DOB: Mortgage Lenders Network USA, Inc., Temporary Order to Cease and Desist, Notice of Intent to Issue Order to Cease and Desist, Impose Civil Penalty and Right to Hearing

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IN THE MATTER OF:

MORTGAGE LENDERS NETWORK
USA, INC.

    ("Respondent")


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TEMPORARY ORDER TO
CEASE AND DESIST

NOTICE OF INTENT TO ISSUE
ORDER TO CEASE AND DESIST

NOTICE OF INTENT TO IMPOSE
CIVIL PENALTY

AND

NOTICE OF RIGHT TO HEARING


I. LEGAL AUTHORITY AND JURISDICTION

The Banking Commissioner (“Commissioner”) is charged with the administration of Part I of Chapter 668, Sections 36a-485 to 36a-534a, inclusive, of the Connecticut General Statutes, “Mortgage Lenders, Brokers and Originators”.

Pursuant to the authority granted by Section 36a-17 of the Connecticut General Statutes, the Commissioner, through the Consumer Credit Division (“Division”) of the Department of Banking, has investigated the activities of Respondent to determine if it has violated, is violating or is about to violate the provisions of the Connecticut General Statutes.  Section 36a-17(a) of the Connecticut General Statutes provides:

The commissioner, in the commissioner’s discretion, may make such public or private investigations or examinations within or outside this state, concerning any person subject to the jurisdiction of the commissioner, as the commissioner deems necessary to carry out the duties of the commissioner.

Section 36a-52(a) of the Connecticut General Statutes provides, in pertinent part:

Whenever it appears to the commissioner that any person has violated, is violating or is about to violate any provision of the general statutes within the jurisdiction of the commissioner, . . . the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt.  The notice shall be deemed received by the person on the earlier of the date of actual receipt, or seven days after mailing or sending.  Any such notice shall include:  (1) A statement of the time, place, and nature of the hearing; (2) a statement of the legal authority and jurisdiction under which the hearing is to be held; (3) a reference to the particular sections of the general statutes . . . alleged to have been violated; (4) a short and plain statement of the matters asserted; and (5) a statement indicating that such person may file a written request for a hearing on the matters asserted within fourteen days of receipt of the notice.  If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice, unless the person fails to appear at the hearing.  After the hearing, the commissioner shall determine whether an order to cease and desist should be issued against the person named in the notice.  If the person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner shall issue an order to cease and desist against the person.  No such order shall be issued except in accordance with the provisions of chapter 54.

Section 36a-52(b) of the Connecticut General Statutes provides:

If the commissioner finds that the public welfare requires immediate action, the commissioner may incorporate a finding to that effect in the notice sent in accordance with subsection (a) of this section and issue a temporary order requiring the person to cease and desist from the activity which constitutes such alleged violation.  Such temporary order shall become effective on receipt and, unless set aside or modified by a court, shall remain in effect until the effective date of a permanent order or dismissal of the matters asserted in the notice.

Section 36a-50(a) of the Connecticut General Statutes provides, in pertinent part:

(1)  Whenever the commissioner finds as the result of an investigation that any person has violated any provision of the general statutes within the jurisdiction of the commissioner, . . . the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt.  The notice shall be deemed received by the person on the earlier of the date of actual receipt or seven days after mailing or sending.  Any such notice shall include:  (A) A statement of the time, place, and nature of the hearing; (B) a statement of the legal authority and jurisdiction under which the hearing is to be held; (C) a reference to the particular sections of the general statutes . . . alleged to have been violated; (D) a short and plain statement of the matters asserted; (E) the maximum penalty that may be imposed for such violation; and (F) a statement indicating that such person may file a written request for a hearing on the matters asserted within fourteen days of receipt of the notice.

(2)  If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice unless such person fails to appear at the hearing.  After the hearing, if the commissioner finds that the person has violated any such provision, . . . the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by law, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person.  If such person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner may, as the facts require, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person.

(3)  Each action undertaken by the commissioner under this subsection shall be in accordance with the provisions of chapter 54.


II.  MATTERS ASSERTED

1. Respondent is a Delaware corporation with its principal place of business at 213 Court Street, 11th Floor, Middletown, Connecticut.
2. Respondent is a “first mortgage lender” within the meaning of Section 36a-485(5) of the Connecticut General Statutes, and a “first mortgage broker” within the meaning of Section 36a-485(3) of the Connecticut General Statutes.
3. Respondent is a “secondary mortgage lender” within the meaning of Section 36a-510(9) of the Connecticut General Statutes, and a “secondary mortgage broker” within the meaning of Section 36a-510(7) of the Connecticut General Statutes.
4. On September 21, 2006, for the October 1, 2006 through September 30, 2008, licensing period, Respondent filed with the Commissioner renewal applications for first mortgage lender/broker license numbers 3689, 3951 and 6849.
5. On September 21, 2006, for the October 1, 2006 through September 30, 2008, licensing period, Respondent filed with the Commissioner renewal applications for secondary mortgage lender/broker license numbers 3658, 3958 and 6850.
6. During the period from December 21 to December 29, 2006, Respondent made at least 75 loans secured by a first mortgage on real property located in Connecticut, in which it did not pay the loan proceeds to the mortgagor, the mortgagor’s attorney or the mortgagee’s attorney at the time of execution of the loan or at the termination of any right to rescind the transaction under 12 CFR 226.
7. During the period from December 22 to December 29, 2006, Respondent made at least 18 loans secured by a secondary mortgage on real property located in Connecticut in which Respondent agreed to fund but failed to timely disburse the loan proceeds.
8. During the period from July 13, 2006 to January 2, 2007, Respondent made at least 1,409 loans secured by a mortgage on real property located in states other than Connecticut in which Respondent agreed to fund but failed to timely disburse the loan proceeds.
9. During the period from December 29, 2006 to January 3, 2007, Respondent issued commitments for at least 23 loans to be secured by a first or secondary mortgage on real property located in Connecticut, which it failed to close.
10.

On December 13, 2006, the Division requested that Respondent provide to the Division complete and accurate information pertaining to its loan portfolio; complete and accurate financial statements; warehouse line account statements; a statement of good standing from each of its warehouse line providers, including such providers’ contractual relationship with Respondent; a statement from each warehouse line provider indicating the amount currently outstanding, and the currently available funds and total line of credit available for future use; and specific information regarding the funding of loans to impacted borrowers.  Respondent failed to provide the requested information.

11. On December 29, 2006, pursuant to Section 4-182(c) of the Connecticut General Statutes, the Division sent a letter to Respondent giving Respondent an opportunity to show compliance with all lawful requirements for retention of its first mortgage lender/broker and secondary mortgage lender/broker licenses in Connecticut, which letter included a request for a written statement from each of Respondent’s warehouse lenders detailing such lender’s current position regarding its contractual relationship with Respondent.
12. On January 2, 2007, Respondent responded to the December 29, 2006 letter, but did not provide the requested information.  The Commissioner was not persuaded that Respondent showed any such compliance.
13. During the period from March 15, 2005 to August 26, 2006, Respondent refinanced at least four first mortgage loans for Connecticut consumers and, in connection with such refinancings, imposed prepaid finance charges that when aggregated with the prepaid finance charges imposed on previous financings by Respondent within two years of the current refinancing exceeded the greater of five percent of the principal amount of the initial loan or $2,000.
14. On July 26, 2006, Respondent refinanced at least one first mortgage loan for Connecticut consumers and, in connection with such refinancing, imposed prepaid finance charges that exceeded the greater of five percent of the principal amount of the initial loan or $2,000.
15. During the period from August 2004 to August 2006, Respondent employed or retained at least 40 originators without first registering such originators under Sections 36a-485 to 36a-498a, inclusive, or 36a-510 to 36a-524, inclusive, of the Connecticut General Statutes.


III.  STATUTORY BASIS FOR TEMPORARY ORDER TO CEASE AND DESIST,
ORDER TO CEASE AND DESIST AND IMPOSITION OF CIVIL PENALTY

Section 36a-17(d) of the Connecticut General Statutes provides, in pertinent part:

Any person who is the subject of any such investigation . . . shall . . . furnish unrestricted access to all areas of its principal place of business or wherever records may be located; and otherwise cooperate with the commissioner.

Section 36a-486(b) of the Connecticut General Statutes provides, in pertinent part:

No licensee shall employ or retain an originator without first registering such originator under sections 36a-485 to 36a-498a, inclusive, provided such registration shall not be required for any originator who is registered by such licensee under sections 36a-510 to 36a-524, inclusive.


Section 36a-494(b) of the 2006 Supplement to the General Statutes, provides, in pertinent part:

Whenever it appears to the commissioner that any person has violated, is violating or is about to violate any of the provisions of sections 36a-485 to 36a-498a, inclusive, . . . or any licensee . . . has failed to perform any agreement with a borrower, . . . the commissioner may take action against such . . . licensee . . . in accordance with sections 36a-50 and 36a-52.

Section 36a-498a of the Connecticut General Statutes, as amended by Public Act 06-45, provides, in pertinent part:

No licensee under section 36a-489 . . . making a first mortgage loan shall charge, impose or cause to be paid, directly or indirectly, prepaid finance charges that exceed in the aggregate, the greater of five per cent of the principal amount of the loan or two thousand dollars.  If the proceeds of the loan are used to refinance an existing loan, the aggregate of the prepaid finance charges for the current refinancing and any previous financings by such licensee . . . within two years of the current refinancing shall not exceed the greater of five per cent of the principal amount of the initial loan or two thousand dollars.

Section 36a-511(b) of the Connecticut General Statutes provides, in pertinent part:

No licensee shall employ or retain an originator without first registering such originator under sections 36a-510 to 36a-524, inclusive, provided such registration shall not be required for any originator who is registered by such licensee under sections 36a-485 to 36a-498a, inclusive.

Section 36a-517(b) of the 2006 Supplement to the General Statutes provides, in pertinent part:

Whenever it appears to the commissioner that any person has violated, is violating or is about to violate any of the provisions of sections 36a-510 to 36a-524, inclusive, or any licensee . . . has failed to perform any agreement with a borrower, . . . the commissioner may take action against such . . . licensee . . . in accordance with sections 36a-50 and 36a-52.

Section 36a-758 of the Connecticut General Statutes provides:

Any financial institution, as defined in subdivision (1) of section 36a-41, or any other person who makes any loan (1) for the purchase of real property to be secured by a first mortgage on real property located in this state or (2) to refinance an existing indebtedness secured by a mortgage, which loan is to be secured by a first mortgage on real property located in this state shall, at the time of the execution of such loan or at the termination of any right to rescind the loan transaction under 12 CFR 226, whichever is later, pay the loan proceeds to the mortgagor, to the mortgagor’s attorney or to the mortgagee’s attorney by a certified, bank treasurer’s or cashier’s check or by means of wire transfer.

1. Respondent’s failure to timely disburse the loan proceeds in at least 75 loans secured by a first mortgage on real property located in Connecticut, as more fully described in paragraph 6 of the Matters Asserted, constitutes at least 75 failures to timely fund a loan transaction in violation of Section 36a-758 of the Connecticut General Statutes.  Such violations form the basis to issue an order to cease and desist pursuant to Section 36a-52(a) of the Connecticut General Statutes and to impose a civil penalty pursuant to Section 36a-50(a) of the Connecticut General Statutes.
2. Respondent’s failure to timely disburse the loan proceeds in at least 18 loans secured by a secondary mortgage on real property located in Connecticut and 1,409 loans secured by a mortgage on real property located in states other than Connecticut, as more fully described in paragraphs 7 and 8 of the Matters Asserted, constitutes a failure to perform any agreement with a borrower within the meaning of Section 36a-494(b) of the 2006 Supplement to the General Statutes.  Such conduct forms the basis to issue an order to cease and desist pursuant to Sections 36a-494(b) and 36a-517(b) of the 2006 Supplement to the General Statutes and Section 36a-52(a) of the Connecticut General Statutes, and to impose a civil penalty pursuant to Sections 36a-494(b) and 36a-517(b) of the 2006 Supplement to the General Statutes and Section 36a-50(a) of the Connecticut General Statutes.
3. Respondent’s failure to close at least 23 loans for which it had issued commitments, as more fully described in paragraph 9 of the Matters Asserted, constitutes a failure to perform any agreement with a borrower within the meaning of Section 36a-494(b) of the 2006 Supplement to the General Statutes.  Such conduct forms the basis to issue an order to cease and desist pursuant to Sections 36a-494(b) and 36a-517(b) of the 2006 Supplement to the General Statutes and Section 36a-52(a) of the Connecticut General Statutes, and to impose a civil penalty pursuant to Sections 36a-494(b) and 36a-517(b) of the 2006 Supplement to the General Statutes and Section 36a-50(a) of the Connecticut General Statutes.
4. Respondent’s failure to cooperate with the Commissioner pursuant to Section 36a-17(d) of the Connecticut General Statutes, as more fully described in paragraphs 10, 11 and 12 of the Matters Asserted, forms the basis to issue an order to cease and desist pursuant to Section 36a-52(a) of the Connecticut General Statutes and to impose a civil penalty pursuant to Section 36a-50(a) of the Connecticut General Statutes.
5. Respondent’s imposition of prepaid finance charges in connection with the refinancing of at least five first mortgage loans that exceeded the greater of five percent of the principal amount of the initial loan or $2,000, as more fully described in paragraphs 13 and 14 of the Matters Asserted, constitutes five violations of Section 36a-498a of the Connecticut General Statutes, as amended.  Such violations form the basis to issue an order to cease and desist pursuant to Section 36a-494(b) of the 2006 Supplement to the General Statutes and Section 36a-52(a) of the Connecticut General Statutes, and to impose a civil penalty pursuant to Section 36a-494(b) of the 2006 Supplement to the General Statutes and Section 36a-50(a) of the Connecticut General Statutes.
6. Respondent’s employing or retaining of at least 40 unregistered originators, as more fully described in paragraph 15 of the Matters Asserted, constitutes 40 violations of Section 36a-486(b) or 36a-511(b) of the Connecticut General Statutes.  Such violations form the basis to issue an order to cease and desist pursuant to Section 36a-494(b) of the 2006 Supplement to the General Statutes and Section 36a-52(a) of the Connecticut General Statutes, and to impose a civil penalty pursuant to Section 36a-494(b) of the 2006 Supplement to the General Statutes and Section 36a-50(a) of the Connecticut General Statutes.

IV.  NOTICE OF INTENT TO ISSUE ORDER TO CEASE AND DESIST,
NOTICE OF INTENT TO IMPOSE CIVIL PENALTY
AND NOTICE OF RIGHT TO HEARING

WHEREAS, the Commissioner has reason to believe that Respondent has engaged in acts or conduct which constitutes sufficient grounds to issue an order to cease and desist against Respondent pursuant to Section 36a-52(a) of the Connecticut General Statutes and Sections 36a-494(b) and 36a-517(b) of the 2006 Supplement to the General Statutes, and to impose a civil penalty against Respondent for each violation pursuant to Section 36a-50 of the Connecticut General Statutes and Sections 36a-494(b) and 36a-517(b) of the 2006 Supplement to the General Statutes.

NOW THEREFORE, notice is hereby given to Respondent that the Commissioner intends to:  (1) issue an order requiring Respondent to CEASE AND DESIST from violating Sections 36a-17(d), 36a-486(b) or 36a-511(b) and 36a-758 of the Connecticut General Statutes, and Section 36a-498a of the Connecticut General Statutes, as amended by Public Act 06-45; and (2) impose a CIVIL PENALTY upon Respondent not to exceed One Hundred Thousand Dollars ($100,000) per violation, or a maximum civil penalty of Seven Million Six Hundred Thousand Dollars ($7,600,000), subject to Respondent’s right to a hearing on the allegations set forth above.

A hearing will be granted to Respondent if a written request for a hearing is received by the Department of Banking, Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following its receipt of this Temporary Order to Cease and Desist, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing as set forth in Sections 36a-52 and 36a-50 of the Connecticut General Statutes.  This Temporary Order to Cease and Desist, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing shall be deemed received on the earlier of the date of actual receipt, or seven days after mailing or sending.  The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address.  If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”.  Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4-177 of the Connecticut General Statutes and Section 36a-1-21 of the Regulations of Connecticut State Agencies.  If a hearing is requested, the hearing will be held on March 13, 2007, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.

The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes, unless Respondent fails to appear at the requested hearing.  At such hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.

If Respondent does not request a hearing within the time prescribed, the Commissioner will issue an order that Respondent cease and desist from violating Sections 36a-17(d), 36a-486(b) and 36a-758 of the Connecticut General Statutes and Section 36a-498a of the Connecticut General Statutes, as amended, and may order that the maximum civil penalty be imposed upon Respondent.


V.  FINDING AND TEMPORARY ORDER REQUIRING RESPONDENT TO
CEASE AND DESIST FROM VIOLATING SECTIONS 36a-17(d) AND 36a-758
OF THE CONNECTICUT GENERAL STATUTES AND SECTION 36a-498a
OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED

WHEREAS, the Commissioner finds that the public welfare requires immediate action with respect to Respondent’s conduct, in that additional persons may be financially harmed by its unlawful failure to timely fund loans, imposition of excessive prepaid finance charges and failure to otherwise cooperate with the Commissioner.
 
THE COMMISSIONER THEREFORE ORDERS, pursuant to Section 36a-52(b) of the Connecticut General Statutes, that Respondent CEASE AND DESIST from further violations of Section 36a-498a of the Connecticut General Statutes, as amended, and Section 36a-758 of the Connecticut General Statutes, including failing to timely fund loan transactions and imposing excessive prepaid finance charges, and violations of Section 36a-17(d) of the Connecticut General Statutes by failing to provide information requested by the Commissioner.  This temporary order shall become effective upon receipt by Respondent and, unless set aside or modified by a court, shall remain in effect until the effective date of a permanent order or dismissal of the matters asserted in this notice.


Dated at Hartford, Connecticut
this 19th day of January 2007.           ________/s/_________
                                                    Howard F. Pitkin
                                                    Banking Commissioner

 

CERTIFICATION

I hereby certify that on this 19th day of January 2007, the foregoing Temporary Order to Cease and Desist, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing was sent by registered mail, return receipt requested to Mortgage Lenders Network USA, Inc., 213 Court Street, 11th Floor, Middletown, Connecticut 06457, registered mail no. RB028033454US; and via facsimile.


                                                    ________/s/_________
                                                    Doniel Kitt
                                                    Prosecuting Attorney
 


Administrative Orders and Settlements