By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE BROKER
LICENSING
Docket No. 2009-004

FINDINGS OF FACT AND TEMPORARY
ORDER TO CEASE AND DESIST


In the Matter of
MORTGAGE FUNDING CORP.
Pembroke, Massachusetts

Mortgage Broker License No. MB5024

The Commissioner of Banks ("Commissioner") having determined that MORTGAGE FUNDING CORP., ("Mortgage Funding" or the "Corporation"), located at 15 Columbia Road, Unit 9, Pembroke, Massachusetts, has engaged in, or is engaging 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. Mortgage Funding is, and at all relevant times has been, a Massachusetts Corporation doing business in the Commonwealth. Mortgage Funding's main office is located at 15 Columbia Road, Unit 9, Pembroke, Massachusetts.
  3. Mortgage Funding 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 a mortgage lender license, license number ML0013 to Mortgage Funding to engage in the business of a mortgage lender on or about December 23, 1991. On or about June 3, 1998, the Commissioner issued a mortgage broker license, license number MB0864 to Mortgage Funding to engage in the business of a mortgage broker in Massachusetts. On or about May 31, 2003, the Commissioner issued a consolidated mortgage lender and mortgage broker license to the Corporation, with license number MC0013. License number MC0013 authorized Mortgage Funding to conduct the mortgage company business in Massachusetts. On or about December 4, 2007 , Mortgage Funding surrendered the Corporation's mortgage lender license, and retained the Corporation's mortgage broker license. Mortgage broker license, license number MB5024, authorized Mortgage Funding to engage in the business of a mortgage broker in Massachusetts at the Corporation's main office located at 15 Columbia Road, Unit 9, Pembroke, Massachusetts.
  4. 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 or any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the business of a mortgage lender and mortgage broker.
  5. On November 18, 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 Funding (the "2008 examination/inspection"). The 2008 examination/inspection included a review of Mortgage Funding's compliance with the laws and regulations governing both mortgage lenders and mortgage brokers as the books and records reviewed by the Division's examiners included a sample of those loans closed by Mortgage Funding prior to the Corporation's surrender of its mortgage lender license. The 2008 examination/inspection was conducted on-site at the Corporation's main office in Pembroke, Massachusetts.
  6. The Division's Report of Examination/Inspection on Consumer Compliance (the "Report"), which was issued to Mortgage Funding on the effective date of this Temporary Order, presented the findings of the 2008 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 business of a mortgage broker and mortgage lender in Massachusetts.

    A. Unfair or Deceptive Acts and Practices

    False and/or Misleading Representations of Prospective Borrowers' Income

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

    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.

  8. 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.

  9. 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.

  10. Books and records reviewed during the 2008 examination/inspection revealed that Mortgage Funding submitted to lenders and/or investors, loan files which contained Uniform Residential Loan Applications ("1003 Form") 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 Mortgage Funding had in its possession. Examples include but are not limited to the following:
    1. Loan No.(s): 0088415807 and 0088415815:
      1. Copies of two final stated income loan applications for first and second purchase money loans prepared by Mortgage Funding for loans which ultimately closed on November 30, 2005, indicated that the borrower, an engineer with a construction consulting firm, earned approximately $6,000 monthly or $72,000 annually. The co-borrower noted on the applications also an engineer at the construction consulting firm earned approximately $7,000 or $84,000 annually.
      2. A pre-application form located in the loan file reflected the borrower's annual salary as $41,000 and the co-borrower's annual salary as $65,000.
      3. A debt-to-income ratio worksheet, prepared by the corporation and maintained in the loan file reviewed by the Division's examiners, reflected the borrower's annual salary as $41,000 and the co-borrower's annual salary as $65,000.
      4. A copy of the Corporation's loan submission through the automated underwriter system located in the loan file maintained by Mortgage Funding, reflected the borrower's base employment income as $3,417 monthly or $41,000 annually and the co-borrower's base employment income as $5,416 monthly or $65,000 annually.
      5. The discrepancy between the information reflected on the loan applications, the pre-application form and the debt-to-income ratio worksheet located in the loan file maintained by Mortgage Funding revealed that the Corporation overstated the annual income by approximately $50,000.
      6. A copy of a loan file for a full documentation refinance transaction for a loan ultimately closed by Mortgage Funding as the lender of record on May 16, 2006 confirmed the overstatement upon review of pay stubs and W-2 statements located in the loan file.
    2. Loan No.(s): 0158001537 and 1337084:
      1. Copies of two final stated income loan applications for first and second purchase money loans prepared by Mortgage Funding for loans which ultimately closed on January 31, 2007 indicated that the borrower, an owner of a computer repair and support service store, earned approximately $8,750 monthly or $105,000 annually. The loan applications also reflected a $20,000 account balance at a local bank.
      2. Copies of e-mail correspondence from the borrower to the loan originator of record revealed that, on September 6, 2006 and September 7, 2006, the borrower sent e-mails that indicated that his previous year's gross income was $48,000 and his wife income as $41,000. The borrower also stated that their savings account balance was $3000-$4,000.
      3. The discrepancy between the information reflected on the loan applications and the e-mail correspondence indicates that the borrower's income was overstated by $57,000.
    3. Loan No.: 161047309:
      1. A copy of a stated income loan application prepared by Mortgage Funding, for a loan that ultimately closed on December 30, 2005 indicated that the borrower, a medical assistant earned approximately $5,100 monthly or $61,200.
      2. A pay stub located in the loan file maintained by Mortgage Funding indicated that for the period ending April 30, 2005 the borrower was paid an hourly rate of $16.95 and earned a gross year-to-date income of $11,885 with gross overtime income of $1,063.93.
      3. Two W-2 statements located in the loan file reflected earnings of $12,792.58 in 2004 and $36,425.32 in 2003.
      4. A 1099 statement located in the loan file maintained by Mortgage Funding reflected a pension distribution of $11,000 in 2004.
      5. A "2004 Tax Return Summary" statement reflected a total income of $24,451 in 2004 and $37,089 in 2003.
      6. The discrepancy between the information reflected on the loan application and the April 30, 2005 pay stub, indicates that the borrower's income was overstated by $25,545.
  11. The practices referenced in the Paragraph above were found in the following loan additional transactions reviewed by the Division's examiners: Loan Nos:

    (a). 131073805 and 301494675-4; (b). 3015337219; (c). 0001259377 and 0001259396; (d). 149879727 and 149879927; (e). 3500012254; and (f). 301530217. The examiners' specific findings are fully described in the Report and are incorporated herein by reference.

  12. Mortgage Funding knew or should have known that the above referenced income and/or asset information would be relied upon in by the mortgage lender, financial institution or investor to which the mortgage loans were brokered and/or sold by Mortgage Funding.

    B. Undisclosed Fees

  13. 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.

  14. Books and records reviewed by the Division's examiners during the 2008 examination/inspection indicate that when acting in the capacity of a mortgage broker, Mortgage Funding collected broker fees at the loan closing in amounts which the Corporation's books and records failed to document had been fully and accurately disclosed to consumers, in writing, in the amounts charged at closing, if at all, as more fully described in the Report.

    C. Providing Mortgage Lender Disclosures to Consumers

  15. Books and records reviewed by the Division's examiners during the 2008 examination/inspection indicate that Mortgage Funding, when acting in the capacity of a mortgage broker routinely provided several mortgage lender disclosures to consumers, including but not limited to, Equal Credit Opportunity Notices, Truth in Lending Statements, Adjustable Rate Mortgage and Interest Only Program Disclosures and Borrower's Interest Determination Worksheets. Such activity was in excess of the Corporation's authority as a mortgage broker, pursuant to Massachusetts General Laws chapter 255E, section 2.

    D. Misleading Statements

  16. 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.

  17. Books and records reviewed during the 2008 examination revealed that when acting in the capacity of a mortgage broker, Mortgage Funding provided applicants with a Borrower's Certification and Authorization Form that contained language that was false or misleading or had the tendency or capacity to be false or misleading. Specifically, the Borrower's Certification and Authorization Form contained language which presented the appearance that Mortgage Funding, was approving or funding the mortgage loan by indicating that the Corporation would be able to sell the mortgage loan to an investor.

    E. Refinancing in the Borrower's Interest

  18. 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.

  19. 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.

  20. Books and records reviewed by the Division's examiners during the 2008 examination/inspection revealed that Mortgage Funding, when acting in the capacity of a mortgage lender provided consumers with a "Statement of Borrower's Benefit Applicability and Borrower's Interest Determination Worksheet ("Statement"), which required borrowers to acknowledge and affirm that the mortgage loan was not subject to Massachusetts General Laws chapter 183, section 28C(a).
  21. Books and records reviewed by the Division's examiners during the 2008 examination/inspection 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 borrowers to demonstrate that the loan was in their interest and to their benefit.
  22. Books and records reviewed by the Division's examiners during the 2008 examination revealed that Mortgage Funding, while licensed as only a mortgage broker continued to provide applicants with a "Massachusetts Mortgage Loan Benefit Worksheet" form ("Worksheet"), a document that only mortgage lenders are authorized to provide to borrowers pursuant to Massachusetts General Laws chapter 183, section 28C(a).

    F. Engaging in Prohibited Advertising Practices

  23. The Attorney General's regulation 940 CMR 8.04(1) states:

    It is an unfair or deceptive act or practice for a mortgage broker or lender to make any representation or statement of fact in an advertisement if the representation or statement is false or misleading or has the tendency or capacity to be misleading, or if the mortgage broker or lender does not have sufficient information upon which a reasonable belief in the truth of the representation or statement could be based.

  24. The Attorney General's regulation 940 CMR 8.04(4) states, in part:

    No advertisement by a mortgage broker in any media shall contain language which indicates or suggests that the mortgage broker will fund or approve a mortgage loan or guarantee any rate.

  25. Mortgage Funding's website contains and Equal Housing Lender logo and contains the following statements:
    • Mortgage Funding Corp. is a licensed mortgage lender in Massachusetts...
    • Mortgage Funding Corp. prides itself on offering all types of loans for all situations.
    • Your application will be reviewed by an experienced underwriterâ€Ã'¦Our loan decisions are based on more than numbers.
    • We provide the best rate possible for the specific circumstances of the borrower. We will take the time to review your individual situation and offer you the best rate possible for your circumstances.
    • We offer a full variety of loan programs to meet your individual needs including: [list of loan programs and terms]
    • We offer a variety of fixed and adjustable mortgage programs, including special programs to help you repair your credit.
    • As a direct lender, Mortgage Funding Corp. has greater flexibility in approving people for the loans they need. We have approved loans for people with a variety of financial or credit problems including poor credit, late payments, collections, judgments and bankruptcies.
  26. Such representations have the tendency or capacity to mislead consumers as they present the appearance that Mortgage Funding, a mortgage broker is approving or funding loans.
  27. The Attorney General's regulation 940 CMR 8.04(4)(d) states:

    (4) It is an unfair or deceptive act or practice for a mortgage broker or lender to engage in bait advertising or to misrepresent (directly or by failure to adequately disclose) the terms, conditions or charges incident to the mortgage loan being advertised in any advertisement. Violation of 940 CMR 8.04(4) shall include, but not be limited to:

    (d) the advertisement through terms such as "bad credit no problem" or words of similar import or that an applicant will have unqualified access to credit without clearly and conspicuously disclosing the material limitations on the availability of credit that may exist, such as:

    1. requirements for the availability of credit (such as income);
    2. that a higher rate or more points may be required for a consumer with bad credit; and
    3. that restrictions as to the maximum principal amount of the loan offered may apply.
  28. Mortgage Funding's website contains the statement "At Mortgage Funding Corp., we won't let your past stand in the way of your future." The statement is located under the heading "Less than Perfect Credit" and presents the appearance that applicants will have unqualified access to credit and does not include the disclosure language required pursuant to 940 CMR 8.04(4)(d).

    CONCLUSIONS OF LAW

  29. Based upon the information contained in Paragraphs 1 through 28, Mortgage Funding 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).
  30. Based upon the information contained in Paragraphs 1 through 28, by falsifying borrowers' income information on Uniform Residential Loan Applications submitted in connection with residential mortgage transactions, Mortgage Funding has violated the Division's regulation 209 CMR 42.12A(8) and Massachusetts General Laws chapter 93A, section 2(a) and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1).
  31. Based upon the information contained in Paragraphs 1 through 28, by charging loan fees, points, 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, in amounts exceeding those previously disclosed for such fees or points to the mortgagor in writing, Mortgage Funding has violated Massachusetts General Laws chapter 183, section 63.
  32. Based upon the information contained in Paragraphs 1 through 28, by providing disclosures to consumers that only lenders are authorized to provide, Mortgage Funding exceeded its authority as a mortgage broker in violation of Massachusetts General Laws chapter 255E, section 2.
  33. Based upon the information contained in Paragraphs 1 through 28, by providing borrowers with documentation that shifted the burden to the borrowers to demonstrate that the loans were in the borrowers' interest and to their benefit, Mortgage Funding violated Massachusetts General Laws chapter 183, section 28C(a) and the Division's regulation 209 CMR 53.07(1).
  34. Based upon the information contained in Paragraphs 1 through 28, by providing disclosures to consumers that contained language that was false or misleading or had the tendency or capacity to be false or misleading, Mortgage Funding violated the Attorney General's regulation 940 CMR 8.06(1).
  35. Based upon the information contained in Paragraphs 1 through 28, by including statements that contained false or misleading language or had the tendency to be false or misleading, on the Corporation's website, Mortgage Funding has violated the Attorney General's regulation 940 CMR 8.04(1).
  36. Based upon the information contained in Paragraphs 1 through 28, by engaging in so-called "bait advertising" and failing to include required disclosure language on the Corporation's website, Mortgage Funding has violated the Attorney General's regulation 940 CMR 8.04(4).
  37. Based upon the information contained in Paragraphs 1 through 28, the Commissioner has determined that:
    1. Mortgage Funding 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 Funding.
  38. Based upon the information contained in Paragraphs 1 through 28, had the facts and conditions found therein existed at the time of Mortgage Funding's 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 28, present sufficient grounds for the revocation of Mortgage Funding's broker license 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

  39. After taking into consideration the FINDINGS OF FACT and CONCLUSIONS OF LAW stated herein, it is hereby:
  40. ORDERED that Mortgage Funding and any and all officers, members, managers, employees, independent contractors, or agents, operating on behalf of Mortgage Funding, 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 Funding 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.
  41. IT IS FURTHER ORDERED, that Mortgage Funding 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 Funding 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.
  42. IT IS FURTHER ORDERED that Mortgage Funding 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 Funding shall obtain the prior approval of the Commissioner before placing such applications to the qualified broker(s) or lender(s).
  43. IT IS FURTHER ORDERED that Mortgage Funding 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 Funding's open application list as a mortgage broker, including but not limited to, the following: The names of all individuals from whom Mortgage Funding 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.

  44. Mortgage Funding 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 42 of this Temporary Order, a copy of such document, correspondence, or paper relating to the mortgage loan shall be retained in Mortgage Funding's books and records and shall be available to the Commissioner, in their entirety, upon request.
  45. 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.
  46. 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 November 18, 2008.
  47. 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 Funding 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 27th day of March, 2009

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

This Order was terminated pursuant to a Consent Order on September 22, 2009.