A Rhode Island thrift run by two brothers and their father has agreed to pay $1.8 million over allegations of unsafe lending. The bank's mortgage unit shut down its wholesale operations last year.
The Office of Thrift Supervision has issued a Cease-and-Desist order and an Order of Assessment of a Civil Money Penalty against Domestic Bank and its mortgage lending subsidiary Intervale Mortgage Corp.
The Cranston-based thrift was directed to pay a civil money penalty of $850,000, according to a copy of the orders, dated June 30. In addition, the company has committed to pay $1,000,000 to support financial literacy and credit counseling.
Among unsafe practices cited by OTS were paying kickbacks, Regulation Z disclosure violations and enabling mortgage fraud. In addition, "sham employees" were allowed to hold themselves out as employees of the company.
"There were numerous weaknesses in the savings association's internal controls, fraud-detection processes, compliance management, record-keeping, management, asset quality review processes and lending activity," OTS said.
Domestic was also ordered to improve its lending practices, develop and implement underwriting standards and takes steps to comply with applicable laws and regulations. The company has been prohibited from making option adjustable-rate mortgages, loans that are not full document and mortgages with loan-to-values above 80 percent without mortgage insurance. Second liens are also banned.
Any loans it does make must either be conforming or qualify for government loan programs.
The firm was also ordered to add three new outside directors, compose a management plan and implement regular internal audits.
"OTS has issued an order detailing certain concerns it had about the bank's past practices," Domestic President Nathaniel B. Baker said in a letter to the bank's customers last month. "Those concerns relate to product initiatives, third-party relationships and administrative procedures that were in place at the bank from 2003 through early 2007. The third-party relationships have since been terminated, and the product initiatives in question have been discontinued for more than a year."
Baker will reportedly step down.
Domestic shut down its wholesale lending program in March 2007 because it couldn't sell the loans it was making. That unit was run by Baker's son, Jeff Baker. Another son, Craig Baker, was executive vice president of the bank.
The order indicated that loans can only be made that were "originated without any involvement by loan brokers, except for those loan broker relationships to which OTS has previously provided written non-objection."
In the Matter of Domestic Bank, Cranston, Rhode Island, (OTS No. 13964) and its Subsidiaries, including Intervale Mortgage Corporation, Cranston, Rhode Island
Order No.: NE-08-07 and Order No. NE-08-08, Effective Date June 30, 2008