Temporary Order to Cease and Desist Aegis Wholesale Corporation and its affiliate, Aegis Funding Corporation

Date:	08/08/2007
Organization:	Division of Banks
Docket Number:	2007-023
Location:	Houston, TX

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Aegis Wholesale Corporation and its affiliate, Aegis Funding Corporation, Houston, TX - Temporary Order to Cease and Desist

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER LICENSING
Docket No. 2007-023

FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST

In the Matter of
AEGIS WHOLESALE CORPORATION
Houston, Texas
Mortgage Lender License No(s). ML2298, et al.

and its affiliate,
AEGIS FUNDING CORPORATION
Houston, Texas
Mortgage Lender License No(s) ML2303, and
ML2674

The Commissioner of Banks ("Commissioner") having determined that (a) AEGIS WHOLESALE CORPORATION, ("Aegis Wholesale"); and (b) AEGIS FUNDING CORPORATION ("Aegis Funding"); both of which are located at 3250 Briarpark Drive, Houston, Texas, 77042, have engaged in, or are engaging in, or are 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).

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 in Massachusetts pursuant to Massachusetts General Laws chapter 255E, section 2.
A. The Parties

Aegis Mortgage Corporation
Aegis Mortgage Corporation is a nationwide mortgage banking company in the business of originating, purchasing, selling, servicing and securitizing mortgage loans through a diverse network of distribution channels organized as wholly owned subsidiaries. Aegis Mortgage Corporation is registered with the Commissioner as a loan servicer under Massachusetts General Laws chapter 93, section 24A.
Aegis Wholesale and Aegis Funding (collectively, the "Aegis Corporations") are wholly-owned subsidiaries of Aegis Mortgage Corporation.
Aegis Wholesale Corporation
Aegis Wholesale is licensed by the Commissioner as a mortgage lender 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 Aegis Wholesale to engage in the business of a mortgage lender in Massachusetts on or about November 19, 2002.
Aegis Wholesale is, and at all relevant times has been, a foreign corporation conducting business in the Commonwealth of Massachusetts with its main office located at 3250 Briarpark Drive, 4 ^th Floor, Houston, Texas.
Aegis Wholesale operates additional office locations from which it conducts the mortgage lender business. According to records maintained on file with the Division, Aegis Wholesale currently possesses nine (9) additional mortgage lender licenses from the Commissioner for business offices located outside the Commonwealth.
Aegis Funding Corporation
Aegis Funding is licensed by the Commissioner as a mortgage lender 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 Aegis Funding to engage in the business of a mortgage lender on or about November 19, 2002.
Aegis Funding is, and at all relevant times has been, a foreign corporation conducting business in the Commonwealth of Massachusetts with its main office located at 3250 Briarpark Drive, Houston, Texas.
According to records maintained on file with the Division, Aegis Funding currently possesses one (1) additional mortgage lender license from the Commissioner for an additional location outside the Commonwealth from which Aegis Funding conducts its Massachusetts mortgage lender business.
Aegis Wholesale and Aegis Funding are operated, in part, by certain common individuals who perform in the capacity of executive officers and directors of both corporations.
B. Failure to Fund Certain Residential Mortgage Loan Obligations in Massachusetts
On or about Monday, July 16, 2007, the Division received notice from another state banking regulator that the Aegis Corporations may have ceased accepting residential mortgage loan applications. In response to this information, on Tuesday, July 17, 2007, representatives from the Division and representatives of other state banking and mortgage lending regulators, held a telephone conference call with Michael Balog, Executive Vice President and General Counsel of Aegis Mortgage Corporation and Michael Massella, President of Production of Aegis Mortgage Corporation to discuss the current financial condition of the Aegis Corporations ("July 17 ^th telephone conference").
During the July 17 ^th telephone conference, Mr. Balog and Mr. Massella reported to the Division and the other state banking regulators that Aegis Mortgage Corporation was engaged in the process of dissolving Aegis Funding and that Aegis Mortgage Corporation intended to continue to operate Aegis Wholesale as a wholesale lending platform.
On Monday August 6, 2007, the Division became aware via a news article distributed by the Associated Press that Aegis Mortgage Corporation had "suspended all loan originations amid the worsening housing and credit markets." The article further states in part that, "the company had notified brokers who serve as customers that Aegis would not be able to fund loans currently in the pipeline."
On Tuesday, August 7, 2007, the Division, through communications with another state banking department, became aware of an e-mail that Aegis Mortgage Corporation had distributed through its mortgage broker network which stated in part that, "Aegis Mortgage Corporation has stopped funding loans and accepting applications as of today August 6, 2007. Any branches that have any loans submitted to this lender should place your loans with another lender as they will not be funded."
The information reported in the August 7 ^th e-mail referenced above applied to transactions pending with Aegis Wholesale. Based upon information and belief, Aegis Funding had already ceased accepting applications prior to August 7, 2007.
On Tuesday, August 7, 2007, the Division received a separate e-mail from representatives of the Aegis Corporations stating, in part, that Aegis Wholesale had failed to disburse loan proceeds, or otherwise fund, at least four hundred (400) mortgage loan transactions across the country involving residential property for which closings had already taken place. ("August 7 ^th e-mail").
The August 7 ^th e-mail stated in part that, "Aegis has stopped accepting loan applications from mortgage brokers funding loans." The e-mail stated that the Aegis Corporations' actions were, "in large measure due to the illiquidity in the mortgage market."
The August 7 ^th e-mail further stated that the Aegis Corporations' could "offer no assurances that other lenders [would] be willing to make, fund or purchase these potential loans."
On Tuesday, August 7, 2007, representatives from the Division and representatives of other state banking and mortgage lending regulators, held a telephone conference call with senior executives of the Aegis Corporations to discuss concerns raised as a result of the events referenced in Paragraphs 11 through 18 of this Temporary Order. ("August 7 ^th telephone conference").
During the August 7, 2007 telephone conference, the Division was informed that Aegis Wholesale had failed to disburse loan proceeds in, or otherwise fund, one (1) mortgage loan transaction involving residential property in Massachusetts for which a closing had taken place.
During the August 7 ^th telephone conference, representatives of the Aegis Corporations' reported that Aegis Wholesale had ceased funding loans on or about Wednesday, August 1, 2007.
The Division refrained from taking any formal action against the Aegis Corporations' in response to the information reported during the July 17 ^th telephone conference, in part, based upon the receipt of a letter dated July 23, 2007 from Madeleine, LLC, the majority shareholder of the Aegis Corporations, whereby Madeleine, LLC stated its continued intention to capitalize and support the Aegis Corporations. Madeleine, LLC is controlled by Cerberus Capital Management.
Based upon the conditions and information reported in Paragraphs 13 through 21, it now appears that the Aegis Corporations majority shareholder is unable or unwilling to contribute the additional capital necessary to permit the Aegis Corporations' to finance its closed mortgage loan obligations.
Based upon information and belief, the loans referenced in Paragraphs 16 and 20 have not yet funded as of the effective date of this Temporary Order.
C. Impairment of Lender Lines of Credit Used to Fund the Aegis Corporations' Lending Operations and Failure to Maintain Minimum Standards of Financial Responsibility for Holding a Mortgage Company License in Massachusetts
During the August 7, 2007 teleconference, the Aegis Corporations reported that the Aegis Corporations current liquidity position would not permit the Aegis Corporations to satisfy current margin calls from its lenders.
Based upon the conditions and information reported in Paragraphs 13 through 21, it remains uncertain whether, or to what extent, the Aegis Corporations will be able to satisfy additional margin calls and/or to honor loan repurchase obligations in the absence of liquidity which was described by the Aegis Corporations.
During the August 7, 2007 telephone conference, the senior executives of the Aegis Corporations stated that at least one warehouse line of credit had been suspended and/or terminated, however the representatives were unable to provide any additional information regarding the status of the Aegis Corporations' remaining warehouse lines of credit and the impact the events referenced in Paragraphs 13 through 24 of this Temporary Order have had on the financial status of the Aegis Corporations.
A line of credit used by a mortgage lender enables the entity to fund mortgage loans prior to selling them to an investor. Without access to its lines of credit, and in the absence of the mortgage lender independently maintaining sufficient reserves and liquidity positions on its books to fund such loans, the mortgage lender would be unable to meet its funding commitments, negating its ability to meet contractual obligations to fund mortgage loans.
The Division's regulation at 209 CMR 42.12(1)(e) states, in part:
1. A Licensee shall notify the Commissioner immediately, and in writing within one business day, of the occurrence of any of the following significant developments: . . . (e) Expiration, termination or default, technical or otherwise, of any existing line of credit or warehouse credit agreement.
Prior to the August 7 ^th telephone conference, the Aegis Corporations had not notified the Division of the any suspension, default, and/or termination of the Corporation's line(s) of credit.
CONCLUSIONS OF LAW
Based upon the information contained in Paragraphs 1 through 30 by contracting to originate mortgage loan(s) for which Aegis Wholesale did not have sufficient funds available to meet its funding obligations, Aegis Wholesale 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 though 30, Aegis Wholesale, failed to notify the Commissioner, in writing, within one business day of the expiration, termination or default, technical or otherwise, of any existing line of credit or warehouse credit agreement, in violation of the Division's regulation 209 CMR 42.12(1)(e).
Based upon the information contained in Paragraphs 1 through 30, Aegis Wholesale'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) may constitute unfair and/or deceptive acts or practices in violation of Massachusetts General Laws chapter 93A, section 2.
Based upon the information contained in Paragraphs 1 through 30, due to the delay and/or failure in funding contractual mortgage loan obligations Aegis Wholesale has harmed consumers, mortgage brokers, and/or other parties in at least one (1) residential mortgage loan transactions in the Commonwealth by engaging in acts or practices which may be unfair and/or deceptive in violation of Massachusetts General Laws chapter 93A, section 2.
Based upon the information contained in Paragraphs 1 through 30, due to the interlocking relationship of the officers and directors of Aegis Wholesale and Aegis Funding as more fully set forth in Paragraph 10, the Division is unable to conclude that the Aegis Corporations have maintained the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that the businesses 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 42.03(2)(c).
Based upon the information contained in Paragraphs 1 through 30, the Commissioner has determined that:
1. The Aegis Corporations have engaged in, are engaging in, or are about to engage in, acts or practices which warrant the belief that they are not operating honestly, fairly, soundly and efficiently in the public interest in violation of standards governing the licensing and conduct of a mortgage lender 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 the Aegis Corporations.
Based upon the information contained in Paragraphs 1 through 30, had the facts and conditions found therein existed at the time of the Aegis Corporations' original mortgage lender license application(s), the Commissioner would have been warranted in refusing to issue such license(s). Further, the facts and conditions set forth in Paragraphs 1 through 30 present sufficient grounds for the revocation of the Aegis Corporations' mortgage lender license(s), pursuant to Massachusetts General Laws chapter 255E, section 6 and the Division's regulation at 209 CMR 42.04(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 the Aegis Corporations and any and all officers, directors, employees, or agents operating on behalf of the Aegis Corporations, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage lender, as defined under Massachusetts General Laws chapter 255E, section 1, relative to any residential property in Massachusetts, not otherwise expressly permitted by the terms of this Temporary Order. Therefore, the Aegis Corporations are 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 the Aegis Corporations 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 the Aegis Corporations shall immediately place with one or more qualified broker(s) or lender(s), with no loss to applicants, the following: (a) the Aegis Corporations' entire portfolio of Massachusetts residential mortgage loans which were closed by the Aegis Corporations, and remain unfunded as of the issuance of this Temporary Order; and (b) the Aegis Corporations' entire portfolio of pending Massachusetts residential mortgage loan applications. It being understood that "no loss to the applicant" shall mean that any loan which was closed by Aegis Wholesale or Aegis Funding, as well as any application which was approved by Aegis Wholesale or Aegis Funding, shall be placed to a lender willing to fund, or close, the mortgage loan under the same terms and conditions extended by Aegis Wholesale or Aegis Funding. In the event that no such placement can be made, Aegis Wholesale or Aegis Funding 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. The Aegis Corporations 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 the Aegis Corporations 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, the Aegis Corporations shall reimburse each consumer the amount necessary to put the consumer in the same position as if the Aegis Corporations had funded the mortgage loan under the terms and conditions agreed upon at the closing of the loan.
IT IS FURTHER ORDERED that the Aegis Corporations shall submit to the Commissioner a detailed record, prepared as of the date of submission, of all of the Aegis Corporations' pending residential mortgage loan applications on property located in Massachusetts. The records to be produced shall include all information on file regarding the Aegis Corporations 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, the Aegis Corporations shall submit to the Commissioner all information on file as of the date of submission regarding the Aegis Corporations' portfolio of mortgage loans that were closed by the Aegis Corporations 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 the Aegis Corporations 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 Aegis Corporations submitted loans;
2. As soon as possible, but not later than five (5) days after the effective date of this Temporary Order, the Aegis Corporations shall submit to the Commissioner all information on file as of the date of submission regarding the Aegis Corporations pipeline of pending mortgage loan applications including but not limited to, the following: The names of all individuals from whom the Aegis Corporations have 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); 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 Aegis Wholesale and/or Aegis Funding's submitted loans.
3. On the last business day of each subsequent week after the effective date of this Temporary Order, the Aegis Corporations shall provide the Commissioner with an updated, written status report of the mortgage loan applications identified above under subparagraphs 42(a) and 42(b). The form of the status report shall follow the format of the initial submission under subparagraphs 42(a) and 42(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 Aegis Wholesale or Aegis Funding, or withdrawn by the applicant(s); and
4. As soon as possible, but not later than five (5) days after the effective date of this Temporary Order, the Aegis Corporations shall submit to the Commissioner their year-to-date balance sheets and income statements, prepared as of the date of submission and the accuracy of the information reported on the balance sheet and income statement shall be attested to by a duly authorized officer of the entities under the pains and penalties of perjury. The balance sheet shall indicate Aegis Wholesale's and Aegis Funding's cash position at each of its depository banks as well as Aegis Wholesale's and Aegis Funding's bank account numbers.
IT IS FURTHER ORDERED that the Aegis Corporations 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 the Aegis Corporations' management in the normal course of their business, without the prior written approval of the Commissioner. Upon the effective date of this Temporary Order, the Aegis Corporations 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 the Aegis Corporations 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 40 of this Temporary Order, a copy of such document, correspondence, or paper relating to the mortgage loan shall be retained in the Aegis Corporations' 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 Aegis Wholesale and/or Aegis Funding within twenty (20) days of the effective date of this Temporary Order. If no hearing is requested by Aegis Wholesale and/or Aegis Funding 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 August, 2007.

By: Steven L. Antonakes
Commissioner of Banks

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