7 mortgage brokers shut down by state

The state yesterday shut down seven mortgage brokers in Massachusetts and banned a variety of deceptive lending practices in what regulators called a sweeping crackdown on rogue brokers who steer customers in poor urban neighborhoods to loans they cannot afford.

After finishing about a third of the examinations, regulators closed four licensed brokers and three unlicensed shops. The licensed brokers had inflated assets of borrowers so they could qualify for loans, said Commissioner of Banks Steven L. Antonakes . The brokers must win appeals to stay in business. The other operations were shut down because they did not have state licenses; they would have to obtain licenses to operate.

Regulators have also gathered evidence of other abuses in the industry, including brokers discouraging homebuyers from hiring lawyers to scrutinize mortgage documents and persuading borrowers to sign blank loan applications. As a result, the division has adopted emergency, and permanent, regulations banning fraudulent practices, particularly scams that target poor consumers with limited English skills.

``We're trying to scare the hell out of people and say, `This isn't going to be tolerated, and if we find evidence of this, it's game over -- you're out of business,' " said Antonakes.

The division has also started a fraud hotline (800-495-2265 extension 1501 ), and Antonakes said the state should consider licensing the 30,000 to 40,000 mortgage loan officers in Massachusetts. Currently, the state licenses only mortgage firms, which number nearly 1,400.

Antonakes said the inspection of the 60 or so remaining brokers will be completed in about a month and predicted that more businesses will be closed.

Gary Klein, a Boston lawyer who has represented borrowers in lawsuits alleging fraud, said regulators had merely addressed ``the tip of the iceberg."

``What I've seen over the last 20 years is there are waves and waves of problems and every few years there's an effort to enforce the laws," he said. ``The wrongdoers crawl under a rock, and a year or two later, they all come back into business with new names."

Instead of licensing loan officers or spelling out forbidden practices, he said, the state should find a way to compensate defrauded homebuyers, perhaps by requiring mortgage brokers to set aside money when they do business.

About 50 examiners -- half the division's entire complement -- began conducting surprise inspections Aug. 28 in Brockton, Fall River, Lawrence, Lynn, Lowell, New Bedford, Springfield, and Worcester and the neighborhoods of Dorchester, Mattapan, Jamaica Plain, and Roxbury in Boston, Antonakes said. Those communities have large concentrations of poor residents, many of them immigrants whose limited knowledge of English make them vulnerable to fraud.

The examiners focused on ``reduced documentation loans," mortgage applications that require little or no income documentation. Those loans were originally intended for borrowers with top-notch credit records and large assets, but have often been marketed in recent years to buyers who would not otherwise qualify for loans because their incomes are too low.

As a result, the division yesterday explicitly banned nearly a dozen fraudulent practices, including falsifying income on applications, signing applications on behalf of borrowers, and discouraging customers from seeking a lawyer's advice. While many of these practices are already illegal, regulators wanted to ``send as clear a message as possible," Antonakes said.

The state also issued orders closing all the Massachusetts offices of four licensed brokers: Achieva Home Loans Inc., which is based in Worcester and has a branch in Webster; Equity Solutions Inc., also based in Worcester, with a branch in North Grafton; Fintera Capital Corp., which is based in Natick and has branches in Lynn and in Florida; and National Lending Corp., which is based in Houston and has branches in Brockton, Dorchester, Lawrence, Lowell, Randolph, Saugus, and Woburn.

The four brokerage firms have 20 days to appeal the orders.

Examiners found instances in which all four brokers had misrepresented the income or debts of borrowers, regulators said. National Lending also allegedly did business under the direction of unapproved branch managers, failed to notify the state that it had closed a branch, and prevented examiners from reviewing financial records, which, Antonakes said, is ``the biggest red flag you can imagine."

Officials at Achieva, National Lending, and Fintera said yesterday they intended to appeal the orders.

Jason Fontaine, president of Achieva, called the allegations that the company inflated borrowers' incomes ``ridiculous" and said he was stunned to receive a fax yesterday morning ordering the firm to close. He said examiners reviewed his files for a couple of days last week but never asked him questions.

``I'm furious with this," he said. ``They just didn't do a thorough job. . . . This is absolutely 100 percent inaccurate."

Howard Nguyen , operations manager at National Lending's headquarters in Houston, said he will look into the allegations and his company will let examiners look at its books in hopes of keeping all its branches open. Julio Silva , who manages the branch in Saugus, said he was unaware that the state's action applied to his office, which remained open yesterday; most of the improper practices cited in the cease-and-desist order pertained to the company's Lawrence and Lowell offices, he noted.

But Antonakes said examiners found abuses in all the branch offices of the four licensed brokers.

Officials at Equity could not be reached for comment.

Regulators also ordered National Lenders Inc. in Lynn, a branch of New York Mortgage Company in Lowell, and branches of ARBC Financial Mortgage Corp. in Lowell and Lynn to stop operating without licenses.

Antonakes said the shutdown of two mortgage brokers in Lawrence on Aug. 15, prompted by Globe inquiries about possible mortgage fraud, was a ``test case" that led the state to take wider action.

Attorney General Thomas F. Reilly praised the banking division's action, and said his office filed lawsuits last week against brokers in Arlington and Dorchester.

``We will continue our efforts to address this egregious conduct," Reilly, who is running for governor, said in a statement.

Jonathan Saltzman can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it . Maria Sacchetti can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it