By Mark Jewell, AP Business Writer | September 8, 2006
BOSTON —State regulators ordered 11 firms to stop doing mortgage business after investigators found evidence that brokers steered prospective home buyers into mortgages they couldn't afford, and lenders looked the other way.
The Division of Banking on Friday also made emergency amendments to state regulations governing the industry, and sent a letter to brokers, lenders and financial institutions statewide threatening further action should more evidence of wrongdoing emerge.
The division said recent surprise investigations of lenders and brokers turned up evidence that some firms intentionally steered customers into home loans they couldn't afford, typically by inflating borrowers' actual income in application documents.
Also, some lenders who bundle mortgage loans and sell them as securities on so-called "secondary markets" failed to correct the income discrepancies before selling the bundled mortgages, Commissioner of Banks Steven Antonakes said.
"Some of the lenders have perhaps not been doing the level of due diligence they should be doing, and underwriting the loan," he said.
Many of the abuses involved customers with low- to moderate-incomes, often with limited ability to speak English, he said.
The division established a mortgage fraud hotline for consumers to call if they believe they have been victims of unfair mortgage practices: 800-495-2265, ext. 1501.
The 11 firms that were sent "cease-and-desist" letters included mortgage companies that were properly licensed, and parties acting as brokers even though they weren't licensed, the division said. The letters require the businesses to stop soliciting or accepting mortgage loan applications, and place any pending applications with a qualified broker or lender. Fees collected from consumers must be placed in escrow.
Two industry organizations, the Massachusetts Mortgage Association and Massachusetts Bankers Association, issued statements welcoming the enforcement actions and pledging to join state regulators at a statewide mortgage industry summit in the fall to discuss the issues.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said in an interview that his group "applauds the division for taking a proactive approach.
"We have sort of come upon a perfect storm in the industry, where interest rates have cooled and real estate prices are high," Cuff said. "In a competitive atmosphere, everyone is fighting for business, and it's appropriate to regulate the industry."
Below is a list of firms that were sent cease-and-desist letters:
Hmmm… too late. My guess is that regulators are in full-blown CYA mode. What’s really pathetic about this, is that when the next boom comes around, several years from now, mortgage brokers will go back to these same predatory practices. And, like now, regulators will be too late to act.
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