By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER AND
MORTGAGE BROKER
LICENSING
Docket No. 2009-008

FINDINGS OF FACT AND TEMPORARY
ORDER TO CEASE AND DESIST


In the Matter of
U.S. Mortgage Corp.
Pine Brook, New Jersey

Mortgage Lender and Mortgage Broker
License No(s). MC4989, MC4991 & MC5294

The Commissioner of Banks ("Commissioner") having determined that U.S. MORTGAGE CORP., ("U.S. Mortgage" or the "Corporation") located at 19D Chapin Road, Pine Brook, New Jersey, 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. U.S. Mortgage is, and at all relevant times, has been a foreign Corporation conducting business in the Commonwealth of Massachusetts. U.S. Mortgage's main office is located at 19D Chapin Road, Pine Brook, New Jersey.
  3. U.S. Mortgage 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 MC4989 to U.S. Mortgage to engage in the business of a mortgage lender and mortgage broker on or about June 8, 2007. License number MC4989 authorized U.S. Mortgage to conduct the mortgage company business from the Corporation's main office located at 19D Chapin Road, Pine Brook, New Jersey.
  4. U.S. Mortgage maintains a licensed office location at 92 Francis Street, Marlborough, Massachusetts from which the Corporation conducts its mortgage lender and mortgage broker business. According to records maintained on file with the Division, the Commissioner issued a mortgage company license, license number MC4991 to U.S. Mortgage for the Marlborough location on or about June 8, 2007.
  5. U.S. Mortgage maintains a licensed office location at 20 Trafalgar Square, Nashua, New Hampshire from which the Corporation conducts its mortgage lender and mortgage broker business. According to records maintained on file with the Division, the Commissioner issued a mortgage company license, license number MC5294 to U.S. Mortgage for the New Hampshire location on November 12, 2008.
  6. On February 6, 2009, the Division received correspondence from Andrew L. Liput, Senior Vice President and General Counsel of U. S. Mortgage, dated February 2, 2009, informing the Division that U. S. Mortgage is under a federal investigation for misappropriation of funds.

    A. Failure to Provide Access to Books and Records

  7. The Division's regulation at 209 CMR 42.09(4) states:

    In addition to the reports required by law, a Licensee shall make such other statements and reports to the Commissioner as he or she may require from time to time. The Commissioner may require regular quarterly reports and may furnish blank forms for all such statements or reports, required by 209 CMR 42.09.

  8. On Tuesday, February 10, 2009, the Division submitted a letter to U.S. Mortgage via email and facsimile requiring that, among other things, the Corporation submit a detailed record, prepared as of the close of business on February 6, 2009, of all pending residential mortgage loan applications on properties located in each of the states in which U.S. Mortgage operated, including Massachusetts (the "pipeline report"), a list of the Corporation's warehouse lines of credit or funding sources, with current balances and available funds for each line, a list of loans that the Corporation was required to repurchase during the past twelve months, and a report of loans held for sale and held for investment.
  9. The Division requested that the pipeline report and the warehouse/funding source information be provided by no later than 5:00 PM (EST) on Wednesday, February 11, 2009.
  10. As of the date of this Temporary Order, the information requested in Paragraph 8 of this Temporary Order has not been provided to the Division in its entirety.

    B. Failure to Provide Notice of Significant Events

    a. Impairment of Warehouse Lines of Credit

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

    (1) A Licensee shall notify the Commissioner immediately, and in writing within one business day, of the occurrence of any of the following significant developments: . . . (e) Expiration, termination or default, technical or otherwise, of any existing line of credit or warehouse credit agreement.

  12. On Wednesday, February 11, 2009, through communications with a member of the mortgage industry, the Division became aware that U.S. Mortgage had ceased all retail operations on or around February 9, 2009. During the course of said communications, a copy of a statement ("Statement") issued by U.S. Mortgage to the Corporation's mortgage broker network, was forwarded to the Division. In the Statement, , U.S. Mortgage indicated that the Corporation's warehouse lines of credit were at capacity and they would be unable to "secure any additional funding."
  13. The Statement further stated in part:

    "For files that have been given a commitment, U.S. Mortgage will be unable to meet the commitment. For loans that have closed but not funded, U.S. Mortgage will not be able to fund those loans as well."

  14. A line of credit used by a mortgage lender enables the entity to fund mortgage loans prior to selling them to an investor. Without access to its lines of credit, and in the absence of the mortgage lender independently maintaining sufficient reserves and liquidity positions on its books to fund such loans, the mortgage lender would be unable to meet its funding commitments, negating its ability to meet contractual obligations to fund mortgage loans.
  15. As of the issuance of this Temporary Order, U.S. Mortgage has not notified the Division of the facts and circumstances set forth above.

    b. Failure to Provide Notice of Termination of Relationship with the Federal National Mortgage Association

  16. The Division's regulation at 209 CMR 42.12(1)(f) states in part:

    (1) A Licensee shall notify the Commissioner immediately, and in writing within one business day, of the occurrence of any of the following significant developments: . . . (f) Suspension or termination of the Licensee's status as an approved seller or seller/servicer by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Government National Mortgage Association or an investor approved under 209 CMR 42.11A(1)(a).

  17. On Thursday, February 12, 2009, the Division became aware through a statement issued by a representative of CU National a subsidiary of U.S. Mortgage to the Credit Union Times that the Corporation had also lost access to Federal National Mortgage Association ("FANNIE MAE") as "a delivery channel on the secondary market."
  18. As of the issuance of this Temporary Order, U.S. Mortgage has not notified the Division of the termination of the Corporation's relationship with FANNIE MAE.

    c. Failure to Provide Notice of Closing of Licensed Branch Locations

  19. The Division's regulation at 209 CMR 42.13(2) states:

    Licensees shall provide thirty days prior written notice of any change or closing of a Massachusetts location to the Commissioner and shall contain such other information as the Commissioner may require.

  20. The Statement issued by U.S. Mortgage stated in part "U.S. Mortgage has ceased all retail operations immediately, effective immediately."
  21. As of the issuance of this Temporary Order, U.S. Mortgage has not notified the Division of the facts and circumstances set forth above.

    C. Failure to Fund Loans

  22. The Division's regulation at 209 CMR 42.12A(16) states:

    It is a prohibited act or practice for a mortgage lender to contract with a consumer through the underwriting and subsequent execution of mortgage loan closing documents and thereafter fail to fund the mortgage loan.

  23. The Attorney General's regulation 940 CMR 8.06(8) states:

    It is an unfair or deceptive act or practice for a lender to fail to disburse funds in accordance with any commitment or agreement with the borrower.

  24. The Division's regulation at 209 CMR 42.12A(17) states:

    A violation of 209 CMR 42.12A shall constitute grounds for the issuance of a cease and desist order under M.G.L. c. 255E, § 7; shall constitute grounds for license suspension or revocation under M.G.L. c. 255E, § 6 and shall constitute grounds for an administrative fine or penalty under M.G.L. c. 255E, §§ 11 and 12.

  25. On February 11, 2009, the Division, through communications with another state banking department, became aware that at least thirty (30) Massachusetts consumers had been affected by the Statement issued by U.S. Mortgage and referenced in Paragraph 11 of this Temporary Order. Information received from the state banking department revealed that at least one Massachusetts loan was in the pre-closing stage, eighteen (18) Massachusetts loans were in the approved stage and eleven (11) Massachusetts loans were at the underwriting stage of the loan process. Based upon information and belief, U.S. Mortgage has no intention to fund or otherwise obtain alternate funding for the loans referenced in this Paragraph under the same terms and conditions as set forth in the agreements with the borrowers.
  26. On February 13, 2009, representatives of U.S. Mortgage participated in a teleconference (the "Teleconference") with representatives of the Division and representatives of other states. During the teleconference, representatives of U.S. Mortgage confirmed that approximately 20 mortgage loans nationwide had closed but not been funded. U.S. Mortgage could not provide the specific information regarding the unfunded loans.

    CONCLUSIONS OF LAW

  27. Based upon the information contained in Paragraphs 1 through 26, by failing to provide the Division access to the Corporation's books and records, U.S. Mortgage is in violation of the Division's regulation 209 CMR 42.09(4).
  28. Based upon the information contained in Paragraphs 1 through 26, U.S. Mortgage failed to notify the Commissioner within one business day of the expiration, termination, or default, technical or otherwise, of at least one existing line of credit or warehouse credit agreement, in violation of the Division's regulation 209 CMR 42.12(1)(e).
  29. Based upon the information contained in Paragraphs 1 through 26, U.S. Mortgage failed to notify the Commissioner within one business day of the termination of the Corporation's relationship with Federal National Mortgage Association in violation of 209 CMR 42.12(1)(f).
  30. Based upon the information contained in Paragraphs 1 through 26, by contracting to originate mortgage loan(s) that U.S. Mortgage did not have sufficient warehouse funds available to fund, or any other available alternative source of funds, U.S. Mortgage has engaged in unsafe or unsound practices in violation of the Division's regulation 209 CMR 42.04(2)(b)(3).
  31. Based upon the information contained in Paragraphs 1 through 26, by contracting with consumers for the refinance of mortgage loan(s) through the underwriting and subsequent execution of mortgage loan closing documents relating to residential property, and thereafter failing to fund the mortgage loan(s), U.S. Mortgage has engaged in unsafe or unsound practices in violation of the Division's regulation 209 CMR 42.04(2)(b)(3).
  32. Based upon the information contained in Paragraphs 1 through 26, U.S. Mortgage failed to provide the Commissioner with thirty days prior written notice of the Corporation's intention to cease business operations in violation of 209 CMR 42.13(2).
  33. Based upon the information contained in Paragraphs 1 through 26, U.S. Mortgage 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 regulation 209 CMR 42.03(2)(c) and 209 CMR 42.06(2)(c).
  34. Based upon the information contained in Paragraphs 1 through 26, the Commissioner has determined that:
    1. U.S. Mortgage 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 lender and mortgage broker including, but not limited to, the provisions of the Division's regulations at 209 CMR 42.00 et seq.; and
    2. The public interest will be irreparably harmed by delay in issuing an ORDER TO CEASE AND DESIST to U.S. Mortgage.
  35. Based upon the information contained in Paragraphs 1 through 26, had the facts and conditions found therein existed at the time of U.S. Mortgage original mortgage lender and 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 25 present sufficient grounds for the revocation U.S. Mortgage'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) and 209 CMR 42.07(2)(b).

    ORDER TO CEASE AND DESIST

    After taking into consideration the FINDINGS OF FACT and CONCLUSIONS OF LAW stated herein, it is hereby:

  36. ORDERED that U.S. Mortgage and any and all officers, members, managers, employees, independent contractors, or agents, operating on behalf of U.S. Mortgage, and their successors or assigns, shall immediately cease engaging in the activities of: (a) a mortgage lender and 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, U.S. Mortgage 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.
  37. ORDERED that U.S. Mortgage and any and all officers, directors, employees, or agents operating on behalf of U.S. Mortgage, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage lender and mortgage broker, as defined under Massachusetts General Laws chapter 255E, section 1, relative to any residential property in Massachusetts, not otherwise expressly permitted by the terms of this Temporary Order. Therefore, U.S. Mortgage 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.
  38. IT IS FURTHER ORDERED that U.S. Mortgage, shall immediately place any fees previously collected from Massachusetts consumers relative to any pending mortgage loan applications in a separate escrow account maintained at a federally insured bank.
  39. IT IS FURTHER ORDERED that U.S. Mortgage shall not pay or declare a dividend, nor otherwise authorize or execute any financial transaction, either singular or structured, in excess of one hundred thousand dollars ($100,000.00), except for wages and salaries paid to employees, contractors, officers, or other members of the Corporation's management in the normal course of U.S. Mortgage's business, without the prior written approval of the Commissioner. Upon the effective date of this TEMPORARY ORDER, U.S. Mortgage shall implement or revise its practices and procedures, as necessary, to ensure that the Corporation's financial books and records are accurately maintained, in a manner illustrating compliance with the provisions of this Paragraph, and available for review by the Division's examiners upon request.
  40. IT IS FURTHER ORDERED that U.S. Mortgage shall immediately place with one or more qualified broker(s) or lender(s), with no loss to applicants, the following: (a) U.S. Mortgage's entire portfolio of Massachusetts residential mortgage loans which were closed by U.S. Mortgage, and remain unfunded as of the issuance of this Temporary Order; and (b) U.S. Mortgage's entire pending application list, as of February 6, 2009, of Massachusetts residential mortgage loans. It being understood that "no loss to the applicant" shall mean that any loan which was closed by U.S. Mortgage, as well as any application which was approved by U.S. Mortgage, shall be placed to a lender willing to fund, or close, the mortgage loan under the same terms and conditions extended by U.S. Mortgage. In the event that no such placement can be made, U.S. Mortgage shall either independently fund the mortgage loan under such terms and conditions or buy down the mortgage loan offered by the lender so that the applicant does not incur a loss as a result of such placement. U.S. Mortgage shall obtain the prior approval of the Commissioner before placing such applications to the qualified lender(s) or broker(s) as appropriate.
  41. IT IS FURTHER ORDERED that in any instance in which U.S. Mortgage failed to fund a closed loan and in which the consumer, prior to the effective date of this Temporary Order, obtained funding through an alternate lender, U.S. Mortgage shall reimburse each consumer the amount necessary to put the consumer in the same position as if U.S. Mortgage had funded the mortgage loan under the terms and conditions agreed upon at the closing of the loan.
  42. IT IS FURTHER ORDERED that U.S. Mortgage 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 include all information on file regarding the Corporation's Massachusetts mortgage loan portfolio, including but not necessarily limited to, the following:
    1. Within one (1) day of the effective date of this Temporary Order, U.S. Mortgage shall submit to the Commissioner all information on file as of the date of submission regarding the Corporation's portfolio of mortgage loans that were closed by U.S. Mortgage prior to the effective date of this Temporary Order, but remain as yet unfunded. Such information shall include, but is not limited to, the following: The names of all individuals from whom U.S. Mortgage processed an application and closed the residential mortgage loan, but failed to fund; the applicants' addresses and telephone numbers; the loan number; the amount of all prepaid loan fees submitted by the customer; the amount of each loan; the loan terms; the current funding status; the actual closing dates; the loan purpose (i.e. purchase or refinance); and identification of the applicable lender with whom each application will be placed. The record should include telephone numbers of contact persons at each lender who is familiar with the Corporation's submitted loans;
    2. As soon as possible, but not later than five (5) days after the effective date of this Temporary Order, U.S. Mortgage shall submit to the Commissioner all information on file as of the date of submission regarding the Corporation's pipeline of pending mortgage loan applications including but not limited to, the following: The names of all individuals from whom U.S. Mortgage has accepted an application for a residential mortgage loan; the applicants' addresses and telephone numbers; the loan number; the amount of all prepaid loan fees submitted by the customer; rate lock status; the amount of each loan; application status (i.e. filed, submitted to lenders, cleared to close, etc.); loan terms, if approved; scheduled closing dates; the loan purpose (i.e. purchase or refinance); and identification of the applicable lender or broker with whom each application will be placed. The record should include telephone numbers of contact persons at each lender or broker who is familiar with the Corporation's submitted loans;
    3. On the last business day of each subsequent week after the effective date of this TEMPORARY ORDER, U.S. Mortgage shall provide the Commissioner with an updated, written status report of the mortgage loan applications identified above under subparagraphs 42(a) and 42(b). The form of the status report shall follow the format of the initial submission under subparagraphs 42(a) and 42(b) and shall indicate the final disposition of the loan application and include the final terms under which each approved loan is closed. The reporting requirement shall continue until each of the approved applications is placed with a lender and funded, funded by U.S. Mortgage, or withdrawn by the applicant(s); and
    4. Within one (1) day of the effective date of this Temporary Order, U.S. Mortgage shall submit to the Commissioner U.S. Mortgage's balance sheet and year-to-date income statement, prepared as of the date of submission, and attested by a duly authorized officer of the Corporation. The balance sheet shall indicate U.S. Mortgage's cash position at each of its depository banks as well as U.S. Mortgage's bank account numbers.
  43. IT IS FURTHER ORDERED that U.S. Mortgage shall immediately secure all pending 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 38 of this Temporary Order, a copy of such document, correspondence, or paper relating to the mortgage loan shall be retained in U.S. Mortgage's books and records and shall be available to the Commissioner, in their entirety, upon request.
  44. 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.
  45. 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 U.S. Mortgage 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 13th day of February, 2009

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