Consent Order Allied Home Mortgage Capital Corporation

Date:	11/08/2011
Organization:	Division of Banks
Docket Number:	2011-089
Location:	Houston, TX

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Allied Home Mortgage Capital Corporation, Houston, TX - Finding of Fact, Temporary Cease and Desist

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER AND
MORTGAGE BROKER
LICENSING
Docket No. 2011-089

FINDINGS OF FACT AND
TEMPORARY ORDER TO
CEASE AND DESIST

In the Matter of
ALLIED HOME MORTGAGE CAPITAL
CORPORATION

Houston, Texas
Mortgage Company License No(s). MC4169 et al.

The Commissioner of Banks ("Commissioner") having determined that ALLIED HOME MORTGAGE CAPITAL CORPORATION ("Allied Home Mortgage" or the "Corporation"), located at 6110 Pinemont Drive, Houston, Texas 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) and chapter 255F, section 8(b).

FINDINGS OF FACT

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.
The Division, through the Commissioner, also has jurisdiction over the licensing and regulation of persons engaged in the business of a mortgage loan originator in Massachusetts pursuant to Massachusetts General Laws chapter 255F, section 2.
Allied Home Mortgage is, and at all relevant times, has been a foreign corporation conducting business in the Commonwealth of Massachusetts. Allied Home Mortgage’s main office is located at 6110 Pinemont Drive, Houston, Texas.
Allied Home 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 lender license to Allied Home Mortgage to engage in the business of a mortgage lender at 6110 Pinemont Drive, Houston, Texas on or about October 28, 1997. The Division’s records indicate that the Commissioner issued a mortgage broker license to Allied Home Mortgage to engage in the business of a mortgage broker at 6110 Pinemont Drive, Houston, Texas on or about June 23, 1999. Allied Home Mortgage was issued a mortgage lender and mortgage broker license number MC4169 which became effective on or about June 23, 1999.
A. Failure to Demonstrate the Financial Responsibility, Character, Reputation, Integrity, and General Fitness to Maintain a Mortgage Company License

Failure to Fund Certain Residential Mortgage Loan Obligations
On November 1, 2011, the Division became aware through a press release issued by the Department of Housing and Urban Development ("HUD") that their Mortgagee Review Board had suspended Allied Home Mortgage from originating and underwriting new mortgages insured by the Federal Housing Administration.
On November 1, 2011, the Division also became aware that the Government National Mortgage Association ("Ginnie Mae") had suspended Allied Home Mortgage’s ability to issue securities in its Mortgage-Backed Securities (MBS) program.
As of the issuance of this Temporary Order, the FHA and Ginnie Mae suspension remains effective.
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.
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.
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.
The Division’s regulation at 209 CMR 42.12A(20) 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.
On or about November 2, 2011, representatives from the Division, by and through discussions held with representatives of other state banking and mortgage lending regulators (collectively, the "Mortgage Regulators"), contacted Allied Home Mortgage through their counsel and requested that the Corporation provide a pipeline report of pending residential mortgage loan applications in all states in which Allied Home Mortgage operates, including Massachusetts. In response to that request, on November 3, 2011, Allied Home Mortgage provided the Mortgage Regulators with a pipeline report that indicated, in part, that as of November 3, 2011, the Corporation failed to disburse loan proceeds for at least one purchase money mortgage loan transaction involving residential property in Massachusetts for which a closing had occurred.
The pipeline report provided by the Corporation identified at least seventy-eight (78) additional Massachusetts mortgage loan applications in various stages of processing, underwriting, and funding which require immediate action to protect the interests of the affected Massachusetts consumers.
Based upon information and belief, the one mortgage loan referenced in Paragraph 12, has not yet funded and the borrower continues to incur additional costs as a result of Allied Home Mortgage’s failure to fund the mortgage loan, as of the date of this Temporary Order.
Based upon information and belief, without the assistance of additional warehouse lines of credit or funding capacities, Allied Mortgage is unable or unwilling to independently meet its obligations to Massachusetts consumers.
Uncertainty of Allied Home Mortgage’s Maintenance of the Statutory Requirements for Holding a Mortgage Company License in Massachusetts
The Division’s regulation at 209 CMR 42.04(2)(b)3 and 209 CMR 42.07(2)(b)3 pertaining to the licensing of mortgage lenders and mortgage brokers respectively, states in part:
The Commissioner may also deny such an application if the Applicant has: conducted, or will conduct, its business in an unsafe and unsound manner...
The Division’s regulation at 209 CMR 42.03(2)(c) and 209 CMR 42.06(2)(c) pertaining to mortgage lenders and mortgage brokers respectively, states in part:
An Applicant shall be required to submit detailed information supporting the following general requirements:

Character and Fitness. An Applicant shall submit information demonstrating that the Applicant possesses the character, reputation, integrity and fitness to engage in the business of a mortgage lender in an honest, fair, sound and efficient manner.
During the November 2, 2011 teleconference, the Mortgage Regulators were informed that Allied Home Mortgage’s existing warehouse lines of credit had been terminated, however the Corporation’s counsel informed the Mortgage Regulators that Allied Mortgage was in the process of attempting to reinstate one or more warehouse lines through ongoing negotiations with the Corporation’s warehouse lender’s.
Based upon information and belief, Allied Home Mortgage’s warehouse lines of credit remain terminated as of the effective date of this Temporary Order.
Based upon information and belief, Allied Home Mortgage has a portfolio of Massachusetts mortgage loan applications in various stages of processing, underwriting, and funding and based upon the foregoing, the Division is unable to measure the extent to which the FHA and Ginnie Mae actions have impacted the Corporation’s ability to meet its obligations to Massachusetts consumers.
CONCLUSIONS OF LAW
Based upon the information contained in Paragraphs 1 through 20, Allied Home Mortgage’s acts or practices of contracting with consumer(s), through the underwriting and subsequent execution of mortgage loan closing documents relating to Massachusetts residential property, and thereafter failing to fund the mortgage loan(s) constitutes unfair and/or deceptive acts or practices in violation of Division’s regulation 209 CMR 42.12A(16) Massachusetts General Laws chapter 93A, section 2 and the Attorney General’s regulation 940 CMR 8.06(8).
Based upon the information contained in Paragraphs 1 through 20, due to the delay and/or failure in funding contractual mortgage loan obligations, Allied Home Mortgage has harmed consumers, mortgage brokers, and/or other parties in as many as one residential mortgage loan transaction in the Commonwealth by engaging in acts or practices which are unfair and/or deceptive in violation of in violation of Division’s regulation 209 CMR 42.12A(16) Massachusetts General Laws chapter 93A, section 2 and the Attorney General’s regulation 940 CMR 8.06(8).
Based upon the information contained in Paragraphs 1 through 20, by contracting to originate mortgage loan(s) that Allied Home Mortgage did not have sufficient warehouse funds available to fund, or any other available alternative source of funds, Allied Home Mortgage has engaged in unsafe or unsound practices in violation of the Division’s regulation 209 CMR 42.04(2)(b)3.
Based upon the information contained in Paragraphs 1 through 20, Allied Home 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 regulations 209 CMR 42.03(2)(c) and 209 CMR 42.06(2)(c).
Based upon the information contained in Paragraphs 1 through 20, the public interest will be harmed by delay in issuing an Order to Cease and Desist under General Laws chapter 255E, section 7(a) because, upon information and belief, Allied Home Mortgage has a portfolio of Massachusetts mortgage loan applications in various stages of processing, underwriting, and funding which require immediate action to protect the interests of the affected Massachusetts consumers.
Based upon the information contained in Paragraphs 1 through 20, the Commissioner has determined that:
1. Allied Home Mortgage has engaged 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 Allied Home Mortgage.
Based upon the information contained in Paragraphs 1 through 20, had the facts and conditions found therein existed at the time of Allied Home Mortgage’s 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 20 present sufficient grounds for the revocation of Allied Home Mortgage’s mortgage lender and mortgage broker licenses pursuant to Massachusetts General Laws chapter 255E, section 6 and the Division's regulations at 209 CMR 42.04(2)(b), 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:
ORDERED that Allied Home Mortgage and any and all officers, members, managers, employees, independent contractors, or agents, operating on behalf of Allied Home 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, Allied Home 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.
IT IS FURTHER ORDERED that Allied Home 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.
IT IS FURTHER ORDERED that Allied Home Mortgage shall immediately place with one or more qualified broker(s) or lender(s), with no loss to applicants, the following: (a) Allied Home Mortgage’s entire portfolio of Massachusetts residential mortgage loans which were closed by Allied Home Mortgage, and remain unfunded as of the issuance of this Temporary Order; (b) Allied Home Mortgage’s entire pending application list of Massachusetts residential mortgage loans. It being understood that "no loss to the applicant" shall mean that any loan which was closed by Allied Home Mortgage, as well as any application which was approved by Allied Home Mortgage, shall be placed to a lender willing to fund, or close, the mortgage loan under the same terms and conditions extended by Allied Home Mortgage. In the event that no such placement can be made, Allied Home 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; and (c) Allied Home Mortgage shall refund all applicants any additional costs incurred by the affected applicants as a result of the Corporation’s transfer of applications. Allied Home Mortgage shall obtain the prior approval of the Commissioner before placing such applications to the qualified lender(s) or broker(s) as appropriate.
IT IS FURTHER ORDERED that in any instance in which Allied Home 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, Allied Home Mortgage shall reimburse each consumer the amount necessary to put the consumer in the same position as if Allied Home Mortgage had funded the mortgage loan under the terms and conditions agreed upon at the closing of the loan.
IT IS FURTHER ORDERED that Allied Home 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, Allied Home 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 Allied Home 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 Allied Home 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, Allied Home 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 Allied Home 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); capacity in which Allied Home Mortgage accepted the application (i.e. mortgage broker or mortgage lender) 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, Allied Home Mortgage shall provide the Commissioner with an updated, written status report of the mortgage loan applications identified above under subparagraphs 33(a) and 33(b). The form of the status report shall follow the format of the initial submission under subparagraphs 33(a) and 33(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 Allied Home Mortgage, or withdrawn by the applicant(s);
4. On the last business day of each subsequent week after the effective date of this Temporary Order, Allied Home Mortgage shall provide the Commissioner with an updated, written status report of the mortgage loans identified above under subparagraphs 33(c). The form of the status report shall follow the format of the initial submission under subparagraphs 33(c); and
5. Within one (1) day of the effective date of this Temporary Order, Allied Home Mortgage shall submit to the Commissioner Allied Home 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 Allied Home Mortgage’s cash position at each of its depository banks as well as Allied Home Mortgage’s bank account numbers.
IT IS FURTHER ORDERED that Allied Home Mortgage shall submit to the Commissioner a detailed record, prepared as of the date of submission, of all of the residential mortgage loans currently serviced by the Corporation on property located in Massachusetts. The records to be produced shall include but not necessarily be limited to, the following:
1. As soon as possible, but not later than five (5) days after the effective date of this Temporary Order, Allied Home Mortgage shall submit to the Commissioner all information on file as of the date of submission regarding the Corporation’s Massachusetts servicing portfolio including but not limited to: the borrower’s addresses and telephone numbers; the loan number; the account balance; the location of the funds currently held for each account; and identification of the applicable servicer to whom the loan will be transferred to, if applicable. The record should include telephone numbers of contact persons at each servicer who is familiar with the Corporation’s loans;
2. On the last business day of each subsequent week after the effective date of this Temporary Order, Allied Home Mortgage shall provide the Commissioner with an updated, written status report of the mortgage loans identified above under subparagraphs 34(a). The form of the status report shall follow the format of the initial submission under subparagraphs 34(a); and
3. Allied Home Mortgage, shall immediately place all payments collected from Massachusetts consumers relative to any residential mortgage loans serviced by the Corporation in a separate escrow account maintained at a federally insured bank.
IT IS FURTHER ORDERED that Allied Home Mortgage shall not pay or declare a dividend, nor otherwise authorize or execute any financial transaction, either singular or structured, in excess of two hundred and fifty thousand dollars ($250,000.00), except for wages and salaries paid to employees, contractors, officers, or other members of Allied Home Mortgage’s management in the normal course of their business, without the prior written approval of the Commissioner. Upon the effective date of this Temporary Order, Allied Home Mortgage shall implement or revise its practices and procedures, as necessary, to ensure that their 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.
IT IS FURTHER ORDERED that Allied Home 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 31 of this Temporary Order, a copy of such document, correspondence, or paper relating to the mortgage loan shall be retained in Allied Home Mortgage’s books and records and shall be available to the Commissioner, in their entirety, upon request.
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.
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 Allied Home 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 8th day of November, 2011

By:
David J. Cotney
Commissioner of Banks

This Order was terminated pursuant to a Consent Order on January 11, 2012.

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