By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE BROKER
LICENSING
Docket No. 2007-013-CO

CONSENT ORDER


In the Matter of
VERTICAL LEND, INC.
d/b/a MORTGAGE WAREHOUSE
Melville, New York

Mortgage Broker License No. MB1884


WHEREAS, Vertical Lend, Inc. d/b/a Mortgage Warehouse, Melville, New York ("Vertical Lend" or the "Corporation"), a licensed mortgage broker under Massachusetts General Laws chapter 255E, section 2 has been advised of its right to Notice and Hearing pursuant to General Laws chapter 255E, section 7(a), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("CONSENT AGREEMENT") with representatives of the Division of Banks ("Division") dated January 2, 2008, whereby, solely for the purpose of settling this matter, and without admitting any allegations or implications of fact or the existence of any violation of state or federal laws and regulations governing the conduct and operation of a mortgage broker, Vertical Lend agrees to the issuance of this CONSENT ORDER ("CONSENT ORDER") by the Commissioner of Banks ("Commissioner");

WHEREAS, pursuant to General Laws chapter 255E, section (7)(b), the Commissioner issued a FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST AND ORDER TO SHOW CAUSE AND NOTICE OF RIGHT TO A HEARING, Docket No. 2007-013 (the "ORDER AND NOTICE"), against Vertical Lend on April 3, 2007, based upon an examination/inspection of Vertical Lend as of January 30, 2007 and the findings presented in the Division's Report of Examination/Inspection (the "Report"), which alleged Vertical Lend's failure to demonstrate and maintain the character, reputation, integrity, and general fitness that would warrant the belief that its 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);

WHEREAS, the parties now seek to resolve by mutual agreement, the matters identified in the ORDER AND NOTICE;

WHEREAS after extensive negotiations and without this CONSENT ORDER constituting an admission by Vertical Lend of any allegations made or implied by the provisions of the ORDER AND NOTICE; solely for the purpose of settlement of all alleged violations without protracted administrative proceedings and judicial review, Vertical Lend hereby waives its right to complete the hearing process relative to this proceeding and affirms that it is willing to take all necessary action as set forth in this CONSENT ORDER; and

WHEREAS, in recognition of the Division and Vertical Lend having reached the following mutual agreement under this CONSENT ORDER to fully resolve the matters raised by the ORDER AND NOTICE, the Commissioner has terminated the ORDER AND NOTICE on this 2nd day of January 2008.

ORDER

NOW COME the parties in the above-captioned matter, the Division and Vertical Lend, and stipulate and agree as follows:

  1. Upon the execution of this CONSENT ORDER, Vertical Lend voluntarily agrees not to renew its Massachusetts mortgage broker license number MB1884 which expired on May 31, 2007, and voluntarily agrees to surrender such license, and all rights thereunder, by returning the original license certificate to the Division at One South Station, 3 rd Floor, Boston, Massachusetts 02110. In addition, Vertical Lend voluntarily agrees to withdraw its pending application for a mortgage broker license for an office located at 471 Western Avenue, Lynn, Massachusetts, which was received by the Division on January 29, 2007.
  2. Having surrendered its license, Vertical Lend agrees not to engage in the mortgage broker and mortgage lender business in Massachusetts, as those terms are defined under General Laws chapter 255E, section 1.
  3. To the extent that Vertical Lend wishes to engage in the business of a licensed mortgage broker and/or mortgage lender, Vertical Lend shall be required to submit a completed application to obtain the relevant license from the Commissioner. Unless the Commissioner, in his sole discretion, agrees to accept such an application earlier, Vertical Lend agrees not to submit such an application until at least one hundred and eighty (180) days have elapsed following the effective date of this CONSENT ORDER. The Commissioner shall have all of the discretion set forth within General Laws chapter 255E, section 4 and the Division's regulation 209 CMR 42.00 et seq. in determining whether to issue a license to Vertical Lend to conduct the licensed business, provided however, that any such application shall not be denied solely on the basis of the ORDER AND NOTICE.
  4. In determining whether Vertical Lend has satisfactorily demonstrated that it meets or exceeds the minimum standards for holding a mortgage broker and/or mortgage lender license, the Commissioner will consider whether Vertical Lend has successfully developed and implemented revised internal policies and quality control procedures as set forth in: this CONSENT ORDER; the findings of the Report; and as specifically enumerated in Paragraph 6 of this CONSENT ORDER.
  5. Within five (5) days of the effective date of this CONSENT ORDER, Vertical Lend agrees to provide the Division with written certification that it has successfully notified each of the mortgage lender(s) or financial institution(s) to which Vertical Lend was placing Massachusetts residential mortgage loans prior to the issuance of the ORDER AND NOTICE that the Corporation is no longer conducting any mortgage broker activity in Massachusetts. This notification shall provide the mortgage lender or financial institution with accurate contact information of a designated individual both at Vertical Lend and at Vertical Lend's attorney's office that the mortgage lender or financial institution may contact if any mortgage broker activity is attempted to be conducted through the lender or financial institution by an individual or entity purporting to operate on behalf of Vertical Lend.
    1. Upon execution of this CONSENT ORDER, Vertical Lend agrees to take all reasonable steps to prevent any former officers, directors, employees, their successors and assigns, and those persons in active participation with it, directly or indirectly, from acting under the apparent authority of Vertical Lend to conduct unlicensed mortgage broker activity in Massachusetts. In addition to the lender notification provisions of the preceding paragraph, Vertical Lend agrees to take appropriate steps to limit or terminate any online application submission authorities which are necessary to effect compliance with this CONSENT ORDER and Vertical Lend agrees to immediately notify the Division if any mortgage lender or financial institution should contact Vertical Lend regarding any attempted lending or brokering activity.
  6. In order for the Commissioner to find that Vertical Lend meets the licensing standards applicable to mortgage lender and/or mortgage broker applicants , Vertical Lend must demonstrate to the Division's satisfaction that it has successfully developed and implemented effective internal controls and taken the affirmative measures described below. In order that the Commissioner may evaluate the measures implemented by Vertical Lend, Vertical Lend agrees that the Division shall have the full authority to conduct an examination/inspection of Vertical Lend's books, records, accounts, procedures, and policies so that a finding on such license application can be made. Notwithstanding Vertical Lend's unlicensed status at the time of the examination/inspection, it is understood that such examination/inspection shall be conducted under the provisions set forth in General Laws chapter 255E, section 8. The Division agrees to process any completed application to obtain the relevant license from the Commissioner submitted by Vertical Lend in an appropriate and timely manner.
    1. Vertical Lend agrees to draft or revise, as applicable, a written compliance program designed to maintain compliance by Vertical Lend with all state and federal laws and regulations governing the conduct and operation of a mortgage lender and/or mortgage broker in the Commonwealth of Massachusetts. The compliance program, at a minimum, shall:
      1. Provide for a loan review process to assess the compliance of Vertical Lend, and all applicable employees, staff, and independent contractors who operate on behalf of the Corporation, with (1) the statutes, regulations, regulatory bulletins, and other relevant provisions of law applicable to those engaged in the business of a mortgage lender and/or mortgage broker in Massachusetts and (2) the provisions of this CONSENT ORDER;
      2. Ensure that Vertical Lend's compliance program is managed by a qualified manager who shall have responsibility for all consumer compliance and related matters, including, but not limited to, monitoring the Corporation's compliance and ensuring that corrective action is taken to address all alleged violations and areas of concern previously identified by the Division; and
      3. Provide adequate training to applicable staff persons, conducted by qualified and trained personnel, which includes, but is not limited to, proper instruction, adequate supervision and ongoing training to ensure proper implementation and execution of the revised policies and procedures implemented pursuant to this CONSENT ORDER.
    2. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that any loan fees, application fees, processing fees, or similar fees collected as compensation for administrative costs incurred in originating or underwriting the mortgage loan, are not charged to consumers except to the extent that such fees or points have been properly disclosed to the consumer, in writing, prior to the closing of the mortgage loan.
      1. The Corporation agrees to cause to be made a review of all Massachusetts residential mortgage loans originated by Vertical Lend since November 12, 2003, and agrees to 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 statement, exceeded the amount disclosed to the consumer, in writing, for such fees prior to closing;
      2. In each mortgage loan transaction identified pursuant to Paragraph 6(b)(i) of this CONSENT ORDER, Vertical Lend agrees to 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;
      3. Within ninety (90) days of the effective date of this CONSENT ORDER, Vertical Lend agrees to submit to the Commissioner a list of all borrowers identified pursuant to the above described review of residential mortgage loan transactions, including those borrowers specifically identified in the Report, to whom a reimbursement is owed by the Corporation in accordance with this Paragraph of the CONSENT ORDER;
      4. Within one hundred and twenty (120) days of the effective date of this CONSENT ORDER, Vertical Lend agrees to submit evidence of all reimbursements issued to consumers pursuant to this Paragraph of the CONSENT ORDER, including the consumers' names, the dates the loans closed, check numbers, the amount of the reimbursements, and sufficient evidence to illustrate the consumers' receipt of the reimbursements; and
      5. Vertical Lend agrees to ensure that a system of internal controls is established to monitor the Corporation's compliance with the revised practices and procedures established and implemented pursuant to this Paragraph of the CONSENT ORDER.
    3. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that the Corporation does not conduct any mortgage broker or mortgage lender activity relative to Massachusetts residential mortgages from any office location that is not licensed with the Division. This Paragraph of the CONSENT ORDER shall apply during the 180 day period as well as at all subsequent times thereafter in which Vertical Lend holds a license from the Division.
    4. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that Vertical Lend does not solicit or accept residential mortgage loan applications for property located in Massachusetts from any unlicensed individual or entity engaging in the activity of a mortgage broker or mortgage lender, who is not employed by Vertical Lend or who otherwise fails to qualify for exemption from licensure under the provisions of General Laws chapter 255E, section 2, in accordance with the requirements for exemption as set forth by the Division in Opinions 96-221, 97-061, and 97-222, which may from time to time be revised by the Commissioner.
    5. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that, when acting in the capacity of a mortgage broker, Vertical Lend will not charge or collect from consumers loan discount fees, tax service fees, or other compensation from consumers (i) in consideration of services which the Corporation, as a mortgage broker, is prohibited from performing in a mortgage loan transaction or (ii) where no, or only a nominal, service is provided by the Corporation.
      1. Vertical Lend agrees to conduct a review of all Massachusetts residential mortgage loans brokered by the Corporation since December 4, 2001, or the earliest date from which Vertical Lend is able to access the pertinent records, whichever is earlier, but in no event later than May 30, 2003, and agrees to identify all consumers from whom Vertical Lend collected any loan discount fees, tax service fees, or other unearned fees: (1) in consideration of services which the Corporation, as a mortgage broker, was prohibited from performing in a mortgage loan transaction; or (2) where no, or only a nominal, service was provided by the Corporation. In the event that Vertical Lend's review evidences that it provided Massachusetts borrowers with written disclosures prior to the date of the loan closing which indicated that Vertical Lend would charge a fee permitted to be charged by a mortgage broker under Massachusetts law and a third party (e.g., a wholesale mortgage lender or a settlement attorney) caused that fee to be characterized as another type of fee in the preparation of the settlement statement, the Division agrees to individually review pertinent documentation and, subject to its full satisfaction, will not require a reimbursement to such borrower in the amount of the previously disclosed permissible fee.
      2. In each mortgage loan transaction identified pursuant to Paragraph 6(e)(i) of this CONSENT ORDER, Vertical Lend agrees to reimburse the consumer for the total amount of the unearned fee collected; and
      3. Within ninety (90) days of the effective date of this CONSENT ORDER, Vertical Lend agrees to 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 CONSENT ORDER;
      4. Within one hundred and twenty (120) days of the effective date of this CONSENT ORDER, Vertical Lend agrees to submit evidence of all reimbursements issued to consumers pursuant to this Paragraph of the CONSENT ORDER, including the consumers' names, the dates the loans closed, check numbers, the amount of the reimbursements, and sufficient evidence to illustrate the consumers' receipt of the reimbursements; and
      5. Vertical Lend agrees to ensure that a system of internal controls is established to monitor the Corporation's compliance with the revised practices and procedures established and implemented pursuant to this Paragraph of the CONSENT ORDER.
    6. Vertical Lend agrees to establish, implement, and maintain written policies and procedures to ensure that the Corporation maintains all books, records, and accounts in accordance with the requirements of Massachusetts General Laws chapter 255E, section 8 and the Division's regulation 209 CMR 42.09. The policies and procedures are to include but are not limited to:
      1. Implementing procedures to ensure that Vertical Lend maintains original paper copies of all records relating to Massachusetts residential loans. Such procedures shall ensure that the Corporation retains the entire loan file relative to each mortgage loan, including all documentation provided by the lender in a brokered transaction. It being understood that Vertical Lend shall have the opportunity to petition the Commissioner for approval of a plan to maintain such records in electronic format by completing the required forms as part of any subsequent license application;
      2. Providing that Vertical Lend conducts on-going, periodic reviews of document filing and retention procedures, and its compliance thereto, to ensure its books, records, and accounts are maintained in a manner sufficient to evidence compliance with applicable federal and state laws, rules and regulations;
      3. Implementing procedures to ensure the full cooperation of all Vertical Lend employees with the Division during any future examinations of the Corporation which shall necessarily provide for complete and timely access to its books, records, accounts, and any other additional, relevant materials pursuant to the provisions of Massachusetts General Laws chapter 255E, section 8; and
      4. Providing that all applicable staff of Vertical Lend with form completion and/or document filing and retention responsibilities, receive adequate training to ensure proper implementation and execution of the revised policies and procedures adopted by the Corporation under this Paragraph of the CONSENT ORDER.
    7. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that the Corporation provides all applicable consumers an Attorney General's 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.
    8. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that the Corporation, when acting in the capacity of a mortgage broker, will refrain from providing any consumer with any disclosure which, pursuant to the applicable statute, regulation, or regulatory bulletin, is intended to be issued exclusively by the lender or creditor in the residential mortgage loan transaction.
    9. Vertical Lend agrees to review and revise its polices and procedures to ensure that the Corporation accurately discloses yield spread premiums, as a dollar amount or range, on good faith estimates in accordance with the provisions of Real Estate Settlement Procedures Act (RESPA) implementing regulation 24 CFR 3500.7. Such procedures shall necessarily ensure that, when the yield spread premium is disclosed as an estimate or range, such amount set forth in the good faith estimate shall be based upon the Corporation's experience in collecting yield spread premiums in similar transactions and shall provide the consumer with an accurate estimate of the amount that is likely to be collected.
    10. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that the Corporation refrains from making any representations or statements that could be considered false, misleading, or have the tendency to be misleading, including, but not limited to, any representation that the Corporation is approving or funding the loan when acting in the capacity of a mortgage broker.
      1. Vertical Lend agrees to review and amend as necessary all documentation provided to consumers, including but not limited to, its "Certification and Authorization" form.
      2. Vertical Lend, when acting in the capacity of a mortgage broker, agrees to refrain from issuing documentation indicating that a home loan is in a borrower's interest pursuant to the Division's regulation 209 CMR 53.07 or any other documentation that would present the appearance that Vertical Lend is making an affirmative determination that a home loan is in the borrower's interest.
    11. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that all consumers receive a loan origination and compensation agreement in accordance with the provisions of the Division's regulation 209 CMR 42.16. Such procedures shall necessarily ensure that the content of the loan origination and compensation agreement strictly conforms to 209 CMR 42.16.
    12. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that the Division is notified of any "significant events" within the appropriate timing requirements, in compliance with 209 CMR 42.12.
    13. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that all Annual Reports are submitted to the Division in a timely fashion, in compliance with M.G.L. c. 255E, section 8.
    14. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that the Corporation will at all times conduct business in Massachusetts exclusively under the business name in which the relevant license was obtained from the Commissioner.
    15. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that, when applicable, the Corporation provides consumers with a Credit Score Disclosure, in compliance with the requirements of the Fair Credit Reporting Act, Section 609(g)(1). For each consumer loan file, a completed copy of the Credit Score Disclosure shall be retained in the Corporation's books and records as evidence of compliance.
    16. Vertical Lend agrees to review and revise the Corporation's policies and procedures to ensure that all consumers receive a Notice of Privacy Policies and Practices in accordance with the Federal Trade Commission's Regulation 16 CFR 313.
    17. Vertical Lend agrees to establish and implement quality control standards which provide for a loan review process to assess the Corporation's compliance with: (i) the statutes, rules, regulations, regulatory bulletins, and other relevant provisions of law applicable to those engaged in the business of a mortgage broker and/or mortgage lender in Massachusetts and (ii) the provisions of this CONSENT ORDER. Such quality control standards shall be designed to prevent the recurrence of the violations and areas of concern addressed in the Report.
    18. Vertical Lend agrees to establish and implement procedures and policies to ensure that all applicable staff persons shall receive adequate instruction and ongoing, periodic training to ensure proper implementation and execution of the revised practices and procedures implemented pursuant to this CONSENT ORDER.
  7. Within ninety (90) days of the effective date of this CONSENT ORDER, the Corporation agrees to submit to the Commissioner a written report, accompanied by an executed Secretary's Certificate to reflect that the Corporation's Board of Directors has reviewed such report, which addresses:
    1. the identification of the type and number of senior management and officer personnel necessary to manage adequately and supervise properly the Corporation's mortgage lender and/or broker activity;
    2. a statement that each individual identified pursuant to subparagraph (a) of this Paragraph of the CONSENT ORDER possesses the ability, experience, and other qualifications necessary to perform competently present and anticipated duties, to follow and enforce the Corporation's revised policies and procedures adopted pursuant to this CONSENT ORDER, and to comply with the provisions of this CONSENT ORDER; and
    3. A determination of the level of staffing needed to conduct competently the Corporation's operations affecting Massachusetts consumers.
  8. The provisions of this CONSENT ORDER shall not limit, estop, or otherwise prevent the Division, or any state agency or department, from taking any other action affecting Vertical Lend, its officers, directors, employees, successors and assigns, and those persons in active participation with it, directly or indirectly, acting individually or through any corporate or other entity, with respect to matters not addressed in the ORDER AND NOTICE or this CONSENT ORDER.
  9. This CONSENT ORDER shall become effective immediately upon the date of its issuance.
  10. The provisions of this CONSENT ORDER shall be binding upon Vertical Lend and its officers and directors, and their successors or assigns.
  11. Failure to comply with the terms of this CONSENT ORDER shall constitute grounds for license denial, suspension, and/or revocation pursuant to applicable provisions of the General Laws of the Commonwealth of Massachusetts.
  12. It is agreed that no action to enforce this CONSENT ORDER in the Superior Court will be taken by the Commissioner except after notice to Vertical Lend and unless Vertical Lend, or its officers and/or directors, or their successors or assigns, have violated, or is about to violate, any provision of the CONSENT ORDER.
  13. In accordance with the terms of the CONSENT AGREEMENT entered by Vertical Lend and the Commissioner, Vertical Lend has waived all rights of appeal that it may have.
  14. The provisions of this CONSENT ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this CONSENT ORDER shall have been modified, terminated, suspended, or set aside by the Commissioner or upon an order of a court of competent jurisdiction.
  15. This CONSENT ORDER and the CONSENT AGREEMENT are the complete documents representing the resolution of this matter. There are no other agreements, promises, representations, or warranties other than those set forth in this CONSENT ORDER and the CONSENT AGREEMENT.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.

Dated at Boston, Massachusetts, this 2nd day of January, 2008.

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