Massachusetts regulators have ordered a branch operation to shut down because it committed mortgage fraud and continued to employ unlicensed originators even after previously being ordered not to do so.
The state's Commissioner of Banks has issued a temporary order to cease and desist against New England Merchants Corp.
The Arlington Heights-based company, which was licensed as a lender in 1992 and as a mortgage broker in 1997, maintains a total of 20 licenses, according to a copy of the order.
On its now defunct Web site, the company claimed to be "one of the fastest growing mortgage brokerages in New England." Subprime, Alt-A and home equity programs were listed among its offerings.
"We are growing with a simple philosophy of paying our LO's the highest payouts in the business," the Web site stated. "We have no tiered compensation plans, just a flat rate of pay with a one time production goals to move up in compensation."
Following a 2002 examination, New England entered into a consent order with the regulator that required it not to operate from any unlicensed locations. But an examination earlier this year determined that the unlicensed activity continued.
"Beginning on a date that is unknown to the division and continuing at least until the date of the 2007 examination/inspection, New England Merchants conducted its mortgage broker business at six office locations ... for which New England Merchants failed to provide prior notice to the commissioner, submit a license application, or receive approval from the commissioner to engage in the mortgage broker business from such locations," the regulator said.
The unlicensed locations were in Methuen, Mass.; Hampden, Mass.; Braintree, Mass.; Salem, N.H.; East Windsor, Conn.; and Enfield, Conn., according to the order. In addition, although a license application had been submitted for a West Springfield, Mass., branch, New England began operating the branch before the license was approved and issued.
"New England Merchants has unlawfully engaged in the business of a mortgage broker through a network of locations and individuals operating without a license from the commissioner in violation of Massachusetts General Laws," the latest order said.
As a result of the licensing issues, the company was found to have paid illegal referral fees to the unlicensed individuals.
New England was delinquent in filing approximately 103 Statements of Accountability and Exemption Affidavits, in violation of its order, the state said. It also failed to disclose on the Attorney General's Mortgage Broker Disclosure Form -- which it illegally modified -- points and fees it charged; did not state the dollar amount of yield spread premiums on Good Faith Estimates; and regularly understated fees.
The state noted that disclosures which were required to be sent directly from the wholesale lender were actually sent by New England.
New England was also accused of mortgage fraud on three closed transactions where it inflated income on the applications. On one package, $2,200 monthly income was stated on an original application while a final application indicated $5,890 in monthly income. The company told regulators the second application reflected income from the borrower's fiance -- which the wholesale lender's account executive reportedly suggested.
Another loan saw monthly income jump from $3,750 on the original application to $8,500, which was explained as the inadvertent addition of the borrower's mother's income. A third loan cited by the commissioner reportedly reflected $90,200 in annual income on the initial 1003 and $155,520 on the final application -- a jump that New England said was the result of additional outside income.
The broker was also cited for charging an underwriting fee -- although it didn't underwrite the loans, and not keeping required paper copies of some files. Additionally, a required suitability explanation from the broker was missing.
The company's compliance officer reportedly admitted that required disclosures were backdated to appear to have been sent within the required period.
New England allegedly advertised a 1 percent interest rate without disclosing an annual percentage rate or whether it was a broker or lender. It also failed to list its license number on its Web sites.
"New England Merchants, its officers, directors, employees, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage broker and mortgage lender," the commissioner ordered. "It is further ordered that New England Merchants shall transfer its entire open application list of all pending applications relating to Massachusetts residential property to one or more qualified broker(s) or lender(s)."
While the temporary order calls for a subsequent review to determine whether it should be made permanent, an employee at the company's Agawam, Mass., branch indicated it has already shut down its operations in the state and that branch is no longer affiliated with it.