For Immediate Release - September 08, 2006

Division of Banks Cracks Down On Abusive Mortgage Lenders and Brokers

Outlines Broader Anti-Foreclosure Initiative

The Division of Banks today announced the implementation of a coordinated plan designed to address abuses by rogue mortgage lenders and brokers. Several recent investigations have produced evidence that some mortgage lenders and brokers have purposely steered perspective consumers, often of low and moderate-income or limited English language ability, into loans that they can not afford by using misleading tactics and, in some cases, committing fraud.

"We cannot allow the record gains in homeownership over the past 15 years in low and moderate-income communities across the Commonwealth to be lost," said Commissioner of Banks Steven L. Antonakes.

The plan combines enforcement and regulatory initiatives, community and industry partnership and outreach, including a planned fall summit of government, industry, and non-profit organizations to craft a coordinated statewide foreclosure prevention strategy.

The Division's numerous actions to fight abusive lending practices include the following initiatives:

Enforcement:

  • The Division has launched multiple surprise examinations of mortgage lenders and brokers that are continuing, specifically directed at companies in low and moderate-income communities. Division examiners are focusing on stated income loans and looking for any evidence that borrowers' incomes were inflated and borrowers were purposely steered into loans they could not afford.
  • The Division recently issued cease and desist orders against two licensed mortgage brokers and two unlicensed entities in Lawrence. Today, the Division issued cease and desist orders against four additional licensed mortgage brokers and three unlicensed entities. Initial findings from on-site examinations according to Antonakes indicate that additional enforcement actions will soon be taken.
  • The Division today issued an to all licensed mortgage lenders and brokers and financial institutions threatening immediate and severe action should any evidence of inflating borrower income be found.

"Putting these abusive companies out of business will be the minimum action we will take," added Antonakes.

  • The Division has established a mortgage fraud hotline for consumers to call if they believe they have been victims of unfair and deceptive mortgage practices. The number is 800-495-2265 extension 1501.

"I would encourage individuals to call the mortgage fraud hotline," said Antonakes. "Consumer complaints remain one of our most valuable sources of timely information to identify illegal lending activities."

Regulatory Initiatives:

  • The Division today issued to its regulations which govern the supervision of mortgage lenders and brokers. These changes significantly expand the number of existing prohibited acts and practices that constitute grounds for the issuance of cease and desist orders and license suspension or revocation.
  • The Division is continuing to dedicate significant resources to the development of a nationwide mortgage database of mortgage professionals. This project has been underway for more than 18 months and is being built through the Conference of State Bank Supervisors, the organization of all state banking departments. The implementation of the database is essential to fill cracks in the existing regulatory framework and reduce fraud. Specifically, the nationwide database would eliminate the ability of bad actors to move from state to state by providing a comprehensive listing of enforcement actions taken by all state regulatory agencies. In addition, the system would require fingerprinting and full access to existing national criminal databases.

"A significant limitation of our existing licensing process is that we only have access to Massachusetts criminal offenses. Given the number of regional and national lenders we regulate, full access to the national criminal histories is essential," said Antonakes.

Outreach & Partnership:

  • In addition to the Division of Banks anti-fraud initiatives, there is a need for a comprehensive strategy made up of government, industry and community groups to address the broader issue of foreclosures. The increase in foreclosures is precipitated by current market conditions, including rising interest rates, a slowing real estate market, and a lack of financial education which have contributed to the up tick in foreclosures rates in Massachusetts and nationwide.
  • Director of Consumer Affairs and Business Regulation Janice S. Tatarka announced that her office and the Division of Banks will host a mortgage summit this fall. The summit will bring together government, industry, and nonprofit organizations in an effort to address the increasing number of mortgage foreclosures across Massachusetts and to develop a statewide foreclosure prevention strategy that will also put into place lasting measures to provide additional, meaningful measures to help consumers confronted with the loss of their homes. The summit agenda will include the discussion of the development and delivery of pre and post home purchase, financial education and counseling, additional statutory changes, and the creation of a source of funding for borrowers to refinance out of loans with high interest rates and unmanageable terms.

"I am confident that the Division's anti-fraud actions will go a long way toward policing rogue mortgage lenders and brokers," said Tatarka. The summit will bring together a broader group to develop a coordinated strategy to deal with the issue of rising foreclosure rates.

Thomas Callahan, Executive Director of the Massachusetts Affordable Housing Alliance noted, "MAHA applauds the actions of the Commissioner of Banks. Today's actions are an important step in reining in these out of control companies and brokers. We look forward to working with the Division of Banks as we seek other long-term solutions to all of the problems that rob homeowners of the American Dream."

"We agree that a comprehensive mortgage foreclosure strategy is necessary and look forward to participating in the summit," said Kevin F. Kiley, Chief Operating Officer of the Massachusetts Bankers Association.

"The Massachusetts Mortgage Association agrees with the Division that immediate remedial action needs to be taken against any fraud practices in our industry and considers the mortgage summit a vital opportunity to aid in facilitating the eradication of such practices and to advance a foreclosure prevention strategy throughout the Commonwealth," said Massachusetts Mortgage Association Executive Director Denise M. Leonard. "We are eager to be at the table with all interested parties and to contribute to the development of solutions to these unsettling issues."