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State Warns Mass. Brokers on Alt-B

State Warns Mass. Brokers on Alt-B

Letter sent from bank division

September 9, 2006


photo of Coco Salazar
Recent onsite examinations of Massachusetts mortgage companies have prompted a warning from the state about subprime limited documentation loans.

The commissioner of the Massachusetts Division of Banks recently issued an industry letter reminding the heads of mortgage brokers, lenders and entities, that their licenses and management are at risk of severe regulatory action if they allow inaccurate or unreliable information and documents to flow into the mortgage market.

The letter is part of a plan the division announced it designed to address abuses by “rogue” mortgage lenders and brokers and prevent foreclosures.

“Several recent investigations have produced evidence that some mortgage lenders and brokers have purposely steered perspective consumers, often of low and moderate-income or limited English language ability, into loans that they cannot afford by using misleading tactics and, in some cases, committing fraud,” the division said in an announcement.

Many of the most egregious violations have involved reduced documentation loans, including stated income, and no income, no asset loans, the letter said.

“In the past, these loans were limited in their availability and utilized primarily by certain consumers who, among other things, had excellent credit histories, could make sizable downpayments and had other assets,” the commissioner wrote. “Over the last few years, with the continued development of the subprime market, reduced documentation mortgage loans are being more frequently marketed to individuals that marginally qualify for mortgage credit and do not have other mitigating factors.”

The division reminded originators that such they are responsible for ensuring that the stated income is accurate; utilizing procedures to verify employment when necessary; identifying all risks associated with reduced doc loans and having adequate controls to ensure full legal compliance; ensuring that third party originators adequately and compliantly document loans or otherwise immediately investigate and terminate the relationship with that party.

The division warned that it will take immediate and severe action against an entity for a mortgage in which it intentionally inflates income, or in which the borrowers were encouraged to overstate income or were steered from a conventional, full-doc loan to a reduced doc loan in order to qualify. Those who process applications suspected of having inaccurate income, insufficient income to repay the loan, or a source of income not listed on the application also makes entities subject to regulatory action.

“Putting these abusive companies out of business will be the minimum action we will take,” the commissioner said in the announcement.

On the same day the letter was issued, the division said it ordered four licensed mortgage brokers and three unlicensed companies to cease and desist.

One of those companies was Achieva Home Loans Inc., which an onsite inspection allegedly found the company had submitted to lenders applications in which the stated gross monthly income differed significantly from the gross income as set forth in other pertinent documentation.

Coco Salazar is an assistant editor and staff writer for

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