Mortgage Daily

Published On: October 23, 2013

Prospect Mortgage LLC has agreed to pay millions of dollars to settle allegations that it misled borrowers about interest rate discounts. The company is also accused of using unlicensed branches and originators.

The Sherman Oaks, Calif.-based company allegedly engaged in deceptive practices in when it charged up-front discount points on new loans.

Borrowers were allegedly told that they would receive lower interest rates over the lives of their home loans.

But an investigation by the New York Department of Financial Services found that the lender never actually delivered the promised interest rate discounts, according to a news release Tuesday from New York Gov. Andrew M. Cuomo.

Among numerous other lending violations uncovered by the examination, the state claims Prospect Mortgage conducted business with unlicensed entities and originated through unlicensed branches and loan originators.

It also allegedly utilized unauthorized websites.

The state additionally claims that Prospect Mortgage failed to disclose loan origination information, issue commitment agreements and maintain compliant books and records.

“DFS’ examination also found that Prospect’s compliance systems need substantial improvement,” the announcement stated. “To help correct that and other problems, Prospect will provide DFS with quarterly compliance progress reports on corrective actions to ensure their organization is in compliance with New York laws and regulations.”

Prospect has agreed to pay a $3 million penalty. In addition, it will provide $427,155 in restitution to impacted borrowers.

It’s not the only multi-million-dollar settlement by the lender.

In July 2011, Prospect Mortgage agreed to pay $3.1 million to settle charges by the U.S. Department of Housing and Urban Development that is was operating “sham” branches.

The company operates a national network of branches and is licensed at “Prospect Lending” in New York.

Prospect Mortgage reportedly originated $12 billion last year on a national basis.

Parent Prospect Holding Company LLC disclosed last month a $150 million bond offering.

In November 2012, Prospect Mortgage hired former WMC Mortgage Corp. Chief Executive Officer Amy Brandt to lead an expansion of its correspondent lending and mortgage servicing capabilities.

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