By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER AND
MORTGAGE BROKER
LICENSING
Docket No. 2007-022

FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST


In the Matter of
AMERICAN HOME MORTGAGE CORP. d/b/a American Brokers Conduit;
Melville, New York
Mortgage Company License No(s). MC1368, et al.

and its affiliates,
AMERICAN HOME MORTGAGE ACCEPTANCE, INC.;
Melville, New York
Mortgage Lender License No. ML2664, and

AMERICAN HOME MORTGAGE VENTURES LLC
Melville, New York
Mortgage Company License No. MC5032


The Commissioner of Banks ("Commissioner") having determined that (a) AMERICAN HOME MORTGAGE CORP. d/b/a AMERICAN BROKERS CONDUIT, ("American Home Mortgage" or the "Corporation"); (b) AMERICAN HOME MORTGAGE ACCEPTANCE, INC. ("American Home Mortgage Acceptance"); and (c) AMERICAN HOME MORTGAGE VENUTURES LLC ("American Home Mortgage Ventures"), all of which are located at 538 Broadhollow Road, Melville, New York, have engaged in, or are engaging in, or are about to engage in, acts or practices constituting violations of Massachusetts General Laws chapter 255E and applicable regulations found at 209 CMR 42.00 et seq., hereby issues the following FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST ("Temporary Order") pursuant to General Laws chapter 255E, section 7(b).

FINDINGS OF FACT

  1. The Division of Banks ("Division"), through the Commissioner, has jurisdiction over the licensing and regulation of persons and entities engaged in the business of a mortgage lender and mortgage broker in Massachusetts pursuant to Massachusetts General Laws chapter 255E, section 2.
  2. American Home Mortgage, American Home Mortgage Acceptance, and American Home Mortgage Ventures are, and at all relevant times, have been affiliated, foreign corporations conducting business in the Commonwealth of Massachusetts with main offices located at 538 Broadhollow Road, Melville, New York.
  3. American Home Mortgage is licensed by the Commissioner as a mortgage lender and mortgage broker under Massachusetts General Laws chapter 255E, section 2. According to records maintained on file with the Division, the Commissioner initially issued a mortgage company license to American Home Mortgage to engage in the business of a mortgage lender and mortgage broker in Massachusetts on or about March 21, 2000, with license no. MC1368.
  4. American Home Mortgage Acceptance is an affiliate of American Home Mortgage and is licensed as a mortgage lender under Massachusetts General Laws chapter 255E, section 2. According to records maintained on file with the Division, the Commissioner initially issued a mortgage lender license to American Home Mortgage Acceptance to engage in the business of a mortgage lender on or about August 17, 2004, with license no. ML2664.
  5. American Home Mortgage Ventures is an affiliate of American Home Mortgage and is licensed as a mortgage lender and mortgage broker under Massachusetts General Laws chapter 255E, section 2. According to records maintained on file with the Division, the Commissioner initially issued a mortgage broker and mortgage lender license to American Home Mortgage Acceptance to engage in the business of a mortgage lender on or about July 24, 2007, with license no. MC5032.
  6. American Home Mortgage operates additional office locations from which the Corporation conducts its Massachusetts mortgage lender and mortgage broker business. According to records maintained on file with the Division, American Home Mortgage currently possesses forty four (44) additional mortgage lender and mortgage broker licenses from the Commissioner for locations operated both in Massachusetts as well as outside the Commonwealth.
  7. American Home Mortgage is a wholly-owned subsidiary of American Home Mortgage Holdings, Inc., which, in turn, is a wholly-owned subsidiary of American Home Mortgage Investment Corp., a publicly traded company listed on the New York Stock Exchange.

    A. Failure to Fund Certain Residential Mortgage Loan Obligations in Massachusetts

  8. On July 31, 2007, representatives from the Division, by and through discussions held with representatives of other state banking and mortgage lending regulators, contacted American Home Mortgage to schedule a telephone conference call to be held on August 1, 2007 with senior executives of American Home Mortgage, to discuss concerns regarding the Corporation's financial condition and its apparent inability to fund mortgage loans ("August 1, 2007 teleconference").
  9. During the August 1, 2007 teleconference, the Division requested that American Home Mortgage provide a pipeline report regarding mortgage loans involving residential property in Massachusetts. In response to that request, on August 1, 2007, American Home Mortgage provided the Division with a pipeline report that indicated that, as of July 31, 2007, the Corporation failed to disburse loan proceeds, or is about to fail to disburse loan proceeds, or otherwise fund, as many as thirty-eight (38) mortgage loan transactions involving residential property in Massachusetts for which closings had taken place or are scheduled to occur.
  10. Based upon information and belief, the loans referenced in Paragraph 9, have not yet funded as of the effective date of this Temporary Order.

    B. Impairment of Lender Lines of Credit Used to Fund American Home Mortgage's Lending Operations

  11. On July 31, 2007, at approximately 7:28 p.m., American Home Mortgage's counsel faxed to the Division a letter advising the Division that, as of July 31, 2007, American Home Mortgage "has temporarily ceased funding loans due to an inability to draw upon its warehouse facilities."
  12. During the August 1, 2007 teleconference, American Home Mortgage's executives stated that they became aware of the impairment of the Corporation's warehouse line of credit on or about July 19, 2007.
  13. A line of credit used by a mortgage lender enables the entity to fund mortgage loans prior to selling them to an investor. Without access to its lines of credit, and in the absence of the mortgage lender independently maintaining sufficient reserves and liquidity positions on its books to fund such loans, the mortgage lender would be unable to meet its funding commitments, negating its ability to meet contractual obligations to fund mortgage loans.
  14. The Division's regulation at 209 CMR 42.12(1)(e) states, in part:
    1. A Licensee shall notify the Commissioner immediately, and in writing within one business day, of the occurrence of any of the following significant developments: . . . (e) Expiration, termination or default, technical or otherwise, of any existing line of credit or warehouse credit agreement.
  15. Prior to the July 31, 2007 letter, American Home Mortgage had not notified the Division of the any suspension, default, and/or termination of the Corporation's line(s) of credit.

    C. Failure to Maintain Minimum Standards of Financial Responsibility for Holding a Mortgage Company License in Massachusetts

  16. According to a news release issued by American Home Mortgage Investment Corp. on July 31, 2007 (the "News Release"), American Home Mortgage was "unable to borrow on its credit facilities and was unable to fund its lending obligations [on July 30, 2007] of approximately $300 million." The News Release also stated that American Home Mortgage did not anticipate funding approximately $450 to $500 million of residential mortgage loan transactions scheduled for July 31, 2007.
  17. The News Release stated that American Home Mortgage's "lenders have initiated margin calls in response to the decline in the collateral value of certain of the [Corporation's] loans and securities held in its portfolio." The News Release further stated that the Corporation "has received and paid very significant margin calls in the last three weeks and has substantial unpaid margin calls pending."
  18. During the August 1, 2007 teleconference, American Home Mortgage reported that, in the absence of obtaining additional funding facilities, American Home Mortgage's current liquidity position would not permit American Home Mortgage to satisfy current margin calls or to honor repurchase obligations from its investors.
  19. On or about July 27, 2007, the New York Stock Exchange temporarily halted trading in shares of American Home Mortgage Investment Corp. On or about July 31, 2007, trading in such shares resumed.

    D. Engaging in Unsafe and Unsound Practices in the Operation of the Licensed Business

  20. On August 1, 2007, pursuant to a conference call held with other state banking and mortgage lending regulators, the Division was informed that American Home Mortgage failed to fund mortgage loans on residential property in the state of Connecticut.
  21. On August 1, 2007, the Connecticut Banking Department provided the Division with American Home Mortgage's pipeline report relative to mortgage loans involving residential property in the state of Connecticut, which had been prepared and submitted by the Corporation to Connecticut regulators. The pipeline report indicates that the Corporation failed to fund as many as forty-two (42) closed loans.
  22. During the August 1, 2007 teleconference, executives of American Home Mortgage stated that the Corporation has no funding source in place that would enable the Corporation to fund the closed loans in the pipeline, absent intervention from an outside investor.
  23. On August 1, 2007, Counsel to American Home Mortgage sent an email to Connecticut regulators regarding the Corporation and requested that the email be distributed to other regulators. The email was received by the Division on the evening of August 1, 2007. The email reported that the Corporation "is in discussions with several national lenders regarding transferring some or all of its pipeline so that loans can continue to be processed, underwritten and funded."

    CONCLUSIONS OF LAW

  24. Based upon the information contained in Paragraphs 1 through 23, by contracting to originate mortgage loan(s) for which American Home Mortgage did not have sufficient funds available to meet its funding obligations, American Home Mortgage has engaged in unsafe or unsound practices in violation of the Division's regulation 209 CMR 42.04(2)(b)(3).
  25. Based upon the information contained in Paragraphs 1 though 23, American Home Mortgage failed to notify the Commissioner, in writing, within one business day of the expiration, termination or default, technical or otherwise, of any existing line of credit or warehouse credit agreement, in violation of the Division's regulation 209 CMR 42.12(1)(e).
  26. Based upon the information contained in Paragraphs 1 through 23, American Home Mortgage's acts or practices of contracting with consumer(s), through the underwriting and subsequent execution of mortgage loan closing documents relating to Massachusetts residential property, and thereafter failing to fund the mortgage loan(s) may constitute unfair and/or deceptive acts or practices in violation of Massachusetts General Laws chapter 93A, section 2.
  27. Based upon the information contained in Paragraphs 1 through 23, due to the delay and/or failure in funding contractual mortgage loan obligations American Home Mortgage has harmed consumers, mortgage brokers, and/or other parties in as many as thirty- eight (38) residential mortgage loan transactions in the Commonwealth by engaging in acts or practices which may be unfair and/or deceptive in violation of Massachusetts General Laws chapter 93A, section 2.
  28. Based upon the information contained in Paragraphs 1 through 23, American Home Mortgage has failed to maintain the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that the business will be operated honestly, fairly, and soundly in the public interest in violation of Massachusetts General Laws chapter 255E, section 4 and the Division's regulation 209 CMR 42.03(2)(c) and 209 CMR 42.06(2)(c).
  29. Based upon the information contained in Paragraphs 1 through 23, due to the relationship of the officers, directors, and principals of American Home Mortgage and American Home Mortgage Acceptance, the Division is unable to conclude that American Home Mortgage Acceptance has demonstrated the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that the business will be operated honestly, fairly, and soundly in the public interest in violation of Massachusetts General Laws chapter 255E, section 4 and the Division's regulation 209 CMR 42.03(2)(c).
  30. Based upon the information contained in Paragraphs 1 through 23, due to the relationship of the officers, directors, and principals of American Home Mortgage and American Home Mortgage Ventures, the Division is unable to conclude that American Home Mortgage Ventures has demonstrated the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that the business will be operated honestly, fairly, and soundly in the public interest in violation of Massachusetts General Laws chapter 255E, section 4 and the Division's regulation 209 CMR 42.03(2)(c) and 209 CMR 42.06(2)(c).
  31. Based upon the information contained in Paragraphs 1 through 23, the Commissioner has determined that:
    1. American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures have engaged in, are engaging in, or are about to engage in, acts or practices which warrant the belief that they are not operating honestly, fairly, soundly and efficiently in the public interest in violation of standards governing the licensing and conduct of a mortgage lender and mortgage broker including, but not limited to, the provisions of the Division's regulations at 209 CMR 42.00 et seq.; and
    2. The public interest will be irreparably harmed by delay in issuing an ORDER TO CEASE AND DESIST to American Home Mortgage Acceptance, American Home Mortgage Ventures, and American Home Mortgage.
  32. Based upon the information contained in Paragraphs 1 through 23, had the facts and conditions found therein existed at the time of American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' original mortgage lender and/or mortgage broker license application(s), the Commissioner would have been warranted in refusing to issue such license(s). Further, the facts and conditions set forth in Paragraphs 1 through 23 present sufficient grounds for the revocation of American Home Mortgage's American Home Mortgage Acceptance's and American Home Mortgage Ventures' mortgage lender and/or mortgage broker license(s), pursuant to Massachusetts General Laws chapter 255E, section 6 and the Division's regulation at 209 CMR 42.04(2)(b) and 209 CMR 42.07(2)(b).

    ORDER TO CEASE AND DESIST

    After taking into consideration the FINDINGS OF FACT and CONCLUSIONS OF LAW stated herein, it is hereby:

  33. ORDERED that American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures and any and all officers, directors, employees, independent contractors, or agents operating on behalf of American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage lender and/or mortgage broker, as defined under Massachusetts General Laws chapter 255E, section 1, relative to any residential property in Massachusetts, not otherwise expressly permitted by the terms of this Temporary Order. Therefore, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures are ordered to immediately cease soliciting or accepting, either directly or indirectly, any residential mortgage loan applications from consumers for residential property located in Massachusetts.
  34. IT IS FURTHER ORDERED that American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures, shall immediately place any fees previously collected from Massachusetts consumers relative to any pending mortgage loan applications in a separate escrow account maintained at a federally insured bank.
  35. IT IS FURTHER ORDERED that American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall immediately place with one or more qualified broker(s) or lender(s), with no loss to applicants, the following: (a) American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' entire portfolio of Massachusetts residential mortgage loans which were closed by American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures, and remain unfunded as of the issuance of this Temporary Order; and (b) American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' entire pending application list of Massachusetts residential mortgage loans. It being understood that "no loss to the applicant" shall mean that any loan which was closed by American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures, as well as any application which was approved by American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures, shall be placed to a lender willing to fund, or close, the mortgage loan under the same terms and conditions extended by American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures. In the event that no such placement can be made, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall either independently fund the mortgage loan under such terms and conditions or buy down the mortgage loan offered by the lender so that the applicant does not incur a loss as a result of such placement. American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall obtain the prior approval of the Commissioner before placing such applications to the qualified lender(s) or broker(s) as appropriate.
  36. IT IS FURTHER ORDERED that in any instance in which American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures failed to fund a closed loan and in which the consumer, prior to the effective date of this Temporary Order, obtained funding through an alternate lender, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall reimburse each consumer the amount necessary to put the consumer in the same position as if American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures had funded the mortgage loan under the terms and conditions agreed upon at the closing of the loan.
  37. IT IS FURTHER ORDERED that American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall submit to the Commissioner a detailed record, prepared as of the date of submission, of all of American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' pending residential mortgage loan applications on property located in Massachusetts. The records to be produced shall include all information on file regarding American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' Massachusetts mortgage loan portfolio, including but not necessarily limited to, the following:
    1. Within one (1) day of the effective date of this Temporary Order, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall submit to the Commissioner all information on file as of the date of submission regarding the American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' portfolio of mortgage loans that were closed by American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures prior to the effective date of this Temporary Order, but remain as yet unfunded. Such information shall include, but is not limited to, the following: The names of all individuals from whom American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures processed an application and closed the residential mortgage loan, but failed to fund; the applicants' addresses and telephone numbers; the loan number; the amount of all prepaid loan fees submitted by the customer; the amount of each loan; the loan terms; the current funding status; the actual closing dates; the loan purpose (i.e. purchase or refinance); and identification of the applicable lender with whom each application will be placed. The record should include telephone numbers of contact persons at each lender who is familiar with American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' submitted loans;
    2. As soon as possible, but not later than five (5) days after the effective date of this Temporary Order, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures e shall submit to the Commissioner all information on file as of the date of submission regarding the American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' pipeline of pending mortgage loan applications including but not limited to, the following: The names of all individuals from whom American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures have accepted an application for a residential mortgage loan; the applicants' addresses and telephone numbers; the loan number; the amount of all prepaid loan fees submitted by the customer; rate lock status; the amount of each loan; application status (i.e. filed, submitted to lenders, cleared to close, etc.); loan terms, if approved; scheduled closing dates; the loan purpose (i.e. purchase or refinance); and identification of the applicable lender or broker with whom each application will be placed. The record should include telephone numbers of contact persons at each lender or broker who is familiar with American Home Mortgage's American Home Mortgage Acceptance's and American Home Mortgage Ventures' submitted loans;
    3. On the last business day of each subsequent week after the effective date of this Temporary Order, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall provide the Commissioner with an updated, written status report of the mortgage loan applications identified above under subparagraphs 37(a) and 37(b). The form of the status report shall follow the format of the initial submission under subparagraphs 37(a) and 37(b) and shall indicate the final disposition of the loan application and include the final terms under which each approved loan is closed. The reporting requirement shall continue until each of the approved applications is placed with a lender and funded, funded by American Home Mortgage, American Home Mortgage Acceptance or American Home Mortgage Ventures, or withdrawn by the applicant(s); and
    4. As soon as possible, but not later than five (5) days after the effective date of this Temporary Order, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall submit to the Commissioner their year-to-date balance sheets and income statements, prepared as of the date of submission and the accuracy of the information reported on the balance sheet and income statement shall be attested to by a duly authorized officer of the entities under the pains and penalties of perjury. The balance sheet shall indicate American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' cash position at each of its depository banks as well as American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' bank account numbers.
  38. IT IS FURTHER ORDERED that American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall not pay or declare a dividend, nor otherwise authorize or execute any financial transaction, either singular or structured, in excess of two hundred and fifty thousand dollars ($250,000.00), except for wages and salaries paid to employees, contractors, officers, or other members of American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' management in the normal course of their business, without the prior written approval of the Commissioner. Upon the effective date of this Temporary Order, American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall implement or revise its practices and procedures, as necessary, to ensure that their financial books and records are accurately maintained, in a manner illustrating compliance with the provisions of this Paragraph, and available for review by the Division's examiners upon request.
  39. IT IS FURTHER ORDERED that American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures shall immediately secure all pending mortgage loan application files and, to the extent that any original documents must be forwarded to the relevant mortgage lender(s) and or mortgage broker(s) pursuant to Paragraph 35 of this Temporary Order, a copy of such document, correspondence, or paper relating to the mortgage loan shall be retained in American Home Mortgage's, American Home Mortgage Acceptance's and American Home Mortgage Ventures' books and records and shall be available to the Commissioner, in their entirety, upon request.
  40. IT IS FURTHER ORDERED that this Temporary Order shall become effective immediately and shall remain in effect unless set aside, limited, or suspended by the Commissioner or upon court order after review under Massachusetts General Laws chapter 30A.
  41. IT IS FURTHER ORDERED that a hearing will be scheduled on this matter to determine whether or not such Temporary Order shall become permanent and final only upon receipt of a written request for such a hearing from American Home Mortgage, American Home Mortgage Acceptance and American Home Mortgage Ventures within twenty (20) days of the effective date of this Temporary Order. If no hearing is requested within this twenty (20) day period, this Temporary Order shall become permanent and final until it is modified or vacated by the Commissioner.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.

Dated at Boston, Massachusetts, this 2nd day of August, 2007.

By: Steven L. Antonakes
Commissioner of Banks