In 2008, The Mortgage Group of Fall River hired four originators who made a few loans for their new employer without quite having finished transferring their licenses to the state of Massachusetts. This year, that misstep is going to cost the company $100,000 in fines from the state Division of Banks.

“[Banking Commissioner Steven Antonakes] said, ‘Listen, I know how much money you make … We have found the only way to get your attention is through your pocketbook,’” recalled Donald Lambert, CEO of The Mortgage Group, which grossed $6 million last year. “I think I would have gotten the message with a smaller fine, but there was no negotiating with them.”

The ranks of Massachusetts mortgage licensees have grown drastically thinner in recent years, yet the Division of Banks is busier than ever, cracking down left and right for violations of all sorts.

Most in the industry admit that stricter regulations and enforcement are necessary – indeed, they say, if they had been in place six or seven years ago, the mortgage crisis might never have happened. Still, a slip-up can sting, and even help tip the licensee toward leaving the business entirely.

So far in 2010, the division’s website has posted 34 enforcement actions against mortgage originators and brokers, compared to 39 for all of 2009 – and that’s without taking into account a single posting that knocked 87 mortgage licensees for surety bond problems.

A look at the division’s public information shows that enforcement has been ramping up for the past several years – in 2005, only seven mortgage companies got formal notices from the Division of Banks. In 2002, there was only one.

The enforcement numbers are even more eye-catching when compared to the vastly diminished numbers of mortgage professionals. In 2007, the Division of Banks had 1,511 mortgage brokers in the state. Now, fewer than 600 are in business.

The dirty dealings that took place during the mortgage boom made stronger enforcement necessary, said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association. He acknowledged that the industry is dealing with huge numbers of new regulations, and in a very short amount of time, but said companies needed to shape up and deal with the new reality.

“We have been seeing the culture shift from a sales culture to compliant culture … and we have been singing that tune probably since June of 2005,” Cuff told Banker & Tradesman. “And after five years of singing it, if someone hasn’t gotten there yet, they’re either being deliberate or they don’t belong on the platform.”

Formal reprimands are more numerous because the DOB is better equipped to crack down on regulatory violations, said David Cotney, the division’s COO. It can enact reprimands for a greater variety of violations, and can share information with other states through the Nationwide Mortgage Licensing System, instituted in 2008. And with new requirements, mortgage licensees have far more potential snares on which to get caught.

The Mortgage’s Group’s licensing snafu is a good example: The violations happened in 2008, when the rules were brand-new and many were unfamiliar with how to navigate them, Lambert said.

Costs Of Doing Business

Following the rules often requires licensees to pony up a great deal of cash, said Cotney, and it’s important that the fines are big enough to be more painful than simply following the rules in the first place would have been. For example, it costs many hundreds of dollars to get an originator licensed. If the division’s fines are less than the costs of proper licensure, then a company has no cost incentive to follow the rules.

“We can be sympathetic…but we want to make sure it is much more expensive to evade the licensing requirements,” Cotney said.

Reprimands come in a variety of forms, and sometimes leave mortgage lenders feeling unduly punished. Of the 87 mortgage licensees who were given temporary cease-and-desist orders last year for not procuring a surety bond, some simply hadn’t paid. But others said at the time that their surety bonds were in order, but minor paperwork technicalities landed them on the list anyway. Being forced to stop work temporarily, as well as landing on that public list, dealt a blow to their income and reputation, they said.

Since then, several of the mortgage professionals Banker & Tradesman interviewed on the topic have either sold their businesses or closed up shop.

Other companies, like First Ohio Bank & Lending, are still seeing official reprimands for greater sins. First Ohio was recently ordered to shut down Massachusetts operations for falsifying borrower income on 2006 loan applications.

The most recent batch of DOB violations came for five companies that failed to file annual reports on time.

Richard Shapiro of Natick-based Asset Mortgage Group said licensees have to be on their toes – there really is no other choice. And although it’s been tough for some to adapt, the requirements are manageable as long as licensees know their stuff, right down to when filings are due.

“I think this is probably what should have been done years ago,” he said, referring to the heyday of bad lending.

Lambert said his fines made him question whether he should get out of the business, but The Mortgage Group instead redid its budget and continued with its plans to expand throughout seven states, recently opening three new offices. Lambert said the company has long since shaped up its compliance processes, and is hiring new originators with confidence.

“They imposed a fine, we’re going to pay it, and we’re going to move on,” he said.