By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE BROKER
LICENSING
Docket No. 2008-015

FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST


In the Matter of
THE MORTGAGE SPECIALISTS, INC
Plaistow, New Hampshire

Mortgage Broker License No(s): MB0413 et al.


The Commissioner of Banks ("Commissioner") having determined that THE MORTGAGE SPECIALISTS, INC., ("Mortgage Specialists" or the "Corporation"), with its main business office located at 2 Main Street, Plaistow, New Hampshire, 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 broker in Massachusetts pursuant to Massachusetts General Laws chapter 255E, section 2.
  2. Mortgage Specialists is, and at all relevant times, has been a foreign corporation conducting business in the Commonwealth of Massachusetts. Mortgage Specialists' main office is located at 2 Main Street, Plaistow, New Hampshire.
  3. Mortgage Specialists is licensed by the Commissioner as a mortgage broker under Massachusetts General Laws chapter 255E, section 2. According to records maintained on file with the Division, the Commissioner initially issued mortgage broker license number MB0413 to Mortgage Specialists to engage in the business of a mortgage broker on or around February 13, 1992. License number MB0413 authorized Mortgage Specialists to conduct the mortgage broker business from an office located at 1 Mount Pleasant Drive, Peabody, Massachusetts. On or around May 25, 1999, the Commissioner issued mortgage broker license number MB1643 to Mortgage Specialists to conduct business from the Corporation's main office located at 2 Main Street, Plaistow, New Hampshire.
  4. Mortgage Specialists maintains additional office locations from which the Corporation conducts its mortgage broker business. According to records maintained on file with the Division, Mortgage Specialists currently possesses six (6) additional mortgage broker licenses from the Commissioner for locations operated both in Massachusetts as well as outside the Commonwealth.
  5. 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 brokers transacting business in Massachusetts to determine compliance with the provisions of Massachusetts General Laws chapter 255E or any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the business of a mortgage broker.
  6. On March 25, 2008, 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 Mortgage Specialists (the "2008 examination/inspection"). The 2008 examination/inspection was conducted on-site at the Corporation's main office in Plaistow, New Hampshire. The 2008 examination/inspection revealed findings that Mortgage Specialists engaged in acts and practices in violation of state laws and regulations as set forth herein.

    A. Unfair and/or Deceptive Business Practices

    Misleading Representations of a Prospective Borrower's Income

  7. Massachusetts General Laws chapter 93A, section 2(a) states:

    Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.
  8. The Attorney General's regulation 940 CMR 8.06(1) states, in part:

    It is an unfair or deceptive act or practice for a mortgage broker or lender to make any representation or statement of fact if the representation or statement is false or misleading or has the tendency or capacity to be misleading.
  9. Books and records reviewed by the Division's examiners during the 2008 examination/inspection revealed that Mortgage Specialists falsified asset and income information in three residential loan transactions, each involving stated-income loan products, originated on behalf of a single borrower over a period of less than twelve months as described below:
    1. Loan #7359012929: A stated income loan application for a loan which closed on January 26, 2005, indicated that the borrower, a registered nurse employed by the Commonwealth of Massachusetts, earned approximately $7,253 monthly or $87,036 annually.
    2. Loan #20010353 & Loan #4635006706: Stated income loan applications for loans which closed on May 4, 2005 and September 19, 2005, respectively, indicate that the same borrower identified above in subparagraph 9(a) earned approximately $8,253 monthly or $99,036 annually.
    3. Publicly available Commonwealth payroll records indicate that the borrower earned approximately $1,303 monthly or $17,699 annually in 2007.
    4. In response to the Division's inquiry regarding the apparent discrepancy, an officer of Mortgage Specialists stated that an internal investigation by the Corporation revealed that the borrower's income was combined with her husband's income on the loan applications completed by Mortgage Specialists. However, the loan applications did not include her husband as a co-applicant.
  10. Mortgage Specialists knew or should have known that the above referenced income and/or asset information would be relied upon in underwriting the mortgage loan by the mortgage lender or financial institution to which the mortgage loan applications were brokered by Mortgage Specialists.

    Altering Mortgage Loan Related Documents in a Residential Loan Transaction

  11. The Division's regulation 209 CMR 42.12A(7), effective as of September, 8, 2006, states:

    It is a prohibited act or practice for a mortgage broker or mortgage lender to sign a consumer's name to a mortgage loan application or mortgage loan documents on behalf of a consumer.
  12. On or around June 12, 2008, while the findings of the 2008 examination/inspection were being reviewed and finalized, the Division was notified by the New Hampshire Banking Department that, during a routine examination/inspection of Mortgage Specialists by the New Hampshire Banking Department, mortgage loan documents relating to Massachusetts residential loan transactions had been found in a shredding bin used by Mortgage Specialists. According to the New Hampshire examiners, the mortgage loan documents contained borrowers' signatures that appeared to have been altered.
  13. On or around June 12, 2008, as a result of the events referenced in Paragraph 12 of this Temporary Order, the Division's examiners returned to Mortgage Specialists' main office located at 2 Main Street, Plaistow, New Hampshire to examine the mortgage loan documents discovered by the New Hampshire Banking Department and to review additional records and files found in the shredding bin (the "June 2008 visitation").
  14. Records and files reviewed by the Division's examiners during the June 2008 visitation indicated that Mortgage Specialists altered loan-related documents by cutting and pasting applicants' signatures onto mortgage loan disclosures and loan-related documents. Specifically, the examiners discovered that in one loan file the borrowers' signatures on a Mortgage Broker Fee Agreement had been cut and subsequently affixed onto the signature line of an Appraisal Disclosure.
  15. Records and files forwarded to the Division's examiners by the New Hampshire Banking Department on July 28, 2008 indicated that Mortgage Specialists altered loan-related documents by cutting applicants' signatures from an unknown form and thereafter pasting those signatures onto at least two copies of a "Massachusetts Net Tangible Benefit Disclosure and Acknowledgement" Form. (Loan No. 1500560233).

    B. Refinancing in the Borrower's Interest

  16. 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.
  17. 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.
  18. Books and records reviewed by the Division's examiners during the 2008 examination/inspection revealed that when acting in the capacity of a mortgage broker, Mortgage Specialists provided consumers a "Statement of Borrower's Benefits" ("Statement"), a document that only mortgage lenders are authorized to provide to borrowers pursuant to Massachusetts General Laws chapter 183, section 28C(a).
  19. Books and records reviewed by the Division's examiners during the 2008 examination/inspection also revealed that the language used in the Statement provided to the applicable consumers was not in compliance with 209 CMR 53.07(1)(b) inasmuch as it shifted the burden to the consumers to demonstrate that the loan was in the borrowers' interest and to their benefit.

    C. Providing Mortgage Lender Disclosures to Consumers

  20. Books and records reviewed by the Division's examiners during the 2008 examination/inspection indicate that Mortgage Specialists routinely provided several mortgage lender disclosures to consumers in excess of its authority as a mortgage broker in violation of Massachusetts General Laws chapter 255E, section 2.
  21. The mortgage lender disclosures include, but are not limited to, the Truth In Lending Disclosure, Equal Credit Opportunity Notices, and Notice to Applicant of Right to Receive Copy of Appraisal Report.

    D. Failure to Properly Maintain Books and Records

  22. The Division's regulation 209 CMR 42.09(1) states, in part, that:

    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.
  23. Books and records forwarded to the Division's examiners on July 28, 2008 by the New Hampshire Banking Department indicated that Mortgage Specialists failed to properly retain sufficient documentation to enable the Commissioner to determine whether the Corporation was complying with certain laws and regulations governing mortgage brokers in Massachusetts. Specifically, the New Hampshire Banking Department retrieved at least two loan files containing original signatures which related to two separate Massachusetts loan transactions from a "shredding bin" retained by Mortgage Specialists.
  24. The Division's regulation 209 CMR 48.04 states, in part:

    Each Licensee shall keep and use its books, records, and accounts within the Commonwealth, except, however, that with the prior approval by the Commissioner of a written plan, a Licensee may keep such books, records, and accounts at a location, or locations, outside of the Commonwealth.
  25. The Division's regulation 209 CMR 48.06 states, in part, that:

    A Licensee may amend its written plan from time to time and such amendment shall not be effective until approved by the Commissioner.
  26. According to Division records, Mortgage Specialists received approval from the Division to maintain its books and records at the Corporation's main office located at 2 Main Street, Plaistow, New Hampshire.
  27. The 2008 examination/inspection revealed that Mortgage Specialists maintains its loan files at an off-site storage facility. Mortgage Specialists neither filed for nor received approval from the Division to maintain its records at that location.

    E. Loan Origination and Compensation Agreement

  28. 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.
  29. Books and records reviewed by the Division's examiners during the 2008 examination/inspection revealed that in all loan files reviewed, Mortgage Specialists issued Loan Origination and Compensation Agreements which did not strictly conform with 209 CMR 42.16.

    F. Failure to Provide Notification of Regulatory Action

  30. The Division's regulation at 209 CMR 42.12(1)(c) states, in part:

    A Licensee shall notify the Commissioner immediately, and in writing within one business day, of the occurrence of any of the following significant developments: . . . (c) [R]eceiving notification of the institution of . . . cease and desist, suspension or revocation procedures, or other formal or informal regulatory action, in any state against the Licensee, and the reasons thereof.
  31. On July 24, 2008, the State of New Hampshire Banking Department ("New Hampshire Department") issued an Order to Show Cause and Cease and Desist Order, Case No. 08-223, against Mortgage Specialists ("New Hampshire Order"). The New Hampshire Order contains a Staff Petition in which the staff of the New Hampshire Department allege the following violations of New Hampshire law: incomplete records; failure to supervise; failure to facilitate exam; dishonest or unethical practices; fraud; destruction of records; violation of federal statutes and regulations; and failure to notify of balloon payments.
  32. As of the effective date of this Temporary Order, the Division has not received notification from Mortgage Specialists of the occurrence of the events referenced above in Paragraph 31 of this Temporary Order.

    CONCLUSIONS OF LAW

  33. Based upon the information contained in Paragraphs 1 through 32, Mortgage Specialists has failed to demonstrate and maintain the character, reputation, integrity, and general fitness that would warrant the belief that the mortgage broker 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 42.06(2)(c).
  34. Based upon the information contained in Paragraphs 1 through 32, by falsifying borrowers' income information on Uniform Residential Loan Applications submitted in connection with residential mortgage transactions, Mortgage Specialists 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).
  35. Based upon the information contained in Paragraphs 1 through 32, by engaging in the act or practice of altering documents relating to the mortgage loan process by affixing photocopied signatures to unsigned disclosure documents prior to submitting such documents to the mortgage lender, Mortgage Specialists has violated the Division's regulation 209 CMR 42.12A(7), Massachusetts General Laws chapter 93A, section 2(a) and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1).
  36. Based upon the information contained in Paragraphs 1 through 32, by providing disclosures to consumers that only lenders are authorized to provide Mortgage Specialists has exceeded its authority as a mortgage broker in violation of Massachusetts General Laws chapter 255E, section 2.
  37. Based upon the information contained in Paragraphs 1 through 32, 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, Mortgage Specialists has violated the Division's regulations 209 CMR 42.09(1) and 209 CMR 48.03.
  38. Based upon the information contained in Paragraphs 1 through 32, by failing to file for approval amendments to the Corporation's out of state record-keeping plan, Mortgage Specialists has violated the Division's regulation 209 CMR 48.04.
  39. Based upon the information contained in Paragraphs 1 through 32, by modifying the language of the Loan Origination and Compensation Agreement provided to Massachusetts Consumers, Mortgage Specialists has violated the Division's regulation 209 CMR 42.12A(5).
  40. Based upon the information contained in Paragraphs 1 through 32, Mortgage Specialists failed to notify the Commissioner in writing, within one business day, that on July 24, 2008 the New Hampshire Banking Department issued an Order to Show Cause and Cease and Desist Order in violation of the Division's Regulation 209 CMR 42.12(1)(c).
  41. Based upon the information contained in Paragraphs 1 through 32, the Commissioner has determined that:

    1. Mortgage Specialists has engaged in, 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.
    2. The public interest will be irreparably harmed by delay in issuing an ORDER TO CEASE AND DESIST to Mortgage Specialists.
  42. Based upon the information contained in Paragraphs 1 through 32, had the facts and conditions found therein existed at the time of Mortgage Specialists original mortgage broker license application, the Commissioner would have been warranted in refusing to issue such license. Further, the facts and conditions set forth in Paragraphs 1 through 32, present sufficient grounds for the revocation of Mortgage Specialists mortgage broker licenses pursuant to Massachusetts General Laws chapter 255E, section 6 and the Division's regulation at 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:

  43. ORDERED that Mortgage Specialists and any and all officers, members, managers, employees, independent contractors, or agents operating on behalf of Mortgage Specialists, and their successors or assigns, shall immediately cease engaging in the activities of; (a) a mortgage broker, as those activities are defined under Massachusetts General Laws chapter 255E, section 1, and (b) a mortgage loan originator, as those activities are defined under Massachusetts General Laws chapter 255F, section 1, relative to any residential property in Massachusetts, not otherwise expressly permitted by the terms of this Temporary Order. Therefore, Mortgage Specialists is ordered to immediately cease soliciting or accepting, either directly or indirectly, any residential mortgage loan applications from consumers for residential property located in Massachusetts.
  44. IT IS FURTHER ORDERED, that Mortgage Specialists, shall immediately place any fees previously collected from Massachusetts consumers, relative to any pending mortgage loan applications accepted at any office location, into a separate escrow account, designated for such purpose and maintained at a federally insured bank. In addition, Mortgage Specialists 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.
  45. IT IS FURTHER ORDERED that Mortgage Specialists shall immediately place with one or more qualified broker(s) or lender(s), as appropriate based on the status of the application and with no loss to applicants, all of its pending Massachusetts residential mortgage loan applications. Mortgage Specialists shall obtain the prior approval of the Commissioner before placing such applications to the qualified broker(s) or lender(s).
  46. IT IS FURTHER ORDERED that Mortgage Specialists shall submit to the Commissioner a detailed record, prepared as of the date of submission, of all of the Corporation's pending residential mortgage loan applications on property located in Massachusetts. 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, regarding the Corporation's open application list, including but not necessarily limited to, the following:

    All information on file as of the date of submission regarding Mortgage Specialists' open application list as a mortgage broker, including but not limited to, the following: The names of all individuals from whom Mortgage Specialists 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 identifying the applicable broker or lender with whom the applicants' application was placed. The latter list should include telephone numbers of contact persons familiar with the Corporation's submitted loans.
  47. Mortgage Specialists shall immediately secure all pending residential 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 45 of this Temporary Order, a copy of such document, correspondence, or paper relating to the mortgage loan shall be retained in Mortgage Specialists' books and records and shall be available to the Commissioner, in their entirety, upon request.
  48. 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.
  49. 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 March 25, 2008.
  50. 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 Mortgage Specialists 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 31th day of July, 2008.

    By: Steven L. Antonakes
    Commissioner of Banks