By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER AND
MORTGAGE BROKER
LICENSING
Docket No. 2007-030

FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST


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

Mortgage Broker and Mortgage Lender
License No(s). MC0201; et al


The Commissioner of Banks ("Commissioner") having determined that NEW ENGLAND MERCHANTS CORP. ("New England Merchants" or the "Corporation"), with its main business office located at 1173 Massachusetts Avenue, Arlington Heights, Massachusetts, has engaged in, or is engaged in, or is 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. New England Merchants is, and at all relevant times has been, a corporation conducting business in the Commonwealth of Massachusetts. New England Merchants' main office is located at 1173 Massachusetts Avenue, Arlington Heights, Massachusetts.
  3. New England Merchants is licensed by the Commissioner as a mortgage broker and mortgage lender under Massachusetts General Laws chapter 255E, section 2. According to records maintained on file with the Division, the Commissioner initially issued mortgage lender license number ML0201 to New England Merchants to engage in the business of a mortgage lender at 1173 Massachusetts Avenue, Arlington Heights, Massachusetts on or about January 2, 1992. The Division's records indicate that the Commissioner issued mortgage broker license number MB0243 to New England Merchants to engage in the business of a mortgage broker at 1173 Massachusetts Avenue, Arlington Heights, Massachusetts on or about November 6, 1997. New England Merchants was subsequently issued a mortgage lender and mortgage broker license number MC0201 which became effective on or about July 11, 2005.
  4. New England Merchants maintains additional office locations from which the Corporation conducts its mortgage broker and mortgage lender business. According to records maintained on file with the Division, New England Merchants currently possesses nineteen (19) additional mortgage company licenses from the Commissioner for locations operated in Massachusetts, as well as outside the Commonwealth.

    A. Failure to Comply with the Terms of the Consent Order

  5. Mortgage lenders and mortgage brokers in Massachusetts are licensed and regulated under Massachusetts General Laws chapter 255E, which is administered and enforced by the Commissioner. Pursuant to Massachusetts General Laws chapter 255E, section 8, the Division is authorized to inspect the books, accounts, papers, records, and files of mortgage lenders and mortgage brokers transacting business in Massachusetts to determine compliance with the provisions of Massachusetts General Laws chapter 255E and any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the business of a mortgage lender or mortgage broker.
  6. On November 6, 2002, pursuant to the authority granted under Massachusetts General Laws chapter 255E, section 8, the Division commenced an examination/inspection of the books, accounts, papers, records, and files maintained by New England Merchants to evaluate the Corporation's compliance with the laws, regulations, and regulatory bulletins applicable to the conduct of a mortgage lender and mortgage broker business in Massachusetts (the "2002 examination/inspection").
  7. The Report of Examination/Inspection on Consumer Compliance issued pursuant to the 2002 examination/inspection (the "2002 Report"), incorporated herein by reference, 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.
  8. On April 19, 2005, the Commissioner and New England Merchants entered into a Stipulation and Consent to the Issuance of a Consent Order, and a Consent Order, Docket No. 2004-06, (the "Consent Order") to address the matters raised by the findings of the 2002 Report. The Consent Order is attached hereto as Exhibit 1.
  9. Section 10 of the Consent Order states that:

    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.

  10. Section 11 of the Consent Order states that:

    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.

  11. On May 29, 2007, pursuant to the authority granted under Massachusetts General Laws chapter 255E, section 8, the Division commenced an examination/inspection of the books, accounts, papers, records, and files maintained by New England Merchants (the "2007 examination/inspection") to evaluate the Corporation's compliance with: (1) the laws, regulations, and regulatory bulletins applicable to the conduct of a mortgage lender and mortgage broker business in Massachusetts and (2) the provisions of the Consent Order.
  12. The findings of the 2007 examination/inspection were presented by the Division in a Report of Examination/Inspection on Consumer Compliance prepared as of May 29, 2007 that was issued to New England Merchants on the effective date of this TEMPORARY ORDER and is incorporated herein by reference.
  13. Books and records reviewed by the Division's examiners during the 2007 examination/inspection indicate that New England Merchants engaged in the following acts or practices that were in violation of the Consent Order.

    (i). Engaging in the Mortgage Broker Business in Massachusetts from Unlicensed Locations

  14. Section 1 of the Consent Order states, in part, that:

    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.

  15. Section 1(d) of the Consent Order states, in part, that:

    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 . . . .(ii) obtaining the prior written approval of the Commissioner to engage in the licensed activity at each location.

  16. Books and records reviewed by the Division's examiners during the 2007 examination/inspection indicate that, beginning on a date that is unknown to the Division and continuing at least until the date of the 2007 examination/inspection, New England Merchants conducted its mortgage broker business at six office locations identified in Exhibit 2, for which New England Merchants failed to provide prior notice to the Commissioner, submit a license application, or receive approval from the Commissioner to engage in the mortgage broker business from such locations. (See Exhibit 2 pdf format of exhibit2_102407.pdf
, attached hereto and incorporated by reference).
    1. New England Merchants conducted the mortgage broker business at the four following locations beginning on a date that is unknown to the Division, but continuing at least until the date of the 2007 examination/inspection: Methuen, Massachusetts; Hampden, Massachusetts; Braintree, Massachusetts, and Salem, New Hampshire; and
    2. New England Merchants conducted the mortgage broker business at locations in East Windsor, Connecticut and Enfield, Connecticut beginning on a date that is unknown to the Division, and ending prior to the 2007 examination/inspection.
  17. Books and records reviewed by the Division's examiners during the 2007 examination/inspection further indicate that, beginning on a date that is unknown to the Division and continuing at least until the date of the 2007 examination/inspection, New England Merchants conducted its mortgage broker business at an office located at 86 Elm Street, West Springfield, Massachusetts ("West Springfield location").
  18. Although a license application for the West Springfield, Massachusetts location was filed with the Division on or about March 20, 2007, the Commissioner had not approved the license application as of the date of the 2007 examination/inspection.

    (ii). Licensed Locations Representing to Third Party Vendors that Such Locations are Independent Corporations

  19. Section 2(c) of the Consent Order states:

    New England Merchants shall ensure that the Corporation, and its additional licensed location, refrain from representing to any third party vendors that any additional licensed location is an independent corporation, partnership, association, or 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.

  20. Books and records reviewed by the Division during the 2007 examination/inspection revealed that payments for lead lists, from which New England Merchants Bourne branch manager James Hart generated loan activity, were drawn from an account operated by Eight Grand, Inc., a Plymouth-based corporation owned by Mr. Hart and his wife.
  21. Books and records reviewed by the Division relative to the New England Merchants East Falmouth branch location revealed that payments were made to satisfy mortgage-related appraisal fees from an operating account under the name of Donald F. Vahey Jr. Consulting. Donald F. Vahey is branch manager of the East Falmouth location.

    (iii). Engaging Unauthorized Individuals to Originate Mortgage Loans in Massachusetts

  22. Section 2(d) of the Consent Order states, in part:

    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.

  23. Books and records reviewed by the Division's examiners during the 2007 examination/inspection indicate that New England Merchants, at all relevant times, retained approximately 156 individuals in the capacity of independent contractors to conduct the mortgage lender and mortgage broker business.
  24. The Corporation's books and records failed to include any information that would illustrate that 53 of 156 independent contractors associated with the Corporation, as further identified in the Report, were either exempt from licensure under Massachusetts General Laws chapter 255E or that the individuals and New England Merchants had previously satisfied the qualifying standards for independent contractors set forth by the relevant opinions published by the Division.
  25. Books and records reviewed by the Division's examiners during the 2007 examination/inspection revealed that New England Merchants filed approximately 103 Statements of Accountability and Exemption Affidavits subsequent to the five-day requirement, as further identified in the Report, in violation of the terms of the Consent Order.
  26. Books and records reviewed by the Division's examiners during the 2007 examination/inspection revealed that thirteen individuals, as further identified in the Report, originated loans in Massachusetts on behalf of New England Merchants in their capacity as independent contractors, but were not engaged in the activity of a mortgage broker as their primary occupation.

    (iv). Disclosure of Points and Fees

  27. Section 3(a) of the Consent Order states, in part:

    New England Merchants shall review the origination and processing functions of the Corporation to address and correct the matters identified by the Division . . . 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.

  28. Section 3(b) of the Consent Order states, in part:

    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.

  29. Books and records reviewed during the 2007 examination/inspection revealed that New England Merchants engaged in a pattern or practice of failing to disclose on the Attorney General's Mortgage Broker Disclosure Form any points and fees charged by the mortgage lender and known by the mortgage broker at the time the Attorney General's disclosure was provided to the consumer.
  30. Books and records reviewed during the 2007 examination/inspection revealed that in the Good Faith Estimate, New England Merchants engaged in a pattern or practice of disclosing yield spread premiums paid at settlement by the lender in percentage points rather than in a dollar amount or range.
  31. Paragraphs 40 through 42 of this Temporary Order set forth New England Merchants' pattern or practice of understatements or omissions of fees charged by New England Merchants which further violates this section of the Consent Order.

    (v). Providing Mortgage Lender Disclosures to Consumers

  32. Section 5 of the Consent Order states, in part, that:

    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.

  33. Books and records reviewed by the Division's examiners during the 2007 examination/inspection indicate that while performing in the capacity of a mortgage broker, New England Merchants routinely provided several mortgage lender disclosures to consumers.
  34. The mortgage lender disclosures include, but are not limited to, pre-approval letters, Equal Credit Opportunity Notices, Truth in Lending Statements, and Fair Credit Reporting Act notifications.

    (vi). Modification of the Attorney General's Mortgage Broker Disclosure Form

  35. Section 6 of the Consent Order states, in part, that:

    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.

  36. Books and records reviewed by the Division's examiners during the 2007 examination/inspection revealed that when acting the capacity of a mortgage broker, New England Merchants made numerous modifications to the Attorney General's Mortgage Broker Disclosure provided to consumers, thus failing to complete the form in accordance with, and in the form specified by, the Attorney General's regulations.

    (vii.) Failure to Implement and Maintain Required Revised Procedures

  37. Section 7 of the Consent Order states, in part:

    The Corporation shall comply with all laws and regulations applicable to its conducting the business of a mortgage lender and mortgage broker . . . .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. 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.
  38. As set forth herein in Paragraphs 5 through 36, New England Merchants failed to adequately correct the violations identified in the 2002 examination/inspection, failed to adequately implement and maintain revised policies and procedures, and failed to adequately monitor New England Merchants' activities to prevent the recurrence of the previous violations.

    B. Additional Compliance Violations

    (i.) Unfair or Deceptive Acts and Practices

  39. Books and records reviewed by the Division's examiners during the 2007 examination/inspection, revealed that in three reviewed loan transactions, each of which were "stated loan" products, New England Merchants misstated each applicant's income by inflating or otherwise adjusting the income of each applicant. Each of the loan numbers referenced below relate to mortgage loan transactions that were closed by the relevant lender. Examples include, but are not limited to the following documents, as summarized below:
    1. Loan No. 20011380 and 00447021063048. (See Exhibit 3 pdf format of exhibit3_102407.pdf
file size 2MB , attached hereto and incorporated by reference)
      1. Division's examiners reviewed a first loan application (Loan No. 20011380) which New England Merchants books and records reflect was originally taken on or about June 14, 2005 and completed on July 21, 2005. Loan No. 20011380 was brokered as a full documentation loan. The gross monthly income reported on the Uniform Residential Loan Application ("1003") prepared by New England Merchants was $2,200 or $26,400 annually;
      2. Approximately two months later, New England Merchants brokered a HELOC "stated income" loan for the same applicant (Loan No. 00447021063048). The gross monthly income reflected on the 1003 prepared by New England Merchants was now approximately $5,890 or $70,680. The applicant's income tax returns for 2004, which were included in the loan file submitted by New England Merchants to the Division for review, indicated that the income for the applicant supported the lesser amount which had been reported on the first, full-documentation loan application completed during July 2005; and
      3. During the examination/inspection, New England Merchants reported the following:

        The originator of the subsequent HELOC loan application(s) added the income of the applicant's fiancé and the applicant's income together and used this "household income" figure as the applicant's base monthly income. New England Merchants stated that the lender's account representative suggested that New England Merchants combine the incomes on the loan application.

    2. Loan No. 20015115 and 062071350560. (See Exhibit 4 pdf format of exhibit4_102407.pdf
file size 2MB , attached hereto and incorporated by reference)
      1. Division's examiners reviewed a first loan application (Loan No. 200115115) which New England Merchants books and records reflect was originally taken on or about April 20, 2006 and completed on July 19, 2006. Loan No. 200115115 was brokered as a full documentation loan. The gross monthly income reported on the 1003 prepared by New England Merchants was reported the applicant's gross monthly income as $3,750;
      2. On or about July 25, 2006, New England Merchants brokered a HELOC "stated income" loan for the same applicant and the 1003 prepared by New England Merchants reported the applicant's gross monthly income as $8,500 (Loan No. 062071350560);
      3. The income information reported to the lender for the underwriting of Loan No. 062071350560 was overstated by $57,000; and
      4. During the examination/inspection, New England Merchants reported the following:

        During the application process for the first loan (Loan number: 20015115), the borrower was refinancing the property in order to buy out his ex-wife. As he was attempting to keep the property, the borrower's mother allegedly offered to become a co-borrower. The loan originator initially added the borrower's mother's income on the loan application without adding her as a co-borrower, to determine how the ratios would be affected. However, he stated that he discovered that the borrower could qualify for a full documentation loan without adding his mother as a co-borrower. The file was updated and the loan closed on July 19, 2006. The loan originator stated that thereafter he inadvertently copied the file containing the borrower's mother's income information during the HELOC "Stated income" loan application process and the second loan was approved for funding by the lender using the incorrect information. Loan No. 062071350560 closed on August 30, 2006. According to New England Merchants, the borrower would have qualified for the product using his actual income and the submission of the false income information was inadvertent.

    3. Loan No. 1010046848. (See Exhibit 5 pdf format of exhibit5_102407.pdf
file size 10MB , attached hereto and incorporated by reference)
      1. The loan file produced by New England Merchants for Loan No. 1010046848 contained multiple loan application forms, in various stages of completion, which all related to obtaining a mortgage loan to purchase the same residential property;
      2. A completed, though undated pre-application in the loan file submitted for review by New England Merchants reported the primary borrower's annual income as $35,000 and the co-borrower's annual income was reported as $42,000;
      3. A lease agreement signed on December 1, 2005, the day before the application, reflected a monthly rental income of $1,100;
      4. An application signed by the primary borrower on December 2, 2005, reflected the primary borrower's gross monthly income as $7,550 or $90,600 annually. The application reflected the co-borrower's gross monthly income as $4,210 or $50,520 annually. A monthly rental income of $1,200 was also reported on the application;
      5. The final 1003, used for loan qualification and signed at loan closing on January 13, 2006, reported the primary borrower's gross monthly income as $5,230 or $62,670 and the co-borrower's income was reported as $4,210 or $50,520 annually. This application does not report any rental income;
      6. The Division's examiner's determined that the annual gross employment income from the pre-application to final application signed at loan closing on January 13, 2006 appears to have been overstated by $27,760 for the primary borrower and $8,520 for the co-borrower, for a total of $36,280;
      7. During the examination/inspection, New England Merchants reported the following::

        Income discrepancies in the loan application(s) resulted from "extra money from their employer working functions outside their regular schedule and in private functions outside the restaurant."

      8. However, there was no evidence of overtime or other sources of income in the loan files nor was any incomereported on the 1003 as anything other than 'annual income.'

    (ii.) Undisclosed Points and Fees

  40. Massachusetts General Laws chapter 183, section 63 states, in part:

    A mortgagee, or a mortgage lender or mortgage broker as defined in section one of chapter two hundred and fifty-five E, shall not charge a loan fee, finder's fee, points, so-called, or similar fees in a mortgage transaction involving residential property located in the commonwealth of four or less units and occupied in whole or in part by the mortgagor, except to the extent that such fees or points have been previously disclosed to the mortgagor in writing, which disclosure may be in the form required by section seventeen D of chapter one hundred and eighty-four, or such other form which discloses said fees or points. A mortgagor shall not be obligated to pay fees or points which have not been previously disclosed as required herein.

  41. Books and records reviewed by the Division's examiners during the 2007 examination/inspection indicate that the Corporation engaged in a pattern or practice of understatements or omissions of the fees charged to consumers by New England Merchants.
  42. The Corporation's books and records indicate that processing fees, application fees, and origination fees (collectively, "broker fees") were collected at the loan closing in amounts which were not accurately disclosed to consumers, in writing, to the extent charged at closing, if at all. (See Exhibit 6 pdf format of exhibit6_102407.pdf
which is attached and incorporated herein by reference).

    (iii.) Unearned Fees

  43. The Real Estate Settlement Procedures Act, ("RESPA") and its implementing regulation, Regulation Z, section 3500.14(c)states in part:

    No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.

  44. Books and records reviewed by the Division's examiners during the 2007 examination/inspection indicate that when acting in the capacity of a mortgage broker, New England Merchants engaged in a pattern or practice of charging consumers fees for which no service was rendered or services which New England Merchants was not authorized to perform as the mortgage broker. (See Exhibit 7 pdf format of exhibit7_102407.pdf
which is attached and incorporated herein by reference).
  45. Books and records reviewed by the Division's examiners during the 2007 examination/inspection revealed that New England Merchants consistently charged consumers an "underwriting fee." Mortgage brokers are neither authorized to approve loan terms nor fund mortgage loans. New England Merchants, when acting in the capacity of a mortgage broker, would not be able to perform the service for which an underwriting fee would be collected.

    (iv.) Deceptive Business Practices

  46. Books and records reviewed by the Division's examiners at the Bourne location during the 2007 examination/inspection revealed that New England Merchants predated certain documents in an apparent attempt to avoid detection of violations of applicable federal and state consumer protection statutes and regulations governing the period in which the mortgage broker must provide such documents.
  47. In Loan No. 6335243058, a "Borrower's Acknowledgement of New England Merchants Disclosures" form ("Disclosure") found in the file had a computer-generated date of September 29, 2006. The correspondence log in the loan file also contained an initialed notation by a New England Merchants staff member indicating that the Disclosure was mailed to the consumer on September 29, 2006.
  48. The Division's examiners were notified during the 2007 examination/inspection by Lisa Cucchiello, the Compliance Officer of New England Merchants, that the Disclosure referenced above was neither created nor implemented by New England Merchants until December 2006, as much as three months after the alleged date on which the Disclosure was provided to the consumer.
  49. In Loan No. 0044353142, a set of unsigned disclosures, including a good faith estimate and loan origination and compensation agreement noted preparation dates of October 6, 2006. Also, one of the documents indicated that the document was sent to the consumer on October 7, 2006. The Attorney General's Disclosure form was hand-dated on October 6, 2006, however, a computer-generated date of October 20, 2006 appeared on form which indicates that the form was printed on that date.

    (v.) Failure to Properly Maintain Books and Records

  50. The Division's regulation 209 CMR 42.09(1)(b) states:

    Each Licensee shall keep and use its books, records and accounts in a manner which will allow the Commissioner to determine whether the Licensee is complying with the provisions of M.G.L. c. 255E and applicable state and federal laws and regulations. Each Licensee shall comply with the provisions of 209 CMR 48.00...

    (b)The mortgage broker … shall retain for a minimum of three years after a mortgage loan is made the following: the original loan origination and compensation agreement as set out in 209 CMR 42.16; a copy of the settlement statement; an account of fees received in connection with the loan; correspondence; papers or records relating to the loan; and such other documents as the Commissioner may require.

  51. During the 2007 examination/inspection, New England Merchants was unable to provide three of the six loan files pertaining to foreclosure-related complaints which had been filed by consumers with the Division against New England Merchants.
  52. Books and records reviewed by the Division's examiners during the 2007 examination/inspection indicated that New England Merchants failed to retain sufficient documentation to enable the Commissioner to determine whether the Corporation was complying with certain laws and regulations governing mortgage brokers and mortgage lenders in Massachusetts, including but not limited to, compliance with mandated timing requirements.
    1. The 2007 examination/inspection revealed that New England Merchants policy is that the corporate office in Arlington maintains files referred to as "funding files," which contain the closing package and closing disclosures but generally exclude the initial 1003 form and initial disclosures.
    2. During the 2007 examination/inspection the Division's examiners noted that approximately 25% of the reviewed files contained undated disclosure forms. In such files, all preliminary disclosures, including the Loan Origination and Compensation Agreement and the Attorney General's Mortgage Disclosure Form, did not contain preparation dates or dates from consumers who signed the forms.
  53. The Division's regulation 209 CMR 48.05 states, in part:

    Each Licensee may record, copy or reproduce its books, records, and accounts by photographic, photostatic, microfilm, microcard, miniature photographic, electronic, including, but not limited to, optical imaging, or other process which accurately reproduces or forms a durable medium for reproducing the original record or document or in any other form or manner, provided, however, that such method used to record, copy or reproduce original records or documents shall be approved by the Commissioner in a written plan for examination.

  54. Books and records reviewed by the Division's examiners during the 2007 examination/inspection revealed that all loan files originated from the Agawam branch location, and from branch locations under the direct supervision of Agawam personnel, were converted and stored in an electronic format without the Commissioner's prior approval.

    (vi.) Loan Origination and Compensation Agreement

  55. The Division's regulation 209 CMR 42.12A(5) states in part:

    It is a prohibited act or practice for a mortgage broker to fail to provide to the consumer at the time of application the loan origination and compensation agreement required under 209 CMR 42.16. The content of the agreement shall strictly conform to 209 CMR 42.16 and include signatures and dates by the consumer(s) and the mortgage broker.

  56. The Division's regulation 209 CMR 42.09(1)(b) states in part:

    Each mortgage broker required…shall retain for a minimum of three years after a mortgage loan is made the following: the original loan origination and compensation agreement as set out in 209 CMR 42.16

  57. Books and records reviewed by the Division's examiners during the 2007 examination/inspection revealed that in several loan files, New England Merchants: failed to retain copies of the Loan Origination and Compensation Agreement ("Agreement"); failed to provide evidence that the Agreement was provided within the time frame required by the aforementioned regulation; and issued Agreements which did not strictly conform with 209 CMR 42.16.

    (vii.) Refinancing in the Borrowers Interest

  58. Massachusetts General Laws chapter 183, section 28C(a) states in part:

    A lender shall not knowingly make a home loan if the home loan pays off all or part of an existing home loan that was consummated within the prior 60 months or other debt of the borrower, unless the refinancing is in the borrower's interest. The "borrower's interest" shall be narrowly construed, and the burden is upon the lender to determine that the refinancing is in the borrower's interest.

  59. The Division's regulation 209 CMR 53.07(1)(b) states in part:

    A lender may request that a borrower acknowledge receipt of such a worksheet or other documentation; provided, however, a lender shall not shift the burden to the borrower to demonstrate that a home loan is in the borrowers' interest.

  60. Books and records reviewed by the Division's examiners during the 2007 examination/inspection revealed that when acting in the capacity of a mortgage broker, New England Merchants provided consumers a "Tangible Net Benefit Certification" form ("Certification"), a document that only mortgage lenders are authorized to provide to borrowers.
    1. Books and records reviewed by the Division's examiners during the 2007 examination/inspection also revealed that the Certification provided to the applicable consumer shifted the burden to the consumer to demonstrate that the loan was in the borrowers interest and their benefit.

    (viii.) Engaging in Prohibited Advertising Practices

  61. The Division's regulation 209 CMR 32.24(2) states:

    If an advertisement states a rate of finance charge, it shall state the rate as an "annual percentage rate," using that term. If the annual percentage rate may be increased after consummation, the advertisement shall state that fact. The advertisement shall not state any other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the annual percentage rate.

  62. New England Merchants' direct mailing originating from the East Falmouth location advertises "rates as low as 1.0%" but fails to state the "annual percentage rate" as required pursuant to 209 CMR 32.24(2). In addition, the solicitation does not indicate if the annual percentage rate may increase after consummation.
  63. The Division's regulation 209 CMR 42.15 states, in part:

    A Licensee shall also disclose the type and number of its license(s) in all advertisements.

  64. Attorney General's regulation 940 CMR 8.04(2) states, in part:

    It is an unfair or deceptive act or practice for a mortgage broker or lender to advertise without clearly and conspicuously disclosing its business name, the words "broker" or "lender", as applicable, and the license number.

  65. New England Merchants' failed to disclose the Corporation's license type and number on the Corporation's website: www.nemerchants.com.

    CONCLUSIONS OF LAW

  66. Based upon the information contained in Paragraphs 1 through 65, New England Merchants is not an entity otherwise exempted from the licensing requirements of Massachusetts General Laws chapter 255E, section 2 for those engaged in the business of a mortgage broker and mortgage lender in Massachusetts.
  67. Based upon the information contained in Paragraphs 1 through 65, New England Merchants has unlawfully engaged in the business of a mortgage broker through a network of locations and individuals operating without a license from the Commissioner in violation of Massachusetts General Laws chapter 255E, §2 and the Division's regulation 209 CMR 42.00 et seq.
  68. Based upon the information contained in Paragraphs 1 through 65, New England Merchants has solicited or accepted residential mortgage loan applications for property located in Massachusetts from individuals engaging in the activity of a mortgage broker who were not employed by the Corporation and who otherwise failed to qualify for an exemption from licensure as set forth by the Division by prior published opinions, including without limitation Opinions 96-221, 97-061, and 97-222 in violation of General Laws chapter 255E, section 2.
  69. Based upon the information contained in Paragraphs 1 through 65, New England Merchants carried on its business at locations other than the address on its original license without first notifying the Commissioner, in writing, at least thirty days prior to the opening of the branch location in violation of the Division's regulation 209 CMR 42.13(1).
  70. Based upon the information contained in Paragraphs 1 through 65, by providing disclosures to consumers that only lenders are authorized to provide when acting in the capacity of a mortgage broker, New England Merchants, has violated Massachusetts General Laws chapter 255E, section 2.
  71. Based upon the information contained in Paragraphs 1 through 65, by failing to provide mortgage loan applicants with the Attorney General's Mortgage Broker Disclosure Form, in the proper format, New England Merchants has violated the Attorney General's regulation 940 CMR 8.05(1).
  72. Based upon the information contained in Paragraphs 1 through 65, by misstating borrowers' incomes on Uniform Residential Loan Applications, New England Merchants has violated Massachusetts General Laws chapter 93A, section 2(a) and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1).
  73. Based upon the information contained in Paragraphs 1 through 65, by charging loan fees, points, or similar fees in mortgage transactions involving residential property located in the Commonwealth, of four or less units and occupied in whole or in part by the mortgagor, without disclosing such fees or points to the mortgagor prior to the closing of the loan, New England Merchants has violated Massachusetts General Laws chapter 183, section 63.
  74. Based upon the information contained in Paragraphs 1 through 65 by charging unearned fees, including underwriting fees, when acting in the capacity of a mortgage broker, in mortgage transactions involving residential property located in the Commonwealth, New England Merchants has violated the Real Estate Settlement Procedures Act and its implementing regulation, Regulation Z, section 3500.14(c).
  75. Based upon the information contained in Paragraphs 1 through 65, by giving individuals referral fees, New England Merchants has violated the Real Estate Settlement Procedures Act and its implementing regulation, Regulation Z, section 3500.14(c).
  76. Based upon the information contained in Paragraphs 1 through 65, by failing to keep and use its books and records in a manner which would allow the Commissioner to determine whether the Corporation was complying with applicable state and federal laws and regulations, New England Merchants has violated the Division's regulations 209 CMR 48.03 and 209 CMR 42.09(1).
  77. Based upon the information contained in Paragraphs 1 through 65, by retaining documents in an electronic format without obtaining approval from the Commissioner, New England Merchants has violated the Divisions regulation 209 CMR 48.05.
  78. Based upon the information contained in Paragraphs 1 through 65, by failing to retain all copies of the Loan Origination and Compensation Agreement provided to consumers and, in some instances, modifying the language of the Loan Origination and Compensation Agreement provided to Massachusetts Consumers, New England Merchants has violated the Division's regulation 209 CMR 42.12A(5) and 209 CMR 42.09(1)(b).
  79. Based upon the information contained in Paragraphs 1 through 65, by mailing consumer solicitations that contained false or misleading language or had the tendency to be false or misleading, New England Merchants has violated the Attorney General's regulation 940 CMR 8.04(1).
  80. Based upon the information contained in Paragraphs 1 through 65, by failing to include required language on the Corporation's website when advertising certain credit terms, New England Merchants has violated the Division's regulations 209 CMR 32.24(2) and 32.24(3).
  81. Based upon the information contained in Paragraphs 1 through 65, by failing to disclose and/or inaccurately disclosing the Corporation's license type and number on its consumer solicitations, mailings and the Corporation's website, New England Merchants has violated the Division's regulation 209 CMR 42.15.
  82. Based upon the information contained in Paragraphs 1 through 65, by engaging in the practices described above in Paragraphs 1 through 65, inclusive, New England Merchants has failed to demonstrate and maintain the financial responsibility, integrity, and general fitness that would warrant the belief that the business will be operated honestly, fairly, soundly, and efficiently in the public interest as required by Massachusetts General Laws chapter 255E, section 4 and the Division's regulation 209 CMR 42.06(2)(c).
  83. Based upon the information contained in Paragraphs 1 through 65, had the foregoing existed at the time of New England Merchants original mortgage broker and mortgage lender license applications, such conditions would have warranted a denial by the Commissioner of the license applications and are grounds for the revocation of New England Merchants mortgage company license no.(s) MC0201; et al as stated in Massachusetts General Laws chapter 255E, section 6.
  84. Based upon the information contained in Paragraphs 1 through 65, the Commissioner has determined that:
    1. New England Merchants has engaged, or is about to engage in, acts or practices which warrant the belief that the Corporation is not operating honestly, fairly, soundly and efficiently in the public interest in violation of standards governing the licensing and conduct of a 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 CEASE AND DESIST to New England Merchants.

    ORDER TO CEASE AND DESIST

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

  85. ORDERED that New England Merchants, its officers, directors, employees, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage broker and mortgage lender, 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.
  86. IT IS FURTHER ORDERED, that New England Merchants, its officers, directors, employees, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage broker and mortgage lender, as defined under Massachusetts General Laws chapter 255E, section 1, while this TEMPORARY ORDER is in effect, by or through any individual(s) retained as independent contractors to originate residential mortgage loans on behalf of New England Merchants.
  87. IT IS FURTHER ORDERED that New England Merchants shall immediately place any fees previously collected from Massachusetts consumers, relative to any pending mortgage loan applications, into a separate escrow account designated for such purpose and maintained at a federally insured bank. In addition, New England Merchants shall adopt or revise, as applicable, policies and procedures to ensure adherence to all regulations concerning the maintenance of such escrow account under 209 CMR 42.11.
  88. IT IS FURTHER ORDERED that New England Merchants shall transfer its entire open application list of all pending applications relating to Massachusetts residential property to one or more qualified broker(s) or lender(s), as appropriate depending on the application status, with no loss to the applicants.
    1. New England Merchants shall submit to the Commissioner a detailed record of all of the Corporation's pending residential mortgage loan applications transferred pursuant to this Paragraph of the TEMPORARY ORDER. The records to be produced shall be submitted to the Commissioner within five (5) days of the effective date of this TEMPORARY ORDER and shall include all information on file, including but not necessarily limited to, the following:
      1. All information on file as of the date of submission regarding the Corporation's open application pipeline, including but not limited to the following: The names of all individuals from whom New England Merchants has accepted an application for a residential mortgage loan; the applicants' addresses and telephone numbers; the amount of all prepaid loan fees submitted by the customer; the amount of each loan; application status (i.e. filed, submitted to lenders, cleared to close, etc.); scheduled closing dates; rate lock status; and a list of applicable broker(s) or lender(s) to whom the applications were placed. The latter list should include telephone numbers of contact persons familiar with New England Merchants' submitted loans.
  89. IT IS FURTHER ORDERED that New England Merchants shall immediately secure all pending residential mortgage loan application files and shall make such files, in their entirety, available to the Commissioner upon request.
  90. IT IS FURTHER ORDERED that within sixty (60) days of the effective date of this TEMPORARY ORDER, the Corporation shall cause to be made a review of all Massachusetts residential mortgage loans originated by New England Merchants since May 29, 2003 and shall identify all mortgage loan transactions in which the amount actually paid by the consumer as a loan fee, mortgage broker fee, application fee, or similar fee, as recorded on the settlement agreement, exceeded the amount disclosed to the consumer, in writing, for such fees prior to closing;
    1. In each mortgage loan transaction identified pursuant to Paragraph 90, New England Merchants shall reimburse the consumer the difference between the actual charge assessed to the individual consumer as a loan fee, mortgage broker fee, processing fee, or similar fee and the amount disclosed in writing for such fees prior to closing;
    2. Within sixty (60) days of the effective date of this TEMPORARY ORDER, New England Merchants shall submit to the Commissioner a list of all borrowers identified pursuant to the above described review of residential mortgage loan transactions to whom a reimbursement is owed by the Corporation in accordance with this Paragraph of the TEMPORARY ORDER;
    3. Within ninety (90) days of the effective date of this TEMPORARY ORDER, New England Merchants shall submit evidence of all reimbursements issued to consumers pursuant to this Paragraph of the TEMPORARY ORDER, including the consumers' names, the dates the loans closed, check numbers, and the amount of the reimbursements.
  91. IT IS FURTHER ORDERED that within sixty (60) days of the effective date of this TEMPORARY ORDER, New England Merchants shall cause to be made a review of all Massachusetts residential mortgage loans originated by New England Merchants since May 29, 2003 and shall identify all mortgage loan transactions in which New England Merchants charged an underwriting fee, or collected any other compensation from consumers, (i) in consideration of services which New England Merchants, as a mortgage broker, was prohibited from performing in a mortgage loan transaction or (ii) where no, or only a nominal, service was provided by New England Merchants.
    1. In each mortgage loan transaction identified pursuant to Paragraph 91, New England Merchants shall reimburse the consumer for the total amount of the underwriting fee, or other unearned fee, which was charged;
    2. Within sixty (60) days of the effective date of this TEMPORARY ORDER, New England Merchants shall submit to the Commissioner a list of all borrowers identified pursuant to the above described review of residential mortgage loan transactions to whom a reimbursement is owed by the Corporation in accordance with this Paragraph of the TEMPORARY ORDER; and
    3. Within ninety (90) days of the effective date of this TEMPORARY ORDER, New England Merchants shall submit evidence of all reimbursements issued to consumers pursuant to this Paragraph of the TEMPORARY ORDER, including the consumers' names, the dates the loans closed, check numbers, and the amount of the reimbursements.
  92. IT IS FURTHER ORDERED that New England Merchants shall refrain from engaging or retaining any separate corporation, partnership, limited liability company or other similar legal 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 by the Corporation in the name of New England Merchants.
  93. 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 General Laws chapter 30A.
  94. IT IS FURTHER ORDERED that this TEMPORARY ORDER shall not be construed as approving any act, practice, or conduct not specifically set forth herein which was, is, or may be in violation of relevant state or federal laws and regulations. The findings, conclusions, and required action set forth in this TEMPORARY ORDER are in addition to, and not in lieu of, any findings, conclusions, and corrective action which may be set forth in the Report of Examination/Inspection, prepared by the Division of Banks as of May 29, 2007, and issued as of the effective date of this TEMPORARY ORDER.
  95. 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 New England Merchants 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 24th day of October, 2007.

By: Steven L. Antonakes
Commissioner of Banks
Commonwealth of Massachusetts