By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LOAN
ORIGINATOR LICENSING
Docket No. 2010-043

ORDER TO SHOW CAUSE
AND NOTICE OF RIGHT
TO A HEARING


In the Matter of
KENNAN ROSS STARTZELL

Mortgage Loan Originator License No. MLO41311


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 255F, section 11 to obtain temporary, preliminary, and permanent injunctive relief: ordering Kennan Ross Startzell ("Kennan Startzell"), 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; prohibiting Kennan Startzell from any further actions, in any manner, as a mortgage loan originator or prohibiting him from being employed by, as agent of, or operating on behalf of a licensee under chapter 255E or 255F or any other business which requires a license from the Commissioner; revocation of Kennan Startzell's Massachusetts mortgage loan originator license ML041311; and such other equitable relief as may be necessary due to Kennan Startzell'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 Kennan Startzell will operate 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

  2. 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 broker and mortgage loan originator pursuant to Massachusetts General Laws chapter 255E and chapter 255F, respectively.
  3. At all relevant times, Kennan Startzell has been engaged in the business of a mortgage broker and/or mortgage loan originator of mortgage loan applications relating to residential property in Massachusetts.

    RESPONDENT

  4. Kennan Startzell is licensed by the Commissioner as a mortgage loan originator under Massachusetts General Laws chapter 255F, section 2. According to records maintained on file with the Division, the Commissioner initially issued a mortgage loan originator license, license number MLO41311, to Kennan Startzell to engage in the business of a mortgage loan originator on or about September 23, 2008.
  5. Based upon information and belief, from July 2003 to February 2007, Kennan Startzell was employed by, or associated with, East Coast Equity, LLC ("East Coast Equity" or the "Company"), a then-licensed mortgage broker in Massachusetts, to originate residential mortgage loan applications.
  6. During the interim of July 2003 through February 2007, Kennan Startzell was authorized to engage in mortgage broker activities in Massachusetts without maintaining his own mortgage broker license due to his status at the relevant time as employed by, or associated with, East Coast Equity pursuant to the applicable licensing exemption provisions set forth under General Laws chapter 255E, section 2.

    REGULATORY BACKGROUND

  7. Pursuant to Massachusetts General Laws chapter 255E, section 8 and General Laws chapter 255F, section 14, as then existing, the Division is authorized to inspect the books, accounts, papers, records, and files of mortgage brokers and mortgage loan originators, respectively, transacting business in Massachusetts to determine compliance with the provisions of Massachusetts General Laws chapter 255E, chapter 255F, and any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the licensed business.
  8. On November 25, 2008, pursuant to its statutory authority, the Division commenced an examination/inspection of the books, accounts, papers, records, and files maintained by East Coast Equity to evaluate the Company's compliance with the laws, regulations, and regulatory bulletins applicable to the conduct of a mortgage broker business in Massachusetts (the "examination/inspection").
  9. The Division's Report of Examination/Inspection (the "Report") presented the findings of the 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 in Massachusetts.
  10. On or about December 29, 2009, the Division and East Coast Equity agreed to the issuance of a Consent Order, Docket No. 2009-116-CO, by the Commissioner, to address the findings of the Division's Report and pursuant to which East Coast Equity agreed to the immediate surrender of its Massachusetts mortgage broker license and a prohibition from re-application for such license for a stipulated period.
  11. During the examination/inspection of East Coast Equity, the Division's examiners determined that Kennan Startzell, while employed by or associated with, East Coast Equity, prepared mortgage loan applications on behalf of applicants for the purchase and/or refinance of various residential properties, as defined pursuant to Massachusetts General Laws chapter 255E, section 1, which included false and/or misleading representations of the applicants' income.

    A. Unfair or Deceptive Acts and Practices: False and/or Misleading Representations of Prospective Borrowers' Income

  12. The Division's regulation 209 CMR 42.12A(8), 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.

  13. 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.

  14. 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.

  15. Books and records reviewed by the examiners during the examination/inspection revealed that several of the loan files associated with residential mortgage loan transactions originated by Kennan Startzell contained Uniform Residential Loan Applications, which had been prepared by Kennan Startzell and submitted to the lenders, in which the applicants' reported base employment income differed significantly from the actual income information reflected on other pertinent documentation contained in the loan file. Examples include, but are not limited to the following transactions and documents, as summarized below:
    1. Loan # 1172138489.
      1. The stated income purchase loan application prepared by Kennan Startzell on behalf of East Coast Equity for a loan which closed on January 12, 2007, stated that the gross monthly base employment income of the applicant, a customer service representative with a health insurer, was $6,250, or $75,000 annually. The loan application also included income information for the applicant's part-time job as a transportation coordinator for a rental car agency which stated that the borrower's part-time income was $4,250 per month, or $51,000 annually. The total combined annual income as set forth in the loan application amounted to $126,000.
      2. Hand-written notes retained in the loan file reflect annual income for the applicant's full-time job of $36,000 with part-time annual income of $15,000. According to information provided by East Coast Equity's president during the examination/inspection, the hand-written notes resulted from a phone conversation with the applicant.
      3. The discrepancy in income amounts between the applicant's income as recorded in the internal, hand-written notes and the income reported on the loan application prepared by Kennan Startzell reveals that the applicant's combined gross annual income was overstated by as much as $75,000.
      4. According to information provided by East Coast Equity during the examination/inspection, the applicant was transitioned from a full documentation loan program to a stated income loan program during the origination of the mortgage loan which was ultimately obtained for the applicant.
      5. Upon inquiry, East Coast Equity's president explained to the Division that the income recorded in the hand-written notes represented the applicant's "documented income" and did not include "unreported income." If taken as true, there was no information reported on the loan application prepared by Kennan Startzell as to the source or occupation which generated this additional income nor was such amount itemized as "other income."
    2. Loan # 2815120024 and 2815120061.
      1. The stated income, combination purchase loan applications prepared by Kennan Startzell on behalf of East Coast Equity for loans which closed on January 12, 2006 reported that the gross monthly base employment income of the applicant, an accounts receivable director, was $11,750, or $141,000 annually.
      2. Documentation in the purchase loan file contained a "Statement of Earnings for the Period Ending 8-20-05" pay-stub which indicates that the applicant's gross weekly income was $899.49, or $46,773.48 annually.
      3. The discrepancy in income between the income set forth in the applicant's pay-stub and the annual salary reported on the loan application prepared by Kennan Startzell reveals that the applicant's gross income was overstated by approximately $94,260.
      4. Neither the documents and records maintained for this transaction, nor the loan application prepared by Kennan Startzell, contained information which would support the source or amount of this additional income.
    3. Loan #2816070030.
      1. The stated income refinance loan application prepared by Kennan Startzell on behalf of East Coast Equity for a loan which closed on July 28, 2006 reported that the gross monthly base employment income of the applicant, an accounts receivable director, was $10,250, or $123,000 annually.
      2. The applicant had purchased the property referenced above on January 12, 2006. The purchase money loan applications for that property had also been prepared by Kennan Startzell and brokered by East Coast Equity (Loan No. 2815120024 and 2815120061 above). Documentation in the original purchase loan file contained a "Statement of Earnings for the Period Ending 8-20-05" pay-stub which indicates that the applicant's gross weekly income was $899.49, or $46,773.48 annually.
      3. The discrepancy in income between the earnings set forth in the applicant's pay-stub and the annual salary reported on the loan application prepared by Kennan Startzell reveals that the applicant's gross income was overstated by approximately $76,227. The loan file did not include evidence of any change in the applicant's occupation or title during the seven month interim since the time of the applicant's purchase money loan application also prepared by Kennan Startzell which would support this increase in the annual income reported by Kennan Startzell.
    4. Loan #2819110174.
      1. The stated income refinance loan application prepared by Kennan Startzell on behalf of East Coast Equity for a loan which closed on November 30, 2006 reported that the gross monthly base employment income of the applicant, an accounts receivable director, was $10,250, or $123,000 annually.
      2. The applicant had purchased the property referenced above on January 12, 2006. The purchase money loan applications for that property, and subsequent refinance loan application, had also been prepared by Kennan Startzell and brokered by East Coast Equity as set forth in subparagraphs 14(b) and 14(c) above. Documentation in the original purchase loan file contained a "Statement of Earnings for the Period Ending 8-20-05" pay-stub which indicates that the applicant's gross weekly income was $899.49, or $46,773.48 annually.
      3. The discrepancy in income between the earnings set forth in the applicant's pay-stub and the annual salary reported on the loan application prepared by Kennan Startzell reveals that the applicant's gross income was overstated by approximately $76,227. The loan file did not include evidence of any change in the applicant's occupation or title during the fifteen month interim since the time of the applicant's purchase money loan application also prepared by Kennan Startzell which would support this increase in the annual income reported by Kennan Startzell.
    5. Loan #2815110008.
      1. A stated income purchase loan application prepared by Kennan Startzell on behalf of East Coast Equity for a loan which closed on December 5, 2005, reported that the gross monthly base employment income of the applicant, a Director of Business Operations, was $7,150, or $85,800 annually. The gross monthly income of the co-applicant was listed as $3,450 monthly, or $41,400 annually. The total combined income as set forth in the loan application amounted to $127,200.
      2. An annual income statement was submitted by the applicant to Kennan Startzell's attention via facsimile dated November 9, 2005. According to the applicant's statement, the applicant's annual wage income was $42,848 plus $19,728 in social security income and the co-applicant's annual wage income was $16,830 plus $15,180 in social security income. Therefore, according to the information provided by the applicant, the total gross income for both applicants, including social security income, amounted to $94,586.
      3. The discrepancy in income between the total earnings for both applicants set forth in the applicants' annual income statement and the annual salary reported on the stated income loan application prepared by Kennan Startzell, even allowing that social security income was combined with wage income, reveals that the applicants' gross income was overstated by approximately $32,614.
      4. Upon inquiry, East Coast Equity's president explained to the Division that investments produced additional income that was included in the overall gross income. If taken as true, there was no information reported on the loan application prepared by Kennan Startzell as to the source of this additional income nor was such amount itemized as "other income."
  16. Kennan Startzell, as a loan originator acting on behalf of East Coast Equity, should have known that the inaccurate and/or misrepresented information he reported as the loan originator of record during the origination and processing of the mortgage loan applications would be relied upon by the mortgage lender or financial institution to which the mortgage loans were brokered by East Coast Equity.
  17. By placing applicants into stated income mortgage loan programs based upon inaccurate and/or misrepresented income information, Kennan Startzell was able to obtain commissions for originating the mortgage loans, which may not have been obtainable if the applicants' actual income had been accurately reported to the lender or financial institution and considered in underwriting the mortgage loans.

    VIOLATIONS

  18. NOW, THEREFORE, the Division hereby sets forth the following Charges against Kennan Startzell:
  19. The Division hereby re-alleges and incorporates by reference Paragraphs 1 through 16 of this Order and Notice as though fully set forth.
  20. CHARGE ONE: Kennan Startzell has failed to demonstrate the 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.
  21. CHARGE TWO: B y falsifying and/or misrepresenting applicants' income information on Uniform Residential Loan Applications submitted to mortgage lenders and financial institutions, Kennan Startzell 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).
  22. CHARGE THREE: Had the foregoing been known to the Division at the time of Kennan Startzell's 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 16 present sufficient grounds for the revocation of Kennan Startzell's mortgage loan originator license pursuant to Massachusetts General Laws chapter 255F, section 11(a) and the Division's regulation at 209 CMR 41.10(21) and the issuance of an order prohibition pursuant to Massachusetts General Laws chapter 255F, section 11(d)

    ORDER TO SHOW CAUSE

  23. WHEREAS, finding it necessary and appropriate and in the public interest, and consistent with the purposes of the laws governing licensed mortgage brokers and loan originators in the Commonwealth;
  24. WHEREAS, Pursuant to General Laws chapter 255F, section 11(d), the Commissioner may issue a written notice of intention to prohibit a person from any further actions, in any manner, as a mortgage loan originator or to prohibit the person from being employed by, as agent of, or operating on behalf of a licensee under chapter 255E or 255F or any other business which requires a license from the Commissioner; and
  25. WHEREAS, finding that the Charges set forth above, if found to be true and correct, form the legal basis for the action sought to be taken under General Laws chapter 255F, sections 11(a) and 11(d).
  26. IT IS HEREBY ORDERED that Kennan Startzell shall show cause why his mortgage loan originator license, MLO41311 should not be revoked pursuant to General Laws chapter 255F, section 11(a).
  27. IT IS FURTHER ORDERED that Kennan Startzell shall show cause why he should not be prohibited from any further actions, in any manner, as a mortgage loan originator or be prohibited from being employed by, as agent of, or operating on behalf of a licensee under chapter 255E or 255F or any other business which requires a license from the Commissioner.

    PRAYER FOR RELIEF

  28. 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 Kennan Startzell for each Charge set forth in this Order and Notice.
    3. For a final Agency decision ordering Kennan Startzell to cease and desist from transacting business in Massachusetts as a mortgage loan originator.
    4. For a final Agency decision revoking Kennan Startzell's mortgage loan originator license MLO41311, to conduct business as a mortgage loan originator in Massachusetts.
    5. For a final Agency decision prohibiting Kennan Startzell from any further actions, in any manner, as a mortgage loan originator, or prohibiting him from being employed by, as agent of, or operating on behalf of a licensee under chapter 255E or 255F or any other business which requires a license from the Commissioner;
    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.

    NOTICE OF RIGHT TO A HEARING

  29. Kennan Startzell or his authorized representative is 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 Kennan Startzell. 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

  30. Kennan Startzell is further advised that he 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 him, 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.
  31. Kennan Startzell or his 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) 956-1500, extension 552, in advance to schedule a time that is mutually convenient.

Dated at Boston, Massachusetts, this 14th day of January, 2010.

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

THIS ORDER TO SHOW CAUSE HAS BEEN TERMINATED PURSUANT TO A CONSENT ORDER, ISSUED APRIL 7, 2011