Few Mass. brokers hit for abuses

The Division of Banks took its most stringent actions - revoking, suspending, or forcing a license surrender - against 43 mortgage brokerage firms between Jan. 1, 2007, and June 1 this year.

That is less than 3 percent of the firms it licenses and puts Massachusetts last compared with the number of similar actions taken by the other New England states. During the same time, Connecticut took serious punitive action against 24 percent of its licensees, and New Hampshire, 11 percent of its mortgage brokers and lenders, the analysis shows.

While Massachusetts, compared with the other New England states, ranks last in the number of revocations, suspensions, and forced surrenders against mortgage brokers and lenders, it ranks second in its foreclosure rate.

The Division of Banks has broad legal and regulatory authority not only to deny a mortgage broker license but to sanction firms brokering loans considered by the division to be unfair to consumers. Unfair practices include having consumers sign blank or incomplete mortgage documents; falsifying income or asset information; making false promises to persuade a buyer to take out a mortgage; and misrepresenting or omitting critical information about loan terms.

No one knows the exact number of brokers and lenders engaged in unfair or deceptive practices, but state regulators have acknowledged since at least 2007 that those practices have been a significant problem in Massachusetts and a major factor in contributing to foreclosures, in addition to the deep recession and widespread unemployment.

John Taylor of the National Community Reinvestment Coalition, which assists victims of deceptive mortgage practices, contends state regulators should have been much more aggressive in policing the mortgage industry, especially the brokers dealing in subprime mortgages, usually high-interest loans given to applicants with poor credit.

“A lot of the licensees [brokers and lenders] have thus far gotten away with murder when it comes to these foreclosures,’’ Taylor said.

An April 2007 report issued by the Division of Banks acknowledged that subprime loans were “at the center of the mortgage lending and foreclosure crisis.’’

Several months later, a state audit found the division lacked the resources to fulfill its oversight function even as it handed out more than 1,000 additional mortgage licenses. The audit recommended that the division double the number of staff devoted to conducting examinations of brokers and lenders. An examination involves inspecting the licensees’ books, reviewing loans made, and ensuring compliance with laws and regulations.

The division successfully lobbied the Legislature for more funding and boosted the number of examiners permanently assigned to scrutinizing the mortgage industry from around 28 to 35. But despite that extra staffing, the number of examinations of mortgage brokers and lenders dropped by 74 between 2006 and 2008. Not until 2008 did the agency set up a special unit to investigate mortgage fraud.

Compared with the other New England states, since 2007, Massachusetts has had more than double the number of examiners assigned to the mortgage industry, but, with the exception of Connecticut, has had more brokers and lenders to regulate.

Division of Banks Commissioner Steven Antonakes declined repeated requests to be interviewed, but David Cotney, the division’s chief operating officer, defended the agency’s enforcement work. He said other states appear more aggressive because they pull mortgage licenses for infractions that Massachusetts considers minor, like failing to file an annual report.

“I think we have an excellent record of taking action when we’ve found a problem and keeping people out of the business so they won’t perpetrate this fraud,’’ Cotney said.

Cotney could not say how many of Massachusetts’ formal actions, ones that are more serious and made public, relate to predatory lending practices, in which brokers lured borrowers into mortgages they could not afford. But he said the division is so aggressive in weeding out unethical mortgage brokers and lenders that problems do not often rise to the formal disciplinary stage.

The division has stripped brokers of their licenses for a number of legal and regulatory violations. In 2009, state regulators suspended the license of a Plymouth mortgage brokerage for, among other things, making false or misleading representations of a borrower’s income on loan applications. In 2007, a Haverhill broker had her license suspended for failing to report that it had been revoked in New Hampshire, and for denying regulators in Massachusetts access to her office. That same year, a broker in Brockton lost his license for altering financial statements, among other violations.

Cotney said that during the past 2 1/2 years, the agency has taken 210 informal actions - less serious disciplinary actions - such as convincing a company to hire auditors or revise internal practices. Massachusetts keeps those actions secret.

Housing and banking professionals who interact frequently with the Division of Banks said the agency is considered aggressive when it comes to strengthening policy and legislation.

But Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, said the division may have focused more during the housing crisis on the other financial institutions and professionals it oversees.

“Maybe the Division of Banks wasn’t nimble enough to switch and pull resources from the banking, the credit union world, and say, ‘Our major concern has got to be the mortgage companies,’ ’’ Callahan said.

The Chelsea firm Your Home Mortgage was the subject of two complaints to the Division of Banks in 2007 that resulted in no formal action. Virginia Pratt, a foreclosure prevention counselor, raised numerous concerns in writing to the division about the firm’s lending to two immigrants who had very little income.

In one case, Pratt said, Your Home Mortgage did not fully disclose the terms of the loans. State regulations require that. The division responded by saying the case did not warrant agency action.

Pratt also wrote to the division on behalf of Aresenia Rodrigues. Pratt stated that Rodrigues, who was on disability and living in public housing before obtaining a mortgage, was “very much taken advantage of’’ by Your Home Mortgage.

Pratt told the agency the brokerage firm gave Rodrigues false information about the loan terms and told Rodrigues the closing attorney would represent her, when in fact he represented the lender.

Rodrigues has sued Your Home Mortgage, alleging the firm rushed her into signing a blank mortgage application for a $485,000 home in Somerville. At the time, Rodrigues earned $27,000 annually.

The Division of Bank’s regulations ban brokers from misleading buyers and having them sign blank applications.

When asked about Rodrigues’s complaint, Cotney said the agency had no record of it, but later a division spokesman acknowledged receipt of the complaint. No formal action was taken against Your Home Mortgage. Informal actions are not made public. Cotney declined to comment on the complaints against Your Home Mortgage.

Your Home Mortgage is run by brothers Diego and Mauricio Osorno. Reached by phone, Diego declined to comment on the allegations in the complaints or the lawsuit. In an interview at his Chelsea office, Mauricio Osorno denied the allegations.

“I can get you more than 100 or 200 letters from people who can vouch for our name and our reputation,’’ Mauricio Osorno said.

In June, the Osorno brothers voluntarily surrendered their mortgage brokerage license, saying they are insolvent, records of the Massachusetts secretary of state show.

Rodrigues’s lawsuit against Your Home Mortgage and a real estate firm called Su Casa Y Mas, also owned by the Osorno brothers, includes a second plaintiff. Carmen Mendoza, a factory worker from El Salvador, said a Su Casa employee assured her she could afford a $500,000 home in Somerville despite her $25,000 income, the suit states. She also alleges the Osornos’ employees told her to put her brother and son on the mortgage application to make sure she would qualify.

Your Home Mortgage arranged two mortgages for Mendoza for the $489,000 two-family Somerville home she eventually bought.

Mendoza did not fully understand the terms of the loans, and when she protested the $4,000 monthly payments, she was told she would lose her deposit, the lawsuit said.

“It was a terrible experience,’’ Mendoza said as she headed out for her night-shift job.

Since 2005, nearly half of the 11 residential sales brokered by Su Casa Y Mas, in which the firm represented both buyer and seller in the same transaction, have faced foreclosure action, according to real estate records.

In the lawsuit on behalf of Mendoza and Rodrigues, Greater Boston Legal Services lawyer Nadine Cohen said Your Home Mortgage brokered loans in violation of the state’s consumer protection law.

“What troubles me most is that poor, unsophisticated, often non-English-speaking people put their hard-earned money into buying a house and really tried their best to make their payment, but they were doomed from the beginning,’’ said Cohen.

The New England Center for Investigative Reporting at Boston University is an investigative reporting collaborative codirected by Joe Bergantino and Maggie Mulvihill. Student contributors include Molly Connors, Nina Cromeyer, Ben Ezickson, Sydney Lupkin, Dan Rowinski, and Lauren Winowich. Other NECIR media partners are WBUR (NPR), New England Cable News, The Warren Group, New England Ethnic News, and El Planeta. NECN’s and WBUR’s broadcast versions of this story are available on boston.com.