Broker Prevails Over Regulator With License

The State Corporation Commission of Virginia recently granted the mortgage broker and banker license to Calusa Investments LLC after almost three years since the company first petitioned for a permit with the Bureau of Financial Institutions, according to a final order issued Dec. 13, 2004.

The Chantilly, Va.-based mortgage company attempted gaining approval to operate within the state since December 2001 through the commission’s banking regulator, the bureau, which denied Calusa a license in April 2003 and again in January 2004 because its principals had violated numerous federal consumer protection laws while operating other companies, according to the bureau’s “revised license denial” signed June 30.

Calusa’s principals, David Shumway and DeVan Shumway, allegedly violated Virginia law from 1998 to 2002 when they operated EquityPlus Financial and Equity Guaranty as mortgage brokers without being licensed in the state. Among other violations, the Shumway companies, in combination with title and marketing companies, allegedly misrepresented credit offered as pre-approved, used high-pressure sales tactics, forged documents, failed to accurately disclose finance charges, concealed the charging of excessive broker fees, and collected charges for title and related services not performed, the “revised” denial said.

Calusa’s “principals have an attitude of utter disdain for compliance with laws and regulations applicable to the mortgage lending/brokering business,” the bureau said in the revised June document. In the April application denial, it had said the individuals lacked “such general fitness as to warrant belief that…[Calusa] would be operated efficiently and fairly, in the public interest and in accordance with law.”

In a pre-filed testimony, the bureau asked the commission to consider as evidence a class action lawsuit that involved, but did not name as defendants, the Shumway companies. The lawsuit accused the companies of brokering second mortgage loans for Guaranty National Bank of Tallahassee and Community Bank of Northern Virginia and fraudulently receiving income from the loans. Borrowers claimed they paid high “loan origination fees” that were not distributed to the banks as settlement statements had represented, and that they paid excessive fees for unperformed “title services.” A majority of the fees were distributed to Equity Guaranty and EquityPlus with the purpose of “evading state fee caps and usury laws, thereby permitting the generation of tens of millions of dollars in bogus fee income that was shared” by the Shumway companies, the two banks and GMAC-RFC to whom the loans were sold to, the lawsuit said.

In March 2004, Calusa petitioned the commission for a reversal of the bureau’s decision. Calusa noted that it was “different than the business and operation” of previous companies, aggregating it had been licensed in over 30 states since its beginnings in 2002 and subjected to four operation audits in four different states without any action by regulators to prevent it from engaging in business.

Subsequent to a three-day hearing held in October and a high volume of filings, the commission said in the final order that “much of the evidence presented by the bureau in this case, including the class action complaint…was stricken from the record as inadmissible,” adding that the regulator provided an insufficient basis to deny Calusa a license.

Commission spokesman Kenneth J. Schrad said it rarely happens that the commission overrules decisions from its regulating division.

“In fact, it is just as rare that any applicant formally files a petition asking the commission to reverse a decision of the bureau,” he added.

The commission also found there was a lack of clarity in the way the bureau interpreted a Virginia code that exempts “subsidiaries and affiliates” of certain lenders from the requirement to obtain a license. To avoid future confusion, as occurred with the Shumway companies and the banks, the commission ordered the bureau to propose a regulation with a clear definition of both terms.

The state regulator also ordered the Bureau to draft a regulation governing the use of the term “pre-approved” in advertising and marketing materials, as its “use in a potentially misleading manner is evidently not a problem unique to Calusa…[but] is apparently widely used in the industry nationally.”

A third order given to the Bureau was to draft reporting requirements regarding the surrender of a license in another state by a Virginia-licensed mortgage lender or broker.

The banking regulating division has 45 days from the final order’s issue date to propose the refined regulations. Schrad said the bureau has not yet submitted such proposals, but anticipates it will do so in the latter part of the month.