Regulators in the Commonwealth of Massachusetts have ordered a mortgage company to stop servicing loans in the state as a result of mishandled escrow accounts.
Mortgage Security Inc., which operates from East Falmouth, Mass., had been licensed in Massachusetts as both a mortgage broker and a mortgage lender.
But an examination of the company in July 2008 by the state’s division of banks led to a November 2009 order to show cause and notices of right to a hearing against Mortgage Security.
Just prior to the order in September 2009, Mortgage Security voluntarily stopped originating loans in the Bay State — though it did contest some of the examination’s findings in a response to the order.
The company’s mortgage broker and mortgage lender expired without renewal in December 2010.
But the firm continued to service home loans through a relationship with an authorized company, and the state said in an announcement Thursday that it recently received complaints from borrowers whose loans are serviced by Mortgage Security. The borrowers allege that remittances for property taxes were not properly made from their escrow accounts — leading to late charges and penalties.
A subsequent investigation by the state found that although the borrowers made their payments, Mortgage Security failed to remit real estate tax payments for several months. In addition, the investigation found similar problems with remittances for homeowners insurance premiums.
A review of the company’s records reportedly revealed several inconsistencies in loan balances. It also found that borrower funds were mixed with other company funds even though the state requires that escrow funds must be held separately.
“Additionally, the company failed to maintain adequate records, failed to properly register as a loan servicer and charged borrowers excessive late fees,” the announcement stated.
As a result, the state said it has ordered Mortgage Security to immediately cease all activities as a mortgage broker, mortgage lender and loan servicer in Massachusetts.
“The division has ordered Mortgage Security to place any fees or payments collected from borrowers into a separate account at an insured bank,” said Massachusetts Commissioner of Banks David J. Cotney. “The division will continue to pursue actions against any company that engages in unsafe and unsound practices which put consumer funds at risk.”
On its website, Mortgage Security says it is registered as a mortgage broker with New York’s banking department and as a lender in Texas.
