CHARLIE NILSEN
‘Healthy Message’
Emergency regulations issued by the state Division of Banks after a crackdown on mortgage companies will likely pass through an upcoming public hearing without much trouble and be made permanent, according to industry experts.
The new regulations, coupled with enforcement actions that have been taken against 17 mortgage brokers or lenders in the past few weeks, also send a healthy message of caution to the lending industry as a whole, said Charlie Nilsen, chairman of the Massachusetts Mortgage Bankers Association’s Communications Committee.
Most of the regulations, which prohibit mortgage brokers and lenders from acts like having a borrower sign blank or incomplete documents, or from falsifying income or asset information on applications or mortgage documents, are common-sense practices that already are on the law books. The new regulations just codify them, said Kevin Cuff, executive director of the MMBA.
“I don’t think it is that huge a deal,” he said. “It codifies the current standing in the law.”
Mortgage companies that do business on the up-and-up already were following these guidelines, he said. But the MMBA approved of the new regulations.
“The Massachusetts Mortgage Bankers Association applauds the efforts of Commissioner [Steven L.] Antonakes and the Division of Banks in forcefully dealing with egregious violations involving reduced-documentation loans,” Cuff said. “A lender who intentionally places a consumer into loan through misleading tactics, and which they rightfully know has no chance of being paid back, is committing mortgage fraud [that] should be treated as the most serious of violations. The Division of Banks and the attorney general’s recent actions speak volumes that the state and the mortgage lending industry will not tolerate such abusive acts.”
Mortgage brokers and lenders who are “doing it right” welcome the enforcement of licensing and fair lending practices demonstrated in the crackdown and in the issuance of the emergency regulations, said John Battaglia, president of the Boston-based Cambridge Mortgage Group and chairman of the MMBA.
“I definitely applaud the actions of the commissioner,” he said. “We need to highlight the seriousness of these activities.”
Nilsen agreed. “We think it’s a very good idea and we support the DOB,” he said.
The new regulations demonstrate common sense, Battaglia said.
“I think it’s exactly what was needed at this time,” he said.
The Division of Banks handed down the emergency regulations last month after investigations uncovered fraudulent activity at many area mortgage companies over the course of several weeks.
The latest investigations resulted in the division issuing cease-and-desist orders against two licensed mortgage brokers with offices in Lawrence, Marshfield and Somerville, and four unlicensed entities operating at locations in Everett, Lawrence and Malden.
“It’s a healthy message to the industry that [fraud] won’t be tolerated,” Nilsen said.
Antonakes echoed that sentiment. “I hope the message is loud and clear that we will not tolerate unfair and deceptive practices or fraud to be committed by licensed companies and we will take swift action to shut down any businesses writing mortgages without the proper license,” he said in a prepared statement.
Enforcement Actions
The most egregious violations have involved reduced-documentation loans, which typically do not require the verification of a borrower’s income, according to the division.
To that end, Cuff sent out an e-mail last week reminding MMBA members of the purpose for which the stated-income program was developed and its proper uses.
“The stated income program was developed in the mid-80s by Fannie Mae for the self-employed borrower, to assist qualified borrowers in the ability to finance their home while still taking advantage of various tax laws which depleted the adjusted gross income on their 1040 [tax forms],” Cuff wrote.
But there were claims of discrimination, so Fannie Mae opened the program to all borrowers. This has led, in some cases, to mortgage companies using it to market to low- or moderate-income borrowers, and fraud has sometimes been the outcome.
“The term ‘stated income’ means that the borrower is stating to the loan originator that the income on the application is truthful under penalties of perjury,” Cuff reminded lenders in his e-mail.
The division’s latest sweep resulted in actions taken against licensed mortgage brokers Confidence Mortgage and Middlesex Financial Assoc. The division was looking for evidence that consumers were led into loans they could not afford by inflating the borrowers’ income.
An inspection of Confidence Mortgage’s main office in Lawrence allegedly uncovered evidence that income had been overstated on at least five loans.
In an Aug. 30 inspection of Middlesex Financial’s Moultonboro, N.H., office – where the company kept files on loans issued in Massachusetts – and in subsequent visits to an unlicensed branch office in Lowell – investigators said they found discrepancies in loan documents.
In six loans involving four condominiums and two homes, three borrowers each obtained loans on two properties, listing each property as their primary residence without disclosing their other mortgage on the other loan application.
Of the other four actions taken, three were against entities for operating a mortgage business at unlicensed locations. The other entity, Treasury Financial Group of Buffalo, N.Y, is not licensed at all to conduct business in Massachusetts and was found to be using the license number of an unrelated company.
The division also recently released an alert to help consumers understand how to avoid deceptive or fraudulent mortgage practices.
The public hearing on the emergency regulations will be held on Oct. 17 at 10 a.m., at One South Station, 5th floor, in Boston.
The proposed amendments would add 10 additional prohibited acts and practices to existing regulations governing mortgage lenders and mortgage brokers.
The amendments were filed by the Division of Banks as emergency regulations on Sept. 8, and the hearing is part of the process to make the amendments permanent. Additional changes or amendments may be made based on comments received at the public hearing or during the comment period.
