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Consent Order

Consent Order Bay State Mortgage Corporation

Date: 07/28/2011
Organization: Division of Banks
Docket Number: 2011-029
Location: Norton, MA

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER AND
MORTGAGE BROKER
LICENSING
2011-029

CONSENT ORDER

In the Matter of

BAY STATE MORTGAGE CORPORATION
Norton, Massachusetts

Mortgage Company License No. MC2768

WHEREAS, BAY STATE MORTGAGE CORPORATION, Norton, Massachusetts ("Bay State Mortgage" or the "Corporation"), a licensed mortgage lender and mortgage broker under Massachusetts General Laws chapter 255E, section 2, has entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("Consent Agreement") with representatives of the Division of Banks ("Division") dated July 28, 2011, whereby, solely for the purpose of settling this matter, and without admitting any allegations or implications of fact or the existence of any violation of state or federal laws and regulations governing the conduct and operation of a mortgage lender and mortgage broker, Bay State Mortgage agrees to the issuance of this CONSENT ORDER ("Consent Order") by the Commissioner of Banks ("Commissioner");

WHEREAS, an examination/inspection of Bay State Mortgage was conducted pursuant to General Laws chapter 255E, section 8, as of January 20, 2010, to assess the Corporation's level of compliance with applicable Massachusetts statutes and the Division's regulations governing the conduct of those engaged in the business of a mortgage lender and mortgage broker in the Commonwealth;

WHEREAS, the Report of Examination/Inspection (the "Report") issued pursuant to the Division's examination/inspection of Bay State Mortgage alleged substantial non-compliance with applicable state and federal statutes, rules, and regulations governing the conduct of those engaged in the business of a mortgage lender and mortgage broker in Massachusetts; and

WHEREAS, the parties now seek to resolve by mutual agreement, the matters identified in the Report.

ORDER

NOW COME the parties in the above-captioned matter, the Division and Bay State Mortgage, and stipulate and agree as follows:

  1. Bay State Mortgage shall establish, implement, and maintain quality control procedures governing the placement of loan applications into alternative documentation loan programs (including, but not limited to, stated income; no income, no asset verification; no income verification; no ratio loans; low and no documentation loans; etc.) to ensure accurate application completion procedures; verification and due diligence procedures; and books and records retention in compliance with applicable state and federal laws, regulations, and regulatory bulletins governing the conduct and operation of those engaged in the business of a mortgage broker in Massachusetts.
    1. Compliance with this Section of the Consent Order shall require that Bay State Mortgage review the Division's Regulatory Bulletin 5.1-103: Guidance on Non-Traditional Mortgage Product Risks, the Division's September 2006 Industry Letter, and the Division's Regulatory Bulletin 5.1-104: Statement on Subprime Mortgage Lending and implement procedures to ensure Bay State Mortgage's compliance therewith.
    2. Bay State Mortgage agrees to submit a payment in the amount of ten thousand dollars ($10,000.00) in satisfaction of an administrative penalty collected in consideration of the Corporation's failure to comply with the statutes, rules and regulations governing the conduct of those engaged in the business of a mortgage lender in Massachusetts. Bay State Mortgage shall remit payment in full of the amount indicated above, payable to the "Commonwealth of Massachusetts," with the executed copy of the Consent Agreement, to the Office of the Commissioner of Banks, One South Station, 3rd Floor, Boston, Massachusetts 02110. The Division shall remit the payment for deposit into the General Fund of the Commonwealth.
  2. Bay State Mortgage shall establish, implement, and maintain procedures to ensure that all loan fees, points, or similar fees collected by the Corporation in a mortgage transaction involving residential property in the Commonwealth are not charged to consumers except to the extent that such fees or points have been properly disclosed to the consumers by the Corporation, in writing, prior to the closing of the mortgage loan in accordance with Massachusetts General Laws chapter 183, section 63.
    1. The Corporation shall reimburse the consumer identified in the Report for the amount collected as an underwriting fee at settlement that had not been disclosed to the consumer, in writing, prior to loan closing. The amount of such reimbursement shall equal the difference between the actual charges assessed to the consumers and the amount disclosed in writing for such fee prior to loan closing. With its written response to the Report, the Corporation shall submit evidence of the reimbursement issued pursuant to this Section of the Consent Order. Evidence of the reimbursement shall include the consumer's name, the date the loan closed, the check number, the amount of the reimbursement, and certified mail receipt to illustrate the consumer's receipt of the reimbursement.
  3. Bay State Mortgage shall establish, implement, and maintain revised procedures to ensure that the Corporation refrains from collecting compensation from consumers (i) in consideration of services which the Corporation, when acting as a mortgage broker, is prohibited from performing in a mortgage loan transaction or (ii) where no, or only a nominal, service is provided by the Corporation.
    1. Bay State Mortgage shall reimburse the consumer identified in the Report for the full amount of the loan discount fee that was collected by the Corporation when the Corporation was acting in the capacity of a mortgage broker. With its written response to the Report, the Corporation shall submit evidence of the reimbursement issued pursuant to this Section of the Consent Order. Evidence of the reimbursement shall include the consumer's name, the date the loan closed, the check number, the amount of the reimbursement, and a certified mail receipt to illustrate the consumer's receipt of the reimbursement.
  4. With the Corporation's written response to the Report, Bay State Mortgage shall produce a Capital Plan that describes how the Licensee will establish and maintain an adjusted positive net worth of not less than $200,000 at all times. The Capital Plan required under this Section shall be submitted to the Division for review. The Capital Plan shall address both internal and external sources of capital augmentation, including capital infusion, conversion of debt to equity, retention of earning, asset sales, or any other means that are acceptable to the Division.
    1. For purposes of this Memorandum, the term "net worth" shall be defined in accordance with the Division's regulations 209 CMR 42.02 whereby the Corporation's net worth shall equal the Licensee's total assets less total liabilities, omitting the following assets:
      1. that portion of an applicant's assets pledged to secure obligations of any person or entity other than that of the applicant;
      2. any asset due from officers or stockholders of the applicant or persons in which the applicant's officers of stockholders have an interest;
      3. an amount in excess of the lower of the cost or fair market value of mortgage loans in foreclosure, or real property acquired through foreclosure;
      4. an investment shown on the balance sheet in joint ventures, subsidiaries, or affiliates, which is greater than the fair market value of the assets;
      5. goodwill or value placed on insurance renewals or other similar intangible value;
      6. organization costs;
      7. the value of servicing contracts not determined in accordance with the Financial Account Standards Board's ("FASB") Statement of Financial Accounting Standards No. 65 "Accounting for Certain Mortgage Banking Activities", and any subsequent revisions thereto; and any other intangible asset, as may be determined by the Commissioner.
  5. Bay State Mortgage shall, within thirty (30) days of the effective date of the Order, establish an adjusted positive net worth of not less than $200,000 in accordance with the definition of net worth per Section 4 of this Order, and shall maintain at least that minimum adjusted positive net worth level at all times thereinafter.
    1. Satisfaction of this Section of the Order shall necessarily require that Bay State Mortgage submit sufficient documentation to the Division to evidence how the increased net worth standard was satisfied which may include, without limitation, evidence of a cash contribution or a debt conversion, as applicable.
    2. Within 20 days of the effective date of the Order, the Corporation shall submit to the Division financial statements for the Licensee, including a balance sheet and a statement of income and expense, prepared in accordance with generally accepted accounting principles ("GAAP") and signed and dated under the pains and penalties of perjury by an authorized senior officer, which illustrate the Corporation's compliance with the provisions set forth in Section I of this Order.
  6. With the Corporation's written response to the Report, Bay State Mortgage shall submit: updated financial statements, including a balance sheet and interim income statement prepared as of December 31, 2010; and a written profit plan, consisting of goals and strategies for providing the foundation for improved profitability.
    1. The written profit plan shall include, at a minimum:
      1. identification of the major areas in, and means by which, management shall seek to improve Bay State Mortgage's operating performance and enhance capital formation;
      2. realistic and comprehensive budgets;
      3. a budget review process to monitor the income and expenses of Bay State Mortgage to compare actual figures with budgetary projections;
      4. a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components; and
      5. a statement of the Board of Directors' commitment to the continued maintenance of acceptable levels of liquidity and capital.
    2. Performance under the written profit plan shall be reported to the Division and submitted with the quarterly progress reports prepared pursuant to Section 12 of the Consent Order. Each report submitted to the Division pursuant to this Subsection of the Consent Order shall include updated financial statements prepared as of the last day of the calendar quarter, including a balance sheet and statement of income and expense which have been signed by a duly authorized officer of Bay State Mortgage with sufficient knowledge to attest to the information reported in the financial statements.
  7. Bay State Mortgage shall establish, implement and maintain procedures to ensure that the Corporation does not contract for or impose late charges that are in excess of the amount permitted under Massachusetts General Laws chapter 183, section 59. Bay State Mortgage shall review and revise as necessary all documentation containing provisions referencing late payment charges to ensure that such provisions are in compliance with Massachusetts General Laws chapter 183, section 59.
  8. Bay State Mortgage shall establish, implement, and maintain procedures to ensure that all consumers receive a Notice of Privacy Policies and Practices in accordance with, and in the form required by, the Federal Trade Commission's Regulation 16 CFR 313. For each consumer loan file, a copy of the Notice of Privacy Policies and Practices shall be retained in the Corporation's books and records as evidence of compliance.
  9. Bay State Mortgage shall establish, implement and maintain procedures to ensure that, when the Corporation is acting in the capacity of a mortgage lender, all applicants whose residential mortgage loan application is denied receive a Mortgage Review Board Disclosure Form notifying them that they may appeal such denial to the review board in accordance with Massachusetts General Laws chapter 167, section 14A. For each consumer loan file, a completed copy of the Mortgage Review Board Disclosure Form shall be retained in the Corporation's books and records as evidence of compliance.
  10. Bay State Mortgage shall establish, implement, and maintain procedures to ensure that, when the Corporation is acting in the capacity of a mortgage broker, all consumers receive a loan origination and compensation agreement in accordance with the provisions of the Division's regulation 209 CMR 42.16. For each consumer loan file, a completed copy of the loan origination and compensation agreement shall be retained in the Corporation's books and records, as provided in 209 CMR 42.09(1)(b).
  11. Bay State Mortgage shall establish, implement and maintain procedures to ensure that the Corporation establishes whether it is performing in the capacity of a mortgage broker or mortgage lender at the inception of the loan transaction and shall ensure that all disclosures provided to the consumers accurately reflect the capacity in which the Corporation is performing. In addition, such procedures shall provide for clear documentation and appropriate disclosures to the applicant in the event that the Corporation subsequently seeks to perform in another capacity for the same applicant.
  12. Bay State Mortgage shall establish, implement, and maintain procedures to ensure that, when acting in the capacity of a mortgage broker, the Corporation refrains from providing any consumer with any disclosure which, pursuant to the applicable statute, regulation, or regulatory bulletin, is intended to be issued exclusively by the lender or creditor in the residential mortgage loan transaction.
  13. Bay State Mortgage shall comply with all laws and regulations applicable to its conducting the business of a mortgage lender and mortgage broker, including, but not limited to, Massachusetts General Laws chapters 255E and 255F, and the Division's regulations 209 CMR 41.00 et seq. and 209 CMR 42.00 et seq. Such obligations shall necessarily include the duty to address and correct, within thirty days of receipt of the Report, all violations and areas of concern addressed in the Report.
    1. Within thirty days of Bay State Mortgage's receipt of the Report, the Corporation shall submit to the Commissioner a written response that addresses each of the violations and areas of concern specified in the Report. The written response shall describe the revised policies and procedures adopted by Bay State Mortgage to implement all corrective actions set forth in: (i) the "Examiner's Comments and Conclusions" section of the Report and (ii) the provisions of this Consent Order.
    2. Within thirty days of the effective date of this Consent Order, Bay State Mortgage shall establish, implement, and maintain quality control standards which provide for a loan review process to assess the Corporation's compliance with: (i) the statutes, rules, regulations, regulatory bulletins, and other relevant provisions of law applicable to those engaged in the business of a mortgage lender and mortgage broker in Massachusetts, and (ii) the provisions of this Consent Order; and
    3. Bay State Mortgage shall establish, implement, and maintain procedures and policies to ensure that all applicable staff persons receive adequate instruction and ongoing, periodic training to ensure proper implementation and execution of the revised practices and procedures implemented pursuant to this Consent Order.
  14. On the thirtieth day after the end of each calendar quarter following the date of this Consent Order, Bay State Mortgage shall furnish written progress reports to the Division, which shall address and include the following:
    1. A description of the form, content, and manner of any actions taken to address each Section of this Consent Order and the results thereof; and
    2. Written findings prepared by Bay State Mortgage detailing a review of management's and staff persons' adherence to the policies, programs, and procedures adopted pursuant to this Consent Order and to applicable statutes, regulations, and rules, as well as a description of any operational changes implemented during such quarter which are intended to improve Bay State Mortgage's compliance condition in Massachusetts, and the results thereof.
  15. The reporting requirement to the Division referenced in Section 12 of this Consent Order shall remain in effect and shall not be amended or rescinded without the prior written modification, termination, or suspension of the applicable provision of this Consent Order from the Commissioner.
  16. Nothing in this Consent Order shall be construed as permitting Bay State Mortgage to violate any law, rule, regulation, or regulatory bulletin to which Bay State Mortgage is subject.
  17. Bay State Mortgage agrees that, in the event that the Corporation fails to submit the consumer reimbursements set forth in this Consent Order in the amounts specified herein and in accordance with the applicable deadlines, the Division shall be authorized to submit a claim for such amounts against the mortgage lender and/or mortgage broker Massachusetts surety bond maintained by Bay State Mortgage o pursuant to the Division's regulations 209 CMR 42.03(2)(a) and 209 CMR 42.06(2)(a).
  18. In consideration of the foregoing Consent Order, the Division agrees not to pursue formal measures, relative to this matter, to suspend or revoke Bay State Mortgage's mortgage company license under Massachusetts General Laws chapter 255E, section 6, while this Consent Order is in effect.
  19. Failure to comply with the terms of this Consent Order shall constitute grounds for license suspension and/or revocation, or other formal regulatory actions pursuant to applicable provisions of the General Laws of the Commonwealth of Massachusetts.
  20. This Consent Order shall become effective immediately upon the date of its issuance.
  21. The provisions of this Consent Order shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this Consent Order shall have been modified, terminated, suspended, or set aside by the Commissioner or upon an order of a court of competent jurisdiction.
  22. This Consent Order and the Consent Agreement are the complete documents that represent the resolution of this matter. There are no other agreements, promises, representations, or warranties other than those set forth in this Consent Order and the Consent Agreement.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.

Dated at Boston, Massachusetts, this 28th day of July, 2011

David J. Cotney
Commissioner of Banks
Commonwealth of Massachusetts

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