By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE BROKER AND
MORTGAGE LOAN
ORIGINATOR LICENSING
Docket No. 2009-141

ORDER TO SHOW CAUSE
AND NOTICE OF RIGHT
TO A HEARING


In the Matter of
FIRST INVESTORS MORTGAGE, INC.
Mortgage Broker License No. MB0063
Belmont, Massachusetts

and

JAMES G. BROWN, individually
Mortgage Loan Originator License No. MLO17945


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 First Investors Mortgage, Inc. ("First Investors" or the "Corporation"), at all relevant times, a licensed 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 broker; revocation of First Investors' Massachusetts mortgage broker license MB0063; and such other equitable relief as may be necessary due to First Investors' 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 regulation 209 CMR 42.06(2)(c).
  2. The Division brings this action under Massachusetts General Laws chapter 255F, section 11 to obtain temporary, preliminary, and permanent injunctive relief, ordering James G. Brown ("James Brown"), a licensed mortgage loan originator under Massachusetts General Laws, chapter 255F, section 2 and its implementing regulation 209 CMR 41.00 et seq., to cease and desist from transacting business in the Commonwealth as a mortgage loan originator; revocation of James Brown's Massachusetts mortgage loan originator license MLO17945; and such other equitable relief as may be necessary due to James Brown's failure to maintain the financial responsibility, character, reputation, integrity, and general fitness such as to command the confidence of the community 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 255F, section 4 and the Division's regulation 209 CMR 41.05.

    JURISDICTION AND VENUE

  3. The Division, through the Commissioner, 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 broker pursuant to Massachusetts General Laws chapter 255E, section 2 and Massachusetts General Laws chapter 255E, section 8; and of those engaged in the business of a mortgage loan originator pursuant to Massachusetts General Laws chapter 255F.
  4. At all relevant times, First Investors has been engaged in the business of a mortgage broker of residential property in Massachusetts.
  5. At all relevant times, James Brown has been engaged in the business of a mortgage loan originator of residential property in Massachusetts. According to the Division's records, at all relevant times, James Brown performed as a mortgage loan originator on behalf of First Investors.

    RESPONDENT

  6. At all relevant times, First Investors has been a corporation conducting business in the Commonwealth with its main office located at 24 Trapelo Road, Belmont, Massachusetts.
  7. First Investors was 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 broker license, license number MB0063, to First Investors to engage in the business of a mortgage broker on or about December 17, 1992.
  8. At all relevant times, James Brown was the President and sole owner of First Investors.
  9. James Brown is licensed by the Commissioner as a mortgage loan originator under Massachusetts General Laws chapter 255F, section 2. According to the Division's records, the Commissioner initially issued a mortgage loan originator license, license number MLO17945, to James Brown to engage in the business of a mortgage loan originator on or about January 28, 2009.

    REGULATORY BACKGROUND

  10. 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 and any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the business of a mortgage broker.
  11. On November 14, 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 First Investors to evaluate the Corporation's compliance with the laws, regulations, and regulatory bulletins applicable to the conduct of a mortgage broker business in Massachusetts (the "examination/inspection").
  12. The Division's Report of Examination/Inspection (the "Report"), was issued to First Investors 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 broker in Massachusetts. The findings and conclusions of the Report are incorporated herein in their entirety by reference.

    A. False and/or Misleading Representations of Prospective Borrowers' Income and/or Asset Information

  13. 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 or mortgage lender to falsify income or asset information on a mortgage loan application or mortgage loan documents.

  14. 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.

  15. 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.

  16. Books and records reviewed during the examination/inspection revealed that First Investors had completed several Uniform Residential Loan Applications in which the applicants' base employment income and/or the asset information differed significantly from the information reflected on other pertinent documentation. Examples include, but are not limited to the following documents, as summarized below:
    1. Loan No.(s) 11648498 and 11648499.
      1. The first and second lien stated income purchase loan applications prepared by First Investors for loans which closed on August 9, 2006 indicated that the gross monthly base employment income of the applicant, a senior technology manager for a national bank, was $10,468.18, or $125,618 annually;
      2. The loan file contained the borrower's current pay stubs which referenced the borrower's gross annual income as of July 31, 2006 as $55,944.83, which indicates a gross annual income of approximately $95,905;
      3. The discrepancy in income between the borrower's income set forth in the borrower's pay-stub and the annual salary reported on the loan application prepared by First Investors reveals that First Investors overstated the applicant's gross income by approximately $29,713.
    2. Loan No. 1508590
      1. The "stated income fixed asset" mortgage loan application prepared by First Investors for a refinance loan which closed on November 16, 2006 indicated that the gross monthly base employment income of the borrower, a plumber, was $8,009, or $96,108 annually. The application also listed the borrower's assets, including $12,000 in a savings account;
      2. The loan file contained the borrower's 2005 IRS Form 1040 U.S. Individual Tax return which listed the borrower's total income as $29,863;
      3. The loan file contained a Verification of Deposit ("VOD") form completed by a bank representative as of November 6, 2006 which lists a balance in the savings account of $3,352.67;
      4. The discrepancy in income between the borrower's income as set forth in the borrower's tax return and the income reported on the loan application prepared by First Investors reveals that First Investors overstated the borrower's gross income by approximately $66,245;
      5. The discrepancy in the borrower's asset information between the amount set forth in the VOD and the asset information reported on the loan application prepared by First Investors reveals that First Investors overstated the borrower's savings account balance by approximately $8,647.33.
    3. Loan No. 6518100048
      1. The full documentation residential loan application prepared by First Investors for a loan which closed on November 7, 2008, the applicant's gross monthly income is reported as $11,000 or $132,000 annually;
      2. The loan file contained the borrower's current pay stubs which referenced the borrower's gross annual income as of September 3, 2008 of approximately $58,358, which indicates a gross annual income of approximately $87,537;
      3. The discrepancy in income between the borrower's income set forth in the borrower's pay-stub and the annual salary reported on the loan application prepared by First Investors reveals that First Investors overstated the applicant's gross income by approximately $44,462;
      4. No portion of the $132,000 annual income reported by First Investors on the prepared application was identified as bonuses, commissions, or anything other than base income of the applicant.
  17. The same or similar practices as referenced in the Paragraph above were also found in the following additional residential mortgage loan transactions reviewed by the Division's examiners: Loan No.(s): (x) 1508600; (y) 0001724163; and (z) 1093965 & 11460341. Each of the mortgage loan transactions referenced in Paragraphs 16 and 17 of this Order and Notice were originated by James Brown on behalf of First Investors. The examiners' specific findings are fully described in the Report and are incorporated herein by reference.
  18. At the conclusion of the onsite portion of the Division's examination/inspection, First Investors notified the Division of First Investors intent to obtain additional documentation from the referenced borrowers and/or the lenders of record to address and/or clarify the Division's findings detailed above. As of the effective date of this Order and Notice, First Investors had not submitted to the Division any such additional, supplementing documentation.
  19. First Investors knew or should have known that the above referenced income and/or asset information would be relied upon in underwriting the mortgage loan by the mortgage lender or financial institution to which the mortgage loan applications were brokered by First Investors.

    B. Unearned Fee

  20. The Real Estate Settlement Procedures Act, ("RESPA") implementing regulation, 24 CFR 3500.14(c) states, in part:

    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.

  21. Books and records reviewed by the Division's examiners during the examination/inspection indicate that First Investors charged a consumer an "escrow waiver fee" for which no service was rendered by First Investors.

    C. Providing Mortgage Lender Disclosures to Consumers When Acting in the Capacity of a Mortgage Broker

  22. 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.

  23. 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.

  24. Books and records reviewed by the Division's examiners during the examination/inspection revealed that First Investors provided consumers with a "Statement of Borrower's Benefits" ("Form"). By applicable statute and regulation, the determination of the borrower's interest is exclusively the lender's responsibility and the burden cannot be shifted to the borrower by the mortgage lender or mortgage broker. By distributing the Form to prospective borrowers, First Investors exceeded its authority as a mortgage broker. Moreover, the Form's language appeared to shift the burden to the consumers to demonstrate that the loan was in the borrowers' interest and to their benefit, as further described in the Report.
  25. Books and records reviewed by the Division's examiners during the examination/inspection revealed that, in all files reviewed, First Investors provided consumers with the Right to Receive a Copy of Appraisal Notice. Such notice is required to be provided by the mortgage lender.

    D. Failure to Properly Maintain Books and Records

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

    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.

  27. Books and records reviewed by the Division's examiners during the examination/inspection indicated that First Investors failed to retain all correspondence and records relating to the loan transactions. Violations include but are not limited to, the failure to retain final loan applications, the failure to retain correspondence and documentation relating to the transaction from the lender, and the failure to properly date initial loan applications and/or other disclosure documents, as further described in the Report.

    E. Failure to Provide Required Disclosures

  28. The Division's regulation 209 CMR 42.12A(12) states:

    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.

  29. Books and records reviewed by the Division's examiners during the examination/inspection revealed that First Investors 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.
  30. Books and records reviewed by the Division's examiners during the examination/inspection revealed that First Investors failed to provide applicants with the Notice of Privacy Policies and Practices in the form required pursuant to the Federal Trade Commission's Regulation 16 CFR 313. This practice was observed in all of the loan files reviewed during the examination/inspection, as further identified in the Report.

    F. Loan Origination and Compensation Agreement

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

    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.

  32. Books and records reviewed by the Division's examiners during the examination/inspection revealed that, in all of the files reviewed, First Investors failed to provide a Loan Origination and Compensation Agreement that strictly conformed to the requirements contained in the Division's regulation 209 CMR 42.16. In addition, several loan files the Loan Origination and Compensation Agreements contained therein were not completely filled out, as further described in the Report.

    G. Other Violations

  33. In addition to the violations specifically set forth in this Order and Notice, the Report provided to First Investors in conjunction with the issuance of this Order and Notice, describes other violations and areas of concern observed during the examination/inspection.

    VIOLATIONS - FIRST INVESTORS

  34. NOW, THEREFORE, the Division hereby sets forth the following Charges against First Investors:
  35. The Division hereby re-alleges and incorporates by reference Paragraphs 1 through 33 of this Order and Notice as though fully set forth.
  36. CHARGE ONE: By failing to establish, implement, and maintain the internal controls and procedures to prevent, or detect the violations identified in the Report, First Investors 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 42.06(2)(c).
  37. CHARGE TWO: B y falsifying and/or misrepresenting applicants' income and/or asset information on Uniform Residential Loan Applications, First Investors has violated the Division's regulation 209 CMR 42.12A(8), Massachusetts General Laws chapter 93A, section 2(a) and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1).
  38. CHARGE THREE: By charging a fee for which no service was rendered by First Investors in a mortgage transaction involving residential property located in the Commonwealth, First Investors has violated the Real Estate Settlement Procedures Act and its implementing regulation, 24 CFR 3500.14(c).
  39. CHARGE FOUR: By providing disclosures to consumers that only lenders are authorized to provide, First Investors has exceeded its authority as a mortgage broker, in violation of Massachusetts General Laws chapter 255E, section 2.
  40. CHARGE FIVE: 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, First Investors has violated the Division's regulation 209 CMR 209 CMR 42.09(1).
  41. CHARGE SIX: By failing to provide all required disclosures to consumers, First Investors has violated the Division's regulation 209 CMR 42.12A(12).
  42. CHARGE SEVEN: By failing to provide to consumers Loan Origination and Compensation Agreements that strictly conform to the Division's regulation 209 CMR 42.16, First Investors has violated the Division's regulations 209 CMR 42.12A(5) and 209 CMR 42.16.
  43. CHARGE EIGHT: Had the foregoing existed at the time of First Investors' 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 33 present sufficient grounds for the revocation of First Investors' mortgage broker license pursuant to Massachusetts General Laws chapter 255E, section 6 and the Division's regulation at 209 CMR 42.07(2)(b), and 42.12A(20).

    VIOLATIONS - JAMES BROWN

  44. NOW, THEREFORE, the Division hereby sets forth the following Charges against James Brown, individually:
  45. The Division hereby re-alleges and incorporates by reference Paragraphs 1 through 33 of this Order and Notice as though fully set forth.
  46. CHARGE ONE: By failing to implement, or causing to be implemented, internal controls in his capacity as the sole owner and President of First Investors, that would prevent the falsification and/or misrepresentation of borrowers' income information on Uniform Residential Loan Applications in violation of the Division's regulation 209 CMR 42.12A(8), Massachusetts General Laws chapter 93A, section 2(a) and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1), James Brown has failed to demonstrate the financial responsibility, character, reputation, integrity, and general fitness such as to command the confidence of the community and to warrant a determination that he will operate honestly, fairly, soundly and efficiently in the public interest in violation of Massachusetts General Laws chapter 255F, section 4 and the Division's regulation 209 CMR 41.05.
  47. CHARGE TWO: By falsifying and/or misrepresenting the borrower's income information on multiple Uniform Residential Loan Applications reviewed by the Division, James Brown has violated Massachusetts General Laws chapter 93A, section 2(a) and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1).
  48. CHARGE THREE: By failing to implement, or causing to be implemented, internal controls in his capacity as the sole owner and President of First Investors, to prevent the violations committed by First Investors as set forth in this Order and Notice, James Brown has failed to demonstrate the financial responsibility, character, reputation, integrity, and general fitness as to warrant belief that he will act honestly, fairly, soundly and efficiently in the public interest in violation of Massachusetts General Laws chapter 255F, section 4 and the Division's regulation 209 CMR 41.05.
  49. CHARGE FOUR: Had the foregoing existed at the time of James Brown'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 33 present sufficient grounds for the revocation of James Brown's mortgage loan originator license pursuant to Massachusetts General Laws chapter 255F, section 11 and the Division's regulation at 209 CMR 41.10(21).

    PRAYER FOR RELIEF

  50. 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 First Investors for each Charge set forth in this Order and Notice.
    3. For a final Agency decision in favor of the Division and against James Brown for each Charge set forth against James Brown in this Order and Notice.
    4. For a final Agency decision ordering First Investors to cease and desist from transacting business in Massachusetts as a mortgage broker.
    5. For a final Agency decision ordering James Brown to cease and desist from transacting business in Massachusetts as a mortgage loan originator.
    6. For a final Agency decision ordering First Investors to immediately place any pending residential mortgage loan applications and related files with an independent, licensed Massachusetts mortgage lender or other qualified lender in Massachusetts, with no costs to the applicant.
    7. For a final Agency decision revoking First Investors' mortgage broker license MB0063, to conduct business as a mortgage broker in Massachusetts.
    8. For a final Agency decision revoking James Brown's mortgage loan originator license MLO17945, to conduct business as a mortgage loan originator in Massachusetts.
    9. For costs and fees of the Division's investigation of this matter.
    10. For such additional equitable relief as the Administrative Hearings Officer may deem just and proper including, without limitation, an order directing First Investors to issue the reimbursements to Massachusetts consumers as set forth in the findings of the Report.

    NOTICE OF RIGHT TO A HEARING

  51. First Investors and James Brown, or their authorized representative(s), 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 First Investors and/or James Brown. 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.

    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

  52. First Investors and James Brown are further advised that each respondent 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 First Investors, 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.
  53. First Investors and James Brown, and their authorized representative(s), 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) 956-1552 in advance to schedule a time that is mutually convenient.

Dated at Boston, Massachusetts, this 7th day of January, 2010.

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