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The Commissioner of Banks ("Commissioner") having determined that NEW ENGLAND MERCHANTS CORP. ("New England Merchants" or the "Corporation"), with its main business office located at 1173 Massachusetts Avenue, Arlington Heights, Massachusetts, has engaged in, or is engaged 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).
FINDINGS OF FACT
A. Failure to Comply with the Terms of the Consent Order
Failure to comply with the terms of this ORDER shall constitute grounds for license suspension and/or revocation pursuant to applicable provisions of the General Laws of the Commonwealth of Massachusetts.
Nothing in this ORDER shall be construed as permitting New England Merchants to violate any law, rule, regulation, or regulatory bulletin to which the Corporation is subject.
(i). Engaging in the Mortgage Broker Business in Massachusetts from Unlicensed Locations
New England Merchants shall immediately cease engaging directly or indirectly in the business of a mortgage lender and/or mortgage broker at any location in the Commonwealth for which New England Merchants has not previously obtained a license from the Commissioner for such location in accordance with Massachusetts General Laws chapter 255E, section 2.
New England Merchants shall not engage in the business of either a mortgage broker or a mortgage lender from any additional location other than the Corporation's main office without . . . .(ii) obtaining the prior written approval of the Commissioner to engage in the licensed activity at each location.
(ii). Licensed Locations Representing to Third Party Vendors that Such Locations are Independent Corporations
New England Merchants shall ensure that the Corporation, and its additional licensed location, refrain from representing to any third party vendors that any additional licensed location is an independent corporation, partnership, association, or similar entity that is separate and distinct from the legal entity of New England Merchants. New England Merchants shall ensure that any business shall at all times be conducted in the name of the Corporation as it appears on the license for the additional licensed location.
(iii). Engaging Unauthorized Individuals to Originate Mortgage Loans in Massachusetts
In any instance in which New England Merchants retains a natural person to engage in the licensed business on the Corporation's behalf as an independent contractor associated with and under the direction of the Corporation, New England Merchants shall submit to the Division a completed Statement of Accountability and an Exclusivity Affidavit, signed by the individual sought to be exempted from the applicable license requirement, at least five (5) days before such individual begins engaging in the licensed business on New England Merchants' behalf.
(iv). Disclosure of Points and Fees
New England Merchants shall review the origination and processing functions of the Corporation to address and correct the matters identified by the Division . . . relative to the Corporation's disclosure of all fees and premiums charged and collected as compensation by New England Merchants in a mortgage loan transaction, as well as all third party mortgage-related fees collected from consumers to be satisfied by the Corporation on the consumer's behalf.
New England Merchants shall adopt and implement revised procedures to ensure that the Corporation provides each consumer with accurate disclosures which (i) are completed in good faith to reflect as much information as is available at the time the disclosure must be provided, (ii) when permitted to be disclosed as a range of charges by an applicable regulation or statute, any fee or premium is disclosed within a range that reflects a reasonable relationship to the charge the consumer will likely incur at the settlement of the mortgage loan, and (iii) are reflective of New England Merchants' experience in residential mortgage loan transactions in Massachusetts.
(v). Providing Mortgage Lender Disclosures to Consumers
New England Merchants shall revise its procedures to ensure that, when performing 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 required to be issued exclusively by the lender or creditor in the residential mortgage loan transaction.
(vi). Modification of the Attorney General's Mortgage Broker Disclosure Form
New England Merchants shall revise its procedures to ensure that, when performing in the capacity of a mortgage broker, all applicable consumers are provided with an Attorney General's Mortgage Broker Disclosure Form, completed in accordance with, and in the form specified, by the provisions of the Office of the Attorney General's regulation 940 CMR 8.05(1). The revisions to
be implemented to address this Section of the ORDER shall include, but are not limited to, ensuring that the Attorney General's Mortgage Broker Disclosure Form is completed with as much information as is available at the time the disclosure is provided to the consumer.
(vii.) Failure to Implement and Maintain Required Revised Procedures
The Corporation shall comply with all laws and regulations applicable to its conducting the business of a mortgage lender and mortgage broker . . . .Such obligations shall necessarily include the duty to address and correct, within sixty (60) days from the effective date of this ORDER, all violations as specified in the Report issued pursuant to the Division's examination/inspection of New England Merchants as of November 6, 2002.
B. Additional Compliance Violations
(i.) Unfair or Deceptive Acts and Practices
The originator of the subsequent HELOC loan application(s) added the income of the applicant's fiancé and the applicant's income together and used this "household income" figure as the applicant's base monthly income. New England Merchants stated that the lender's account representative suggested that New England Merchants combine the incomes on the loan application.
During the application process for the first loan (Loan number: 20015115), the borrower was refinancing the property in order to buy out his ex-wife. As he was attempting to keep the property, the borrower's mother allegedly offered to become a co-borrower. The loan originator initially added the borrower's mother's income on the loan application without adding her as a co-borrower, to determine how the ratios would be affected. However, he stated that he discovered that the borrower could qualify for a full documentation loan without adding his mother as a co-borrower. The file was updated and the loan closed on July 19, 2006. The loan originator stated that thereafter he inadvertently copied the file containing the borrower's mother's income information during the HELOC "Stated income" loan application process and the second loan was approved for funding by the lender using the incorrect information. Loan No. 062071350560 closed on August 30, 2006. According to New England Merchants, the borrower would have qualified for the product using his actual income and the submission of the false income information was inadvertent.
Income discrepancies in the loan application(s) resulted from "extra money from their employer working functions outside their regular schedule and in private functions outside the restaurant."
(ii.) Undisclosed Points and Fees
A mortgagee, or a mortgage lender or mortgage broker as defined in section one of chapter two hundred and fifty-five E, shall not charge a loan fee, finder's fee, points, so-called, or similar fees in a mortgage transaction involving residential property located in the commonwealth of four or less units and occupied in whole or in part by the mortgagor, except to the extent that such fees or points have been previously disclosed to the mortgagor in writing, which disclosure may be in the form required by section seventeen D of chapter one hundred and eighty-four, or such other form which discloses said fees or points. A mortgagor shall not be obligated to pay fees or points which have not been previously disclosed as required herein.
(iii.) Unearned Fees
No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.
(iv.) Deceptive Business Practices
(v.) Failure to Properly Maintain Books and Records
Each Licensee shall keep and use its books, records and accounts in a manner which will allow the Commissioner to determine whether the Licensee is complying with the provisions of M.G.L. c. 255E and applicable state and federal laws and regulations. Each Licensee shall comply with the provisions of 209 CMR 48.00...
(b)The mortgage broker … shall retain for a minimum of three years after a mortgage loan is made the following: the original loan origination and compensation agreement as set out in 209 CMR 42.16; a copy of the settlement statement; an account of fees received in connection with the loan; correspondence; papers or records relating to the loan; and such other documents as the Commissioner may require.
Each Licensee may record, copy or reproduce its books, records, and accounts by photographic, photostatic, microfilm, microcard, miniature photographic, electronic, including, but not limited to, optical imaging, or other process which accurately reproduces or forms a durable medium for reproducing the original record or document or in any other form or manner, provided, however, that such method used to record, copy or reproduce original records or documents shall be approved by the Commissioner in a written plan for examination.
(vi.) Loan Origination and Compensation Agreement
It is a prohibited act or practice for a mortgage broker to fail to provide to the consumer at the time of application the loan origination and compensation agreement required under 209 CMR 42.16. The content of the agreement shall strictly conform to 209 CMR 42.16 and include signatures and dates by the consumer(s) and the mortgage broker.
Each mortgage broker required…shall retain for a minimum of three years after a mortgage loan is made the following: the original loan origination and compensation agreement as set out in 209 CMR 42.16
(vii.) Refinancing in the Borrowers Interest
A lender shall not knowingly make a home loan if the home loan pays off all or part of an existing home loan that was consummated within the prior 60 months or other debt of the borrower, unless the refinancing is in the borrower's interest. The "borrower's interest" shall be narrowly construed, and the burden is upon the lender to determine that the refinancing is in the borrower's interest.
A lender may request that a borrower acknowledge receipt of such a worksheet or other documentation; provided, however, a lender shall not shift the burden to the borrower to demonstrate that a home loan is in the borrowers' interest.
(viii.) Engaging in Prohibited Advertising Practices
If an advertisement states a rate of finance charge, it shall state the rate as an "annual percentage rate," using that term. If the annual percentage rate may be increased after consummation, the advertisement shall state that fact. The advertisement shall not state any other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the annual percentage rate.
A Licensee shall also disclose the type and number of its license(s) in all advertisements.
It is an unfair or deceptive act or practice for a mortgage broker or lender to advertise without clearly and conspicuously disclosing its business name, the words "broker" or "lender", as applicable, and the license number.
CONCLUSIONS OF LAW
ORDER TO CEASE AND DESIST
After taking into consideration the FINDINGS OF FACT and CONCLUSIONS OF LAW stated herein, it is hereby:
BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.
Dated at Boston, Massachusetts, this 24th day of October, 2007.
By: Steven L. Antonakes
Commissioner of Banks
Commonwealth of Massachusetts