State closes 2 mortgage firms in Lawrence
Brokers allegedly inflated incomes of applicants
The state has shut two licensed mortgage brokers in Lawrence and fined one of them $200,000 after regulators documented several cases of brokers inflating the incomes of borrowers on mortgage applications, sometimes doubling or tripling the sums, to help home buyers qualify for loans.
The Division of Banks issued cease-and-desist orders against Diamond Mortgage Services and Synergy Mortgage Group, both of which have offices in the same building in downtown Lawrence, after Globe inquiries about possible mortgage fraud in the former mill city of 82,000.
Diamond Mortgage has agreed to close its Lawrence office, to not open any other office in the state for two years, and to pay a $200,000 penalty. The agreement does not affect Diamond Mortgage's operations in Taunton, where it is based.
The state reached no agreement with Synergy Mortgage, which has 20 days to request a hearing to challenge a temporary cease-and-desist order or it will become permanent.
The division said the two brokers arranged loans they knew borrowers could not afford.
The division also ordered two other Lawrence firms to stop brokering mortgages without state licenses. The principal of one of those firms worked at Diamond Mortgage until she was dismissed 18 months ago.
Lawrence has had one of the biggest surges in foreclosure filings in Massachusetts, a trend that has alarmed city and state officials and community leaders. Filings rose almost 180 percent from mid-2004 to mid-2006, according to ForeclosuresMass Corp., which tracks foreclosures in Land Court.
Specialists have linked the surge at least partly to the marketing of adjustable-rate mortgages to poor Latino residents who are likely to default as interest rates rise. Because of the softening real estate market, many are unable to refinance their loans to lower their payments.
``Certainly if people are obtaining loans for which they have no reasonable basis for repaying those loans, there's a significant risk of foreclosure," said David Cotney, chief operating officer for the state Division of Banks, which issued the two cease-and-desist orders Friday and notified the Globe yesterday.
``I would certainly call this unfair and deceptive lending," he said.
Cotney said the division issues cease-and-desist orders against mortgage brokers about a half dozen times a year for violations of state lending laws, such as misleading advertising and excessive fees. There are more than 750 licensed mortgage brokers in the state.
Community leaders praised the state crackdown. They said they are concerned that unscrupulous mortgage brokers in Lawrence -- which is nearly 70 percent Hispanic, the highest percentage in the state, according to the US Census Bureau -- are preying on residents who do not speak English well and are naive about financing and eager to buy a house.
``I'm ecstatic," said Juan Bonilla, who counsels home buyers at Lawrence CommunityWorks Inc., a nonprofit community development group. ``I'm glad that someone was caught, and, hopefully, this will be an example to those that are taking advantage of the community with these loans. . . .
``We've been trying to educate the public about this issue for a long time," Bonilla said. ``It almost felt like we were alone."
Steven Newberger, president of Diamond Mortgage, said yesterday that he closed the Lawrence branch last month after state regulators approached him with concerns and that he fired Edward J. Hammonds as branch manager.
``They revealed some things to me that I found appalling," said Newberger, who declined to be more specific. ``I had no choice but to stop it. . . . A lot of things were done without my knowledge. That is why I severed the relationship. I couldn't be responsible for somebody who wasn't going to be responsible to me."
Hammonds, who opened Synergy Mortgage around Aug. 5, did not return several phone calls seeking comment yesterday.
The shutdown of Synergy (not affiliated with a company of the same name based in Annapolis, Md.) stemmed largely from Hammonds's activities at Diamond Mortgage, the state said.
The Division of Banks would not identify borrowers whose incomes were allegedly inflated, saying the information was confidential.
But one borrower, Fausto Nuñez of Lawrence, said in an interview that Diamond Mortgage helped him buy a house in 2003 after at least one mortgage lender had rejected him for having insufficient credit.
One of the loan applications said he earned $5,805 a month, when the family's gross income was really no more than $3,000 in any month, Nunez said. The application also said he had $10,000 in the bank. He actually had only about $2,500.
Nunez secured two loans totaling $289,000 and moved his wife and children into a yellow duplex in one of Lawrence's poorest neighborhoods. The monthly payment was more than he expected it would be from conversations with Diamond Mortgage brokers, he said, but he tried to keep up by working odd jobs in addition to his job at a mattress warehouse. Nuñez, who is not fluent in English, acknowledged he did not closely review the loan documents.
By last December, he defaulted on the loan and lost the house. ``I didn't know what they did," he said. ``But I'm paying for it."
The state inspected Diamond Mortgage's office on Essex Street in Lawrence on June 20, soon after the Globe questioned the division about potential fraud. The state inquiry then spilled over into the operations of Synergy.
The cease-and-desist orders said regulators found documents showing that Diamond repeatedly inflated the income of borrowers on mortgage applications by tens of thousands of dollars from the incomes detailed on applicants' payroll stubs.
One application, for example, said an unidentified borrower earned $49,200 a year, when the true income was $23,804, according to the orders. Another application said the borrower earned $63,600 a year, when the true income was $18,274.
In an Aug. 1 letter to the division, Hammonds sought to explain some of the discrepancies in the incomes listed on mortgage applications and those on payroll stubs, according to one of the cease-and-desist orders.
He said, for example, that he included income from a companion of one borrower, even though that person was not listed in documents as a coborrower. In another case, he said, he included income from a job for which the borrower had not started getting paid.
Regulators also investigated R&R Financial Services Inc. and Reyes Mortgage Co., after observing that the former was advertising mortgage brokerage services online and the latter had a storefront sign trumpeting such services. The state ordered the businesses to stop brokering mortgages without licenses.
The principal of R&R is Fanny Rodriguez, a former employee of Diamond Mortgage whom Newberger said he fired about 18 months ago.
However, Rodriguez said yesterday that she was terminated because Newberger feared she was going to strike out on her own.
``It hurts me that they are using me this way," she said. ``It's all a lie."
She runs R&R but denied brokering mortgages there. She said her husband, Cesar Reynoso, brokers mortgages there, acting as a Diamond Mortgage employee.
But Newberger denied that Reynoso works for his company.
Globe correspondent Catherine Elton contributed to this report. Jonathan Saltzman can be reached at jsaltzman@globe.com, and Maria Sacchetti at msacchetti@globe.com. 