By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE BROKER AND
LENDER LICENSING
Docket No. 2009-125

ORDER TO SHOW CAUSE
AND NOTICE OF RIGHT
TO A HEARING


In the Matter of
MORTGAGE SECURITY, INC.
East Falmouth, Massachusetts

Mortgage Company License No. MC0490


ADMINISTRATIVE COMPLAINT

The Commonwealth of Massachusetts Division of Banks (the "Division"), by and through the Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner "), for its Order to Show Cause and Notice of Right to a Hearing ("Order and Notice"), alleges as follows:

  1. The Division brings this action under Massachusetts General Laws chapter 255E, section 6 to obtain temporary, preliminary, and permanent injunctive relief, ordering Mortgage Security, Inc. ("Mortgage Security" or the "Corporation"), at all relevant times, a licensed mortgage lender and mortgage broker under Massachusetts General Laws chapter 255E, section 2 and its implementing regulation 209 CMR 42.00 et seq., to cease and desist from transacting business in the Commonwealth as a mortgage lender and mortgage broker; revocation of Mortgage Security's Massachusetts mortgage company license MC0490; and such other equitable relief as may be necessary due to Mortgage Security's failure to maintain and exercise the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that its business will be operated honestly, fairly, soundly, and efficiently in the public interest in violation of Massachusetts General Laws chapter 255E, section 4 and the Division's regulations 209 CMR 42.03(2)(c) and 209 CMR 42.06(2)(c).
  2. JURISDICTION AND VENUE

  3. The Division is an agency of the Commonwealth of Massachusetts with jurisdiction over matters relating to the licensing and regulation of those engaged in the business of a mortgage lender and mortgage broker pursuant to Massachusetts General Laws chapter 255E, section 2 and Massachusetts General Laws chapter 255E, section 8.
  4. At all relevant times, Mortgage Security has been engaged in the business of a mortgage lender and mortgage broker of residential property in Massachusetts.
  5. RESPONDENTS

  6. Mortgage Security is, and at relevant times has been, a corporation conducting business in the Commonwealth with its main office located at 31 Teaticket Highway, East Falmouth, Massachusetts.
  7. Mortgage Security 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 initially issued a mortgage company license, license number MC0490, to Mortgage Security to engage in the business of a mortgage lender and mortgage broker on or about October 28, 1993. At all relevant times Robert Pena has been President and sole officer/director of the Corporation.
  8. REGULATORY BACKGROUND

  9. 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 and any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the business of a mortgage lender and mortgage broker.
  10. On July 21, 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 Security to evaluate the Corporation's compliance with the laws, regulations, and regulatory bulletins applicable to the conduct of a mortgage lender and mortgage broker business in Massachusetts (the "examination/inspection").
  11. On or about October 10, 2009, the Division became aware that Mortgage Security had no licensed mortgage loan originators sponsored by the Corporation and, therefore, should not be conducting mortgage business in Massachusetts. The Division thereafter conducted a visitation of Mortgage Security on or about October 8, 2009 to ascertain whether the Corporation was still conducting mortgage broker and/or lender activity in Massachusetts.
  12. The Division's Report of Examination/Inspection (the "Report"), was issued to Mortgage Security on the effective date of this Order and Notice 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 lender and mortgage broker in Massachusetts. The findings and conclusions of the Report are incorporated herein in their entirety by reference.
  13. A. Conducting Residential Mortgage Loan Business in Massachusetts with Unlicensed Mortgage Loan Originators

  14. Effective July 31, 2009, M.G.L. chapter 255F, section 2(a), states, in part (Effective July 1, 2008 until July 31, 2009, M.G.L. chapter 255F, section 2 stated: "No person shall act as a mortgage loan originator unless such person has first obtained a mortgage loan originator license from the commissioner. An entity shall not knowingly employ or retain a mortgage loan originator unless the mortgage loan originator is licensed under this chapter."):
  15. No individual shall act as a mortgage loan originator with respect to any dwelling unless such person has first obtained a mortgage loan originator license from the commissioner or is exempt from the licensure requirement ... No person shall knowingly employ or retain a mortgage loan originator unless the mortgage loan originator is licensed under this chapter or is exempt from the licensure requirement.

  16. The Division's regulation 209 CMR 42.12A(17) states:
  17. It is a prohibited act or practice for a mortgage broker or a mortgage lender to conduct business with an individual who should be licensed as a mortgage loan originator under M.G.L. c. 255F, and who the mortgage broker or mortgage lender knows or should know is an unlicensed mortgage loan originator.

  18. According to the Division's records, Robert Pena was authorized to originate residential mortgage loans on behalf of Mortgage Security from May 27, 2008, the date he applied for a mortgage loan originator license as a "grandfathered" (Chapter 206 of the Acts of 2007 which added Chapter 255F to the General Laws of Massachusetts introduced the license requirement for individuals engaged in the activity of a "mortgage loan originator" and grandfathered existing loan originators for an 180 day period, beginning on November 29, 2007 and ending on May 27, 2008. Therefore, grandfathered individuals who filed applications on or before May 27, 2008 were permitted to originate mortgage loans while their license applications remained in a pending status.); individual, until October 28, 2008 when his application status was updated to "withdrawn - application abandoned" as a result of his failure to submit all information that was required by the Division to complete his license application.
  19. According to the Division's records, Wesley Pena, an employee of Mortgage Security, was authorized to originate residential mortgage loans on behalf of Mortgage Security from May 27, 2008, the date he applied for a mortgage loan originator license as a "grandfathered" individual, until March 6, 2009 when he voluntarily withdrew his application.
  20. According to the Division's records and as described above, it appears that Mortgage Security did not have any licensed mortgage loan originators employed by or sponsored by the Corporation from March 7, 2009 through July 13, 2009.
  21. According to the Division's records, Mario B. Inganni, a licensed mortgage loan originator in Massachusetts, was working for and sponsored by Mortgage Security and, therefore, authorized to originate mortgage loans on behalf of Mortgage Security from July 14, 2009 until September 21, 2009.
  22. According to the Division's records and as described above, it appears that Mortgage Security has not had any licensed mortgage loan originators associated with the Corporation since September 21, 2009.
  23. On or about October 8, 2009, the Division's examiners requested a detailed list of closed loans originated by Mortgage Security to assess the Corporation's mortgage loan origination activity. During the week of October 12, 2009, Mortgage Security provided several closed loan lists with a total of 43 residential mortgage originations since November 1, 2008. The lists did not include the name of the loan originator(s) responsible for each loan.
  24. According to the loan lists provided by Mortgage Security, 14 residential mortgage loans were originated by the Corporation between March 7, 2009 and July 13, 2009, the time period during which it appeared Mortgage Security had no licensed mortgage loan originators associated with it. The Division's examiners generated a "Sponsored Individual Roster" report on the Nationwide Mortgage Licensing System (NMLS) for each day between March 7, 2009 and July 13, 2009 on which a mortgage loan was originated by Mortgage Security to determine if the Corporation had associated with it any sponsored mortgage loan originators on that particular day. The reports confirm that Mortgage Security did not have any licensed mortgage loan originators sponsored by the Corporation on those days that the aforementioned 14 residential mortgage loans were originated. Therefore, the loans were originated on behalf of Mortgage Security by unlicensed mortgage loan originator(s).
  25. B. Failure to Properly Maintain Books and Records

  26. The Division's regulation 209 CMR 42.09(1) states:
  27. 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.

  28. Mortgage Security was unable to produce a complete list of loans originated by the Corporation during the previous three years, as requested by the Division's examiners during the examination/inspection. Moreover, the examination/inspection revealed that Mortgage Security failed to maintain any sort of organized record retention and filing system that would allow for the ease of access to the Corporation's books and records; nor did the Corporation utilize an electronic tracking system.
  29. Because of the disorganization of the Mortgage Security's loan files, the Corporation could not provide the Division's examiners with a representative sample of the Corporation's loans for the examiners' review. As a result, the Division's examiners obtained the loan sample required to conduct the examination/inspection by gathering and sorting all loan files that were available throughout Mortgage Security's office.
  30. Books and records reviewed by the Division's examiners during the examination/inspection indicated that Mortgage Security failed to retain sufficient documentation to enable the Division's examiners to determine whether the Corporation was complying with the provisions of M.G.L. c.255E and applicable state and federal laws and regulations, in violation of 209 CMR 42.09(1). Specifically, the Corporation engaged in a pattern or practice of failing to retain copies of credit reports, appraisals, underwriting conditions, employment verification documentation, closing documents, and/or required disclosure forms, as further described in the Report.
  31. C. Failure to Timely File Required Reports

  32. M.G.L. chapter 255E, section 8 states, in part:
  33. Each licensee shall annually, on or before a date determined by the commissioner, file a report with the commissioner containing such information as said commissioner may require concerning the business and operations conducted by the licensee in the commonwealth during the preceding calendar year. A licensee neglecting to file such report or failing to amend the same within fifteen days of notice from said commissioner directing the same shall, unless such neglect or failure is due to justifiable cause and not due to wilful [sic] neglect, pay to the commonwealth fifty dollars for each day during which such neglect or failure continues.

  34. The Division's regulation 209 CMR 42.10 states, in part:
  35. By March 31, each Licensee shall file an annual report with the Commissioner in such form as the Commissioner shall prescribe for the preceding calendar year.

  36. Mortgage Security was reminded of the March 31, 2009 due date for the 2008 Mortgage Lender and/or Mortgage Broker Annual Report to the Division ("Annual Report") in the Division's 2008 License Renewal Instructions which were included in October 30, 2008 correspondence that the Division issued to all licensed mortgage lenders and mortgage brokers. The License Renewal Instructions were also posted on the Division's website as of October 30 th. Mortgage Security was also notified of the Annual Report due date and late charge by a notice dated February 20, 2009.
  37. The Division did not receive Mortgage Security, Inc.'s Annual Report until August 14, 2009. Accordingly, by letter to Mortgage Security dated August 14, 2009, the Division requested that the Corporation remit payment in the amount of $6,800.00 to satisfy the annual report late fee, which was calculated at a rate of $50 per calendar day that the Annual Report remained outstanding.
  38. On September 10, 2009, the Division entered a deficiency license item on Mortgage Security's Nationwide Mortgage Licensing System (NMLS) record requiring that the Corporation remit the fee, as stated in the Division's letter of August 14, 2009. The entering of such deficiency on the Corporation's NMLS record would automatically generate an email notification to the Corporation's e-mail address of record.
  39. On or about October 15, 2009, Mortgage Security submitted the required Annual Report late fee.
  40. D. Unearned fee

  41. The Real Estate Settlement Procedures Act, ("RESPA") implementing regulation, 24 CFR 3500.14(c) states, in part:
  42. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.

  43. Books and records reviewed by the Division's examiners during the examination/inspection indicate that Mortgage Security charged a consumer an "escrow waiver fee" for which no service was rendered by Mortgage Security.
  44. E. Loan Origination and Compensation Agreement

  45. The Division's regulation 209 CMR 42.12A(5) states, in part:
  46. 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.

  47. The Division's regulation 209 CMR 42.09(1)(b) states, in part:
  48. Each 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.

  49. Books and records reviewed by the Division's examiners during the examination/inspection revealed that Mortgage Security routinely failed to retain evidence of having provided the Loan Origination and Compensation Agreements. This deficiency was observed in all of the loan files reviewed.
  50. F. Providing Mortgage Lender Disclosures to Consumers When Acting in the Capacity of a Mortgage Broker

  51. Books and records reviewed by the Division's examiners during the examination/inspection indicate that Mortgage Security routinely provided "Right to Copy of Appraisal" forms to consumers, thus exceeding its authority as a mortgage broker, as further described in the Report.
  52. G. Failure to Provide Required Disclosures

  53. The Division's regulation 209 CMR 42.12A(12) states:
  54. It is a prohibited act or practice for a mortgage broker or mortgage lender to engage in a pattern or practice of failing to make any disclosure to a consumer required by and at the time specified by any applicable state or federal law, regulation or directive.

  55. Books and records reviewed by the Division's examiners during the examination/inspection revealed that Mortgage Security failed to retain evidence of having provided applicants with the credit score disclosure required under Section 609(g) of the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 [15 U.S.C. § 1681g(g)]. This practice was observed in all loan files reviewed during the examination/inspection.
  56. H. Failure to Include Mortgage Loan Originator Information on Residential Mortgages Filed in Massachusetts

  57. Effective November 29, 2007, M.G.L. c. 183, Section 6D states:
  58. Every mortgage and assignment of mortgage secured by residential property, as defined in section 1 of chapter 255E, presented for record, in which a mortgage broker, as defined in said section 1 of said chapter 255E, is involved shall contain or have endorsed upon it the name, post office address and license number of the mortgage broker and, if applicable, the mortgage loan originator, as defined in section 1 of chapter 255F, responsible for placing the mortgage loan with the mortgagee. This endorsement, or notation that no mortgage broker or mortgage loan originator was involved in the mortgage, if known, shall be recorded as part of the mortgage or assignment of mortgage. Failure to comply with this section shall not affect the validity of any mortgage or the recording of any mortgage or assignment of mortgage.

  59. The Division's examiners conducted a review of mortgage deeds recorded at the Barnstable Registry of Deeds through www.masslandrecords.com and determined that, in all records reviewed on which Mortgage Security was listed as the lender of record, Mortgage Security failed to include the name, address, and license number of the mortgage loan originator responsible for originating the loan on behalf of the Corporation.
  60. I. Other Violations

  61. In addition to the violations specifically set forth in this Order and Notice, The Report, to be provided to Mortgage Security in conjunction with the issuance of this Order and Notice, describes other violations and areas of concern observed during the examination/inspection.
  62. VIOLATIONS

  63. NOW, THEREFORE, the Division hereby sets forth the following Charges against Mortgage Security:
  64. The Division hereby re-alleges and incorporates by reference Paragraphs 1 through 39 of this Order and Notice as though fully set forth.
  65. CHARGE ONE: Mortgage Security has failed to demonstrate the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that the 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 regulations 209 CMR 42.03(2)(c) and 209 CMR 42.06(2)(c).
  66. CHARGE TWO: By engaging in residential mortgage business with unlicensed individuals who should be licenses as mortgage loan originators under M.G.L. chapter 255F, Mortgage Security has violated M.G.L, chapter 255F, section 2(a) and the Division's regulation 209 CMR 42.12A(17).
  67. CHARGE THREE: By failing to keep and use its books, records and accounts in a manner which would allow the Commissioner to determine whether the Corporation is complying with the provisions of M.G.L. c. 255E and applicable state and federal laws and regulations, Mortgage Security has violated the Division's regulation 209 CMR 209 42.09(1).
  68. CHARGE FOUR: By filing its Annual Report after the deadline, Mortgage Security violated M.G.L. chapter 255E, section 8 and the Division's regulation 209 CMR 42.10.
  69. CHARGE FIVE: By charging a fee for which no service was rendered by Mortgage Security in a mortgage transaction involving residential property located in the Commonwealth, Mortgage Security has violated the Real Estate Settlement Procedures Act and its implementing regulation, 24 CFR 3500.14(c).
  70. CHARGE SIX: By failing to provide and/or to thereafter retain all copies of the Loan Origination and Compensation Agreement provided to consumers, Mortgage Security has violated the Division's regulations 209 CMR 42.12A(5) and 209 CMR 42.09(1)(b).
  71. CHARGE SEVEN: By providing disclosures to consumers that only lenders are authorized to provide, Mortgage Security has exceeded its authority as a mortgage broker, in violation of Massachusetts General Laws chapter 255E, section 2.
  72. CHARGE EIGHT: By failing to provide all required disclosures to consumers, Mortgage Security has violated the Division's regulation 209 CMR 42.12A(12).
  73. CHARGE NINE: By failing to include the name, address, and license address of the mortgage loan originator on residential mortgages presented for record in Massachusetts, Mortgage Security has violated Massachusetts General Laws chapter 183, section 6D.
  74. CHARGE TEN: Had the foregoing existed at the time of Mortgage Security's original mortgage lender and mortgage broker license application, the Commissioner would have been warranted in refusing to issue such licenses. Further, the facts and conditions set forth in Paragraphs 1 through 39 present sufficient grounds for the revocation of Mortgage Security's mortgage lender and mortgage broker license pursuant to Massachusetts General Laws chapter 255E, section 6 and the Division's regulation at 209 CMR 42.04(2)(b), 42.07(2)(b), and 42.12A(19).
  75. PRAYER FOR RELIEF

  76. WHEREFORE, the Division, by and through the Commissioner , prays for a final decision as follows:
    1. For a final Agency decision awarding temporary and preliminary injunctive relief, and any other ancillary relief, as may be necessary to protect the public interest during the pendency of this matter.
    2. For a final Agency decision in favor of the Division and against Mortgage Security for each Charge set forth in this Order and Notice.
    3. For a final Agency decision ordering Mortgage Security to cease and desist from transacting business in Massachusetts as a mortgage lender and mortgage broker.
    4. For a final Agency decision ordering Mortgage Security to immediately place any pending residential mortgage loan applications and related files with an independent, licensed Massachusetts mortgage broker or Massachusetts mortgage lender or other qualified lender in Massachusetts, as appropriate, with no costs to the applicant.
    5. For a final Agency decision revoking Mortgage Security's mortgage company license MC0490, to conduct business as a mortgage lender and mortgage broker in Massachusetts.
    6. For costs and fees of the Division's investigation of this matter.
    7. For such additional equitable relief as the Administrative Hearings Officer may deem just and proper including, without limitation: an order directing Mortgage Security to issue the reimbursements to Massachusetts consumers as set forth in the findings of the Report; and an order directing Mortgage Security to submit payment of the administrative penalty referenced in the Report.

    NOTICE OF RIGHT TO A HEARING

  77. You or your authorized representative are required to file an Answer or otherwise respond to the Charges contained in this Order and Notice within twenty-one (21) days of the effective date of this Order and Notice, pursuant to the Standard Adjudicatory Rules of Practice and Procedure, 801 CMR 1.01(6)(d). Failure to do so may result in a default judgment against you. The Answer, and any subsequent filings that are made in conjunction with this proceeding, shall be directed to the Administrative Hearings Officer, Division of Banks, with a copy to Prosecuting Counsel.
  78. All papers filed with the Division shall be addressed to the attention of:

    Administrative Hearings Officer
    Division of Banks
    One South Station, 3 rd Floor
    Boston, Massachusetts 02110

    Prosecuting Counsel for this matter is:

    Valerie M. Carbone, Esq.
    Division of Banks
    One South Station, 3 rd Floor
    Boston, Massachusetts 02110

  79. You are further advised that Mortgage Security has the right to be represented by counsel or other representative, to call and examine witnesses, to introduce exhibits, to cross-examine witnesses who testify against Mortgage Security, and to present oral argument. The hearing will be held at a date and time to be determined and will be conducted according to Massachusetts General Laws, chapter 30A, sections 10 and 11, and the Standard Adjudicatory Rules of Practice and Procedure, 801 CMR 1.01 and 1.03.
  80. You or your representative may examine any and all Division records relative to this case prior to the date of the hearing, during normal business hours, at the office of the Prosecuting Counsel. If you elect to undertake such an examination, please contact the Division at (617) 956-1653 in advance to schedule a time that is mutually convenient.

Dated at Boston, Massachusetts, this 12th day of November, 2009

By: Cynthia A. Begin
Senior Deputy Commissioner
Non-Depository Institution Supervision


CERTIFICATION OF SERVICE

I, Steven Cofsky, hereby certify that a copy of the foregoing Order to Show Cause and Notice of Right to a Hearing, Docket Number 2009-125, was served upon the Respondent, Mortgage Security, Inc., 31 Teaticket Highway, East Falmouth, Massachusetts 02536 by first class mail, postage prepaid and by certified mail, number, return receipt requested.

This 12th day of November, 2009

Steven Cofsky
Chief Director
Division of Banks