By the Division of Banks




COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LOAN
ORIGINATOR LICENSING
Docket No. 2009-128-MLO

FINDINGS OF FACT AND
TEMPORARY ORDER TO
CEASE AND DESIST


In the Matter of
JOHN K. RICHMAN

Mortgage Loan Originator License No.: MLO19593


The Commissioner of Banks ("Commissioner") having determined that JOHN K. RICHMAN, has engaged in, or is engaging in, or is about to engage in, acts or practices constituting violations of Massachusetts General Laws chapter 255F, and applicable regulations found at 209 CMR 41.00 et seq., hereby issues the following FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST ("Temporary Order") pursuant to General Laws chapter 255F, section 8(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 loan originator in Massachusetts pursuant to Massachusetts General Laws chapter 255F, section 2 and its implementing regulation at 209 CMR 41.00 et seq.
  2. The Division, through the Commissioner, also 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 and its implementing regulation at 209 CMR 42.00 et seq.
  3. John K. Richman is licensed by the Commissioner as a mortgage loan originator under Massachusetts General Laws chapter 255F, section 2. According to records maintained on file with the Division, the Commissioner initially issued a mortgage loan originator license, license number MLO19593 to John K. Richman to engage in the business of a mortgage loan originator on or about July 17, 2008.
  4. According to the Division's records, at all relevant times, John K. Richman was the Vice President and 50% owner of Union Capital Mortgage Business Trust ("Union Capital" or the "Corporation"). According to records maintained by the Division, John K. Richman identified himself as Vice President and "control person" of Union Capital.
  5. Union Capital is licensed by the Commissioner as a mortgage lender and mortgage broker under Massachusetts General Laws chapter 255E, section 2. According to records maintained on file with the Division, the Commissioner issued a mortgage company license, license number MC2202 to Union Capital to engage in the business of a mortgage lender and mortgage broker on or about August 9, 2002. License number MC2202 authorized Union Capital to conduct the mortgage company business from the Corporation's main office located at 1137 North Main Street, Randolph, Massachusetts.
  6. Pursuant to General Laws chapter 255F, section 14, the Division is authorized to inspect the books, accounts, papers, records, and files of mortgage lenders, mortgage brokers and mortgage loan originators, respectively, transacting business in Massachusetts to determine compliance with the provisions of Massachusetts General Laws chapter 255E, chapter 255F, and any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the licensed business.
  7. Mortgage lenders who have made fifty or more home mortgage loans in the last calendar year are also subject to an evaluation of their community investment ("MLCI") practices including a review of the mortgage lender's compliance with fair lending laws, compliance with the requirements of the Equal Opportunity Act, the Home Mortgage Disclosure Act, and the Predatory Home Loan Practices Act. Massachusetts General Laws chapter 255E, section 8 further requires the Division to evaluate such mortgage lender's record of helping to meet the mortgage credit needs of the Commonwealth including low and moderate income neighborhoods and individuals.
  8. On April 15, 2009, pursuant to Massachusetts General Laws chapter 255E, section 8, the Division commenced an MLCI examination of Union Capital to assess the Corporation's record of helping to meet the mortgage credit needs of the Commonwealth, including low to moderate income neighborhoods and individuals, consistent with the safe and sound operation of the mortgage lender. During the course of the MLCI examination, the Division's examiners became concerned with the sustainability of certain mortgage loans originated by Union Capital and those mortgage loans originated by John K. Richman. The Division's examiners reviewed multiple loan files originated by John K. Richman that exhibited patterns of early payment defaults, which resulted in the initiation of foreclosure actions for certain properties located in the Boston area.
  9. On or about August 11, 2009, the Division expanded the scope of the MLCI examination by reviewing additional books and records maintained by the Corporation in response to the concerns raised during the MLCI examination.
  10. The Division's MLCI Report of Examination (the "Report"), which was issued to Union Capital on the effective date of this Temporary Order, presented the findings of the MLCI examination/inspection ("2009 examination/inspection") and alleged significant failures to comply with applicable state and federal laws, rules, regulations, and regulatory bulletins governing the conduct of those engaged in the mortgage business in Massachusetts.
  11. Books and records reviewed by the Division's examiners revealed that certain information submitted by John K. Richman on behalf of Union Capital to investors during the origination of the mortgage loans, including but not limited to the occupancy status, and financial status of certain identified borrowers was false and/or misleading. John K. Richman was identified as the loan originator of record in several loan files reviewed as fully described in the Report and summarized as follows.
  12. Unfair or Deceptive Acts and Practices

    a. Deceptive Business Practices

  13. The Division's regulation 209 CMR 41.09(1) states:
  14. It is a prohibited act or practice for a Licensee to engage in conduct prohibited under 2 09 CMR 42.12A.

  15. The Division's regulation 209 CMR 42.12A(8), states:
  16. It is a prohibited act or practice for a mortgage broker of mortgage lender to falsify income or asset information on a mortgage loan application or mortgage loan documents.

  17. Massachusetts General Laws chapter 93A, section 2(a) states:
  18. Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

  19. Massachusetts General Laws chapter 255F, section 11(a) states:
  20. Whenever the commissioner finds that any licensee has violated this chapter or any rule or regulation promulgated thereunder, or any other law of the commonwealth applicable to the conduct of a mortgage loan originator on residential property in the commonwealth, the commissioner may, by order, in addition to any other action authorized under this chapter or any rule or regulation made thereunder, impose a penalty upon the person which shall not exceed $5,000 for each violation up to a maximum of $100,000 for such violation plus the costs of investigation. The commissioner may impose a penalty which shall not exceed $5,000 for each violation of this chapter, or any rule or regulation promulgated hereunder, by a person other than a licensee, plus the costs of investigation.

  21. Books and records reviewed during the 2009 examination/inspection revealed that John K. Richman prepared and submitted 1003 Forms on behalf of Union Capital to lenders and/or investors, for multiple loan files in which the applicants' financial information including but not limited to applicants' income, assets, and/or employment information differed significantly and was not supported by the information reflected on other pertinent documentation which John K. Richman had in his possession as more fully described in the Report. Examples include but are not limited to the following:
  22. (a) Borrower A
    Property Address: Stellman Road, Unit 3, Roslindale, MA
    Loan Originator: John K. Richman

    1. A review of books and records maintained in the loan files provided by Union Capital to the Division's examiners and Registry of Deeds records indicate that certain information was misrepresented and omitted during the origination of the mortgage loan. The loan originator of record was John K. Richman.
    2. Books and records reviewed by the Division's examiners indicate that Borrower A purchased the Stellman Road property on or about March 21, 2007.
    3. A Uniform Residential Loan Application ("1003 Form"), prepared by John K. Richman on behalf of Union Capital revealed that two mortgage loan obligations were omitted on the 1003 Form and not included in the calculation of the debt-to-income ratio. A copy of at least one mortgage statement for a property located on Whitfield Street, in Dorchester was maintained in the loan file. A Registry of Deeds search revealed that the borrower had purchased and mortgaged at least one other property on or about November 27, 2006. Neither mortgage payments were included in the debt-to-income ratio.
    4. A review of the Corporation's books and records further revealed that the borrower had purchased and financed the Whitfield Street property through Union Capital on October 26, 2006, four months prior to the settlement of the Stellman Road property. The loan originator of record for the purchase of that property was John K. Richman.
    5. The Division's examiner determined that the monthly payments for the mortgages on the four properties owned by Borrower A would be approximately $10,121 monthly or $121,452 annually including a miscellaneous debt reflected on the credit report reviewed by the Division's examiner. Had John K. Richman and Union Capital included all mortgage payments during the origination of the mortgage loan, the total debt-to-income ratio would have been 96%.

    (b) Borrower B
    Property Address: Pond Street, Unit E12, Braintree, MA
    Loan Originator, John K. Richman

    1. A 1003 Form prepared by John Richman on behalf of Union Capital for a loan which ultimately closed on September 19, 2007, indicated that the borrower, a graphic designer, earned approximately $7,311.05 monthly or $87,732.60 annually.
    2. Paystubs maintained in the loan file reviewed by the Division's examiners revealed that borrower earned $2,500 bi-weekly or $5,416.67 monthly, aggregated to $65,000 annually.
    3. The discrepancy between the information reflected on the 1003 Form, and the paystubs located in the loan file maintained by Union Capital revealed that the Corporation overstated the borrower's income by approximately $1,894.38 monthly or $22,732.56 annually.

    (c) Borrower C
    Property Address: Highland, Unit 2 and Unit 3 Roxbury, MA
    Loan Originator, John K. Richman

    1. A review of loan files maintained by Union Capital revealed that the certain information was misrepresented on mortgage loan documents prepared during the origination of the purchase of both Units of Highland Street. John K. Richman was noted as the loan originator of record for the purchase of both units.
    2. Borrower C purchased both properties on May 9, 2007 with Union Capital as the lender of record and John K. Richman as the loan originator of record. The borrower was qualified for two mortgage loans on each property with a 100% Combined Loan to Value ("CLTV"). Both first mortgage loans for each property were submitted through two different investors, and each loan application signed by John K. Richman and submitted to the investors indicated that both units were to be the borrower's primary residence.
    3. A review of the loan file for the purchase of Unit 3, revealed that the 1003 Form prepared by John K. Richman failed to include a reference to the proposed mortgage payment for Unit 2. The mortgage payment for Unit 2 also was not considered in the total obligations and debt-to-income ratio. The Division's examiner determined that had both payment obligations been included, the borrower would have had a total debt-to-income ratio of 94%.
    4. A review of the Registry of Deeds records indicates that Unit 3 entered into foreclosure on March 5, 2009. Foreclosure proceedings on the Unit 2 were initiated on September 29, 2009.

    b. Deceptive Business Practices: Misrepresentation of Occupancy Status

  23. The commentary to section 226.2(a)(24) of the Federal Reserve System's Official Staff Commentary on Regulation Z, states in part: "A consumer can only have one principal dwelling at a time."
  24. Loan documents, specifically the mortgage deeds identifying Union Capital as the lender of record in the loan files described below contain a provision that states the following:
  25. Occupancy. Borrower shall occupy, establish, and use the property as the Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control.

  26. The Division's 2009 examination/inspection revealed that John K. Richman prepared 1003 Forms that concealed and/or misrepresented information relating to the occupancy status of multiple properties for which Union Capital sought residential mortgage loans on behalf of Massachusetts applicants. Books and records reviewed by the Division's examiners revealed that John K. Richman, as the loan originator of record, prepared and submitted several purchase money 1003 Forms for multiple properties on behalf of an individual borrower, with each 1003 Form indicating that the subject property was to be used as the borrower's primary residence. Examples include but are not limited to the following:
  27. (a) Borrower D:
    Property: Topliff Street, Dorchester, MA
    Property: Geneva Avenue, Unit 2, Dorchester, MA
    Loan Originator: John K. Richman

    1. John K. Richman prepared loan documents on behalf of Union Capital for the purchase of two properties for Borrower D on or about April 25, 2007. The borrower applied for two mortgage loans for the purchase of each property with a CLTV of 100%. John K. Richman was the loan originator of record for all four transactions. Each mortgage loan was submitted to the investor with information indicating that the borrower would be occupying each property as their primary residence.
    2. Borrower D purchased the Topliff Street property on May 4, 2007 and a review of documents provided by Union Capital to the Division's examiners indicate that the loan documents reflected that the property would be maintained as the borrower's primary residence.
    3. Borrower D purchased the Geneva Avenue property on June 4, 2007 and a review of documents provided by Union Capital to the Division's examiners indicate that the property would be maintained as the borrower's primary residence.
    4. A review of the documents in both loan files contained conflicting information.
      1. A review of a Verification of Deposit ("VOD") form maintained in the loan file for the purchase of Geneva Avenue was prepared on April 10, 2007 and indicated that the Borrower maintained a savings and checking account with balances of $8,934 and $22,291 respectively. The VOD indicated that both accounts were opened on March 27, 2004.
      2. The VOD form maintained in the loan file for the purchase of Topliff Street was prepared by the same individual who prepared the Geneva Avenue VOD and was prepared as of May 20, 2007. The VOD indicated that the borrower maintained a savings and checking account and also held a certificate of deposit, with balances of $42,498, $9,934 and $95,000 respectively. The account numbers for the checking and savings account were the same as those reflected on the VOD for the purchase of the Geneva Avenue property. The VOD indicated that the checking and savings accounts were opened on January 27, 2000 and the certificate of deposit was opened on May 18, 2005.
    5. Foreclosure proceedings were initiated on the Topliff Street property on or about July 30, 2008 and a foreclosure deed was recorded at the Registry of Deeds on January 20, 2009.
    6. Foreclosure proceedings were initiated on the Geneva Avenue property on or about March 26, 2008 and a foreclosure deed was recorded at the Registry of Deeds on May 23, 2008.

    (b) Borrower E:
    Property: D Street, Units 1 and 2 South Boston, MA
    Loan Originator: John K. Richman

    1. John K. Richman originated two purchase money loans on behalf of Union Capital for the purchase of both Units 1 and 2 for a property located at D Street in South Boston, for Borrower E on December 26, 2006. The borrower applied and was qualified for two mortgage loans (100% CLTV). For the purchase of Unit 1, John K. Richman was the loan originator of record for the first mortgage loan on Unit 1 and Kalonji Franklin was the loan originator of record for the second mortgage loan on Unit 1. John Richman was the loan originator of record for the purchase of Unit 2. Union Capital was the lender of record for all transactions. Each mortgage loan was submitted to the investor with information indicating that the borrower would be occupying each property as their primary residence.
    2. Registry of Deeds records indicated that Borrower E purchased Unit 1 on February 14, 2007 and a review of loan documents indicated that the property would be maintained as the borrower's primary residence.
      1. Foreclosure proceedings were initiated on the first mortgage loan for Unit 1 on March 18, 2008 and a foreclosure deed was recorded on July 7, 2008.
    3. Registry of Deeds records indicated that Borrower E purchased Unit 2 of the D Street property on February 27, 2007 and a review of loan documents indicated that the property would be maintained as the borrower's primary residence.
      1. Foreclosure proceedings were initiated on Unit 2 on February 18, 2008 and a foreclosure deed was recorded on May 2, 2008.
  28. John K. Richman, as a mortgage loan originator acting on behalf of Union Capital, should have known that information collected by the him as the mortgage loan originator of record, during the processing and/or underwriting of the mortgage loans would be relied upon by the mortgage lender, financial institution or investor to which the mortgage loans were brokered and/or sold by Union Capital.
  29. CONCLUSIONS OF LAW

  30. Based upon the information contained in Paragraphs 1 through 20, John K. Richman has failed to demonstrate and maintain the character, reputation, integrity, and general fitness that would warrant the belief that John K. Richman, as a licensed mortgage loan originator will act honestly, fairly, and soundly in the public interest in violation of Massachusetts General Laws chapter 255F, section 4 and the Division's regulations 209 CMR 41.03(2)(b).
  31. Based upon the information contained in Paragraphs 1 through 20, by submitting misleading and/or inaccurate information to mortgage lenders, financial institutions or investors to whom Union Capital brokered and/or sold mortgage loans to, John K. Richman acting as a loan originator on behalf of Union Capital, has violated Division's regulation 209 CMR 41.09(1), and Massachusetts General Laws chapter 93A, section 2(a).
  32. Based upon the information contained in Paragraphs 1 through 20, by falsifying borrowers' income information on Uniform Residential Loan Applications submitted in connection with residential mortgage transactions, John K. Richman has violated the Division's regulation 209 CMR 41.09(1), and Massachusetts General Laws chapter 93A, section 2(a).
  33. Based upon the information contained in Paragraphs 1 through 20, by misrepresenting the occupancy status of multiple borrowers on mortgage loan documents submitted during the origination and processing of the residential mortgage transactions, John K. Richman has violated the Massachusetts General Laws chapter 93A, section 2(a) and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1).
  34. Based upon the information contained in Paragraphs 1 through 20, the Commissioner has determined that:
    1. John K. Richman has engaged in, is engaging in, or is about to engage in, acts or practices which warrant the belief that it is not operating honestly, fairly, soundly and efficiently in the public interest in violation of standards governing the licensing and conduct of a mortgage loan originator including, but not limited to, the provisions of the Division's regulations at 209 CMR 41.00 et seq.; and
    2. The public interest will be irreparably harmed by delay in issuing an ORDER TO CEASE AND DESIST to John K. Richman.
  35. Based upon the information contained in Paragraphs 1 through 20, had the facts and conditions found therein existed at the time of John K. Richman's original mortgage loan originator 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 20 present sufficient grounds for the revocation of John K. Richman's mortgage loan originator license pursuant to Massachusetts General Laws chapter 255F, section 7 and the Division's regulation at 209 CMR 41.04(2)(c)(1), 209 CMR 41.04(2)(c)(2) and 209 CMR 41.04(2)(c)(3).
  36. ORDER TO CEASE AND DESIST

  37. After taking into consideration the FINDINGS OF FACT and CONCLUSIONS OF LAW stated herein, it is hereby:
  38. ORDERED that John K. Richman shall immediately cease engaging in the activities of 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, John K. Richman 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.
  39. IT IS FURTHER ORDERED that this Temporary Order shall become effective immediately and shall remain in effect unless set aside, limited, or suspended by the Commissioner or upon court order after review under Massachusetts General Laws chapter 30A.
  40. 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.
  41. IT IS FURTHER ORDERED that a hearing will be scheduled on this matter to determine whether or not such Temporary Order shall become permanent and final only upon receipt of a written request for such a hearing from John K. Richman 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 12th day of November, 2009

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