Merchants in a mortgage loan transaction, as well as all third party mortgage-related fees collected from consumers to be satisfied by the Corporation on the consumer's behalf;

    (b.) Pursuant to such review, New England Merchants shall adopt and implement revised procedures to ensure that the Corporation provides each consumer with accurate disclosures which (i) are completed in good faith to reflect as much information as is available at the time the disclosure must be provided, (ii) when permitted to be disclosed as a range of charges by an applicable regulation or statute, any fee or premium is disclosed within a range that reflects a reasonable relationship to the charge the consumer will likely incur at the settlement of the mortgage loan, and (iii) are reflective of New England Merchants' experience in residential mortgage loan transactions in Massachusetts; and

    (c.) The Corporation shall establish a system of internal controls to monitor New England Merchants' compliance with the revised procedures adopted pursuant to this Section of the ORDER.

  4. New England Merchants agrees to submit a payment in the amount of twenty-five thousand dollars ($25,000.00) in satisfaction of an administrative penalty collected in consideration of the Corporation's alleged engaging in the activity of a mortgage broker in Massachusetts at multiple locations throughout the Commonwealth without a valid, active license from the Commissioner during the relevant period. The administrative penalty shall be satisfied as follows:

    1. Twelve thousand, five hundred dollars ($12,500.00) shall be due and payable immediately;

    2. Twelve thousand, five hundred dollars ($12,500.00) shall be due and payable within one hundred and eighty (180) days of the effective date of this ORDER; and

    3. New England Merchants shall remit payment(s) pursuant to subsections (4)(i) and (4)(ii) of this ORDER for the amount then due, payable to the "Commonwealth of Massachusetts," to the Office of the Commissioner of Banks, One South Station, 3 rd Floor, Boston, Massachusetts 02110. The Division shall remit the payment(s) for deposit into the General Fund of the Commonwealth.

  5. New England Merchants shall revise its procedures to ensure that, when performing in the capacity of a mortgage broker, the Corporation refrains from providing any consumer with any disclosure which, pursuant to the applicable statute, regulation, or regulatory bulletin, is required to be issued exclusively by the lender or creditor in the residential mortgage loan transaction.

  6. New England Merchants shall revise its procedures to ensure that, when performing in the capacity of a mortgage broker, all applicable consumers are provided with an Attorney General's Mortgage Broker Disclosure Form, completed in accordance with, and in the form specified, by the provisions of the Office of the Attorney General's regulation 940 CMR 8.05(1). The revisions to be implemented to address this Section of the ORDER shall include, but are not limited to, ensuring that the Attorney General's Mortgage Broker Disclosure Form is completed with as much information as is available at the time the disclosure is provided to the consumer.

  7. The Corporation shall comply with all laws and regulations applicable to its conducting the business of a mortgage lender and mortgage broker, including, but not limited to, Massachusetts General Laws chapter 255E, and the Division's regulation 209 CMR 42.00 et seq. Such obligations shall necessarily include the duty to address and correct, within sixty (60) days from the effective date of this ORDER, all violations as specified in the Report issued pursuant to the Division's examination/inspection of New England Merchants as of November 6, 2002.

    1. The Corporation shall establish, implement, and maintain procedures and policies to monitor New England Merchants' compliance with the provisions of this ORDER and with the Massachusetts statutes and the Division's regulations governing the conduct of those engaged in the business of a mortgage lender and mortgage broker in Massachusetts. Such procedures and policies shall be designed to prevent the recurrence of the violations and areas of concern addressed in the Report;

    2. Within 60 days of the effective date of this ORDER, New England Merchants shall submit to the Commissioner a written response that addresses each of the violations and areas of concern specified in the Report. The written response shall describe the revised policies and procedures adopted by New England Merchants to implement all corrective actions set forth in (i) the "Examiner's Comments and Conclusions" section of the Report and (ii) the provisions of this ORDER; and

    3. New England Merchants shall establish, implement, and maintain procedures and policies to ensure that all applicable employees, staff, and independent contractors who operate on behalf of New England Merchants, receive adequate instruction and ongoing, periodic training to ensure proper implementation and execution of the revised practices and procedures implemented pursuant to this ORDER.

  8. On the thirtieth (30 th) day after the end of each calendar quarter following the date of this ORDER, beginning with the calendar quarter ending June 30, 2005, New England Merchants shall furnish written progress reports to the Division, which shall address and include the following:

    1. A description of the form, content, and manner of all actions taken to address each Section of this ORDER and the results thereof; and

    2. Written findings, signed by an authorized senior officer of the Corporation, detailing a review of management's and staff's adherence to the policies and procedures adopted pursuant to this ORDER and to applicable statutes, regulations, and regulatory bulletins, as well as a description of any initiatives implemented during such quarter which are intended to improve New England Merchants' compliance condition in Massachusetts and the results thereof.

  9. In consideration of the foregoing ORDER, the Division agrees not to pursue formal measures, relative to this matter, to suspend or revoke the Corporation's mortgage lender and/or mortgage broker license under General Laws chapter 255E, section 6 while this ORDER is in effect.

  10. Failure to comply with the terms of this ORDER shall constitute grounds for license suspension and/or revocation pursuant to applicable provisions of the General Laws of the Commonwealth of Massachusetts.

  11. Nothing in this ORDER shall be construed as permitting New England Merchants to violate any law, rule, regulation, or regulatory bulletin to which the Corporation is subject.

  12. This ORDER shall become effective immediately upon the date of its issuance.

  13. The provisions of this ORDER shall be binding upon New England Merchants, its officers and directors, and their successors or assigns.

  14. The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the Commissioner or upon an order of a court of competent jurisdiction, it being understood that, notwithstanding paragraph 10, this ORDER may not be modified in a manner adverse to the Corporation without the Corporation's written consent.

  15. This ORDER and the CONSENT AGREEMENT are the complete documents representing the resolution of the matters presented by the Report. This ORDER does not relieve New England Merchants, its Board of Directors, or any of the Corporation's officers, employees, agents, or their successors and assigns of any responsibilities or obligations such parties may have to comply with other actions or agreements entered by or with the Commissioner.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS:

Dated at Boston, Massachusetts, this 19th day of April, 2005.

By: Steven L. Antonakes
Commissioner of Banks