California department of business oversight accusation

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State of California ? Department of Business Oversight

1 MARY ANN SMITH Deputy Commissioner

2 SEAN M. ROONEY Assistant Chief Counsel

3 JUDY L. HARTLEY (State Bar No. 110628) Senior Counsel

4 Department of Business Oversight 320 West 4th Street, Ste. 750

5 Los Angeles, California 90013-2344 Telephone: (213) 576-7604

6 Facsimile: (213) 576-7181

7 Attorneys for Complainant

8

BEFORE THE DEPARTMENT OF BUSINESS OVERSIGHT

9

OF THE STATE OF CALIFORNIA

10

11 In the Matter of:

)

12 THE COMMISSIONER OF BUSINESS

) ) CRMLA LICENSE NO.: 413-0456

13 OVERSIGHT,

) CFL LICENSE NO.: 603-H857 )

14

Complainant,

) ACCUSATION

)

15

v.

)

16

)

MORTGAGE SOLUTIONS OF COLORADO )

17 LLC,

)

18

Respondent.

) )

19

20

The Complainant is informed and believes, and based upon such information and belief,

21 alleges and charges Respondent as follows:

22

I.

23

Introduction

24

1. Mortgage Solutions of Colorado LLC (Mortgage Solutions) is licensed by the

25 Commissioner of Business Oversight (Commissioner) as a residential mortgage lender and servicer

26 pursuant to the California Residential Mortgage Lending Act ("CRMLA") (Fin. Code ? 50000 et

27 seq.). Mortgage Solutions has its principal place of business located at 5455 North Union

28 Boulevard, Colorado Springs, Colorado 80918. Mortgage Solutions currently has 14 branch office

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State of California ? Department of Business Oversight

1 locations under its CRMLA license. Mortgage Solutions employs mortgage loan originators in its

2 CRMLA business.

3

2. Mortgage Solutions is also licensed by the Commissioner as a finance lender pursuant

4 to the California Financing Law (CFL) (Fin. Code ? 22000 et seq.). Mortgage Solutions has its

5 principal place of business under the CFL also located at 5455 North Union Boulevard, Colorado

6 Springs, Colorado 80918. Mortgage Solutions has 1 branch office location under its CFL license.

7

II.

8

Trust Accounting Violations

9

3. On or about July 16, 2018, the Commissioner, by and through staff, commenced a

10 regulatory examination of the books and records of Mortgage Solutions under the CRMLA and the

11 CFL (2018 regulatory examination). The 2018 regulatory examination disclosed that Mortgage

12 Solutions had (i) failed to properly reconcile certain of its trust accounts due to shortages and/or

13 overages in several of its trust accounts in violation of Financial Code section 50314 and California

14 Code of Regulations, title 10, section 1950.314.1; (ii) commingled operating funds with trust monies

15 in violation of Financial Code section 50202, subdivision (a); and (iii) caused debit balances to exist

16 in borrower impound accounts in violation of California Code of Regulations, title 10, section

17 1950.314.6.

18

4. In 2018, Mortgage Solutions maintained the relevant trust accounts at Republic Bank

19 and Wells Fargo Bank. The relevant trust accounts were (i) Republic Bank trust account ending in

20 1069 for mortgage insurance premiums (MIP Account); (ii) Republic Bank trust account ending in

21 1115 for escrow funds collected at loan closing (Escrow Account); (iii) Republic Bank trust account

22 ending in 1895 for escrow holdbacks such as buydowns and rehabilitation funds (Escrow Holdback

23 Account); (iv) Republic Bank trust account ending in 5703 for 203K rehabilitation funds (203K

24 Account); (v) Republic Bank account ending in 1077 for VA appraisal funds (VA Appraisal

25 Account); (vi) Wells Fargo Bank trust account ending in 1284 for MIP funds (WB MIP Account);

26 and (vii) Wells Fargo Bank trust account ending in 6782 for appraisal funds (Appraisal Account).

27 The trust funds are to be held until time for disbursement to the tax authority, insurance company,

28 contractor, etc.

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1

5. A review of the trust account reconciliations for April 30, 2018 disclosed that

2 Mortgage Solutions had failed to properly reconcile the above described trust accounts for the period

3 ended April 30, 2018. The MIP Account, Escrow Account and Escrow Holdback Account had

4 shortages totaling $477,782.27 and the 203K Account, Appraisal Account and VA Appraisal

5 Account had overages totaling $209,499.41. At least $25,154.88 of the trust account shortages can

6 be attributed to debit balances (overdrafts) in individual borrower escrow impound accounts.

7

6. A trust account shortage indicates there are insufficient funds available to pay all the

8 liabilities. California Code of Regulations, title 10, section 1950.314.6 prohibits debit balances

9 (shortages) in any loan or servicing account maintained by CRMLA licensees. Mortgage Solutions

10 corrected the shortages in the MIP, Escrow Account and Escrow Holdback Accounts on or about

11 August 1, 2018.

12

7. A trust account overage indicates that company operating funds have been

13 commingled with trust funds. Financial Code section 50202, subdivision (a) prohibits the

14 commingling of company funds with trust funds. Mortgage Solutions corrected the overages in the

15 203K, Appraisal and VA Appraisal Accounts on or about August 1, 2018.

16

8. Mortgage Solutions was instructed to submit its September 30, 2018 financials to

17 include the balance sheet, trial balance, trust account reconciliation, bank account statement, and

18 corresponding trust liability subsidiary ledgers for the above described trust accounts. A review of

19 the trust account reconciliations for September 30, 2018 disclosed that Mortgage Solutions

20 continued in its failure to properly reconcile the trust accounts. For the period ended September 30,

21 2019, the MIP Account, the WB MIP Account, Escrow Account, Appraisal Account and VA

22 Appraisal Account had shortages totaling $151,973.93. The entire shortage in the MIP, WB MIP,

23 Escrow, Appraisal and VA Appraisal Accounts could be attributed to debit balances (overdrafts) in

24 individual borrower escrow impound accounts in violation of California Code of Regulations, title

25 10, section 1950.314.6.

26 ///

27 ///

28 ///

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1

III.

2

Per Diem Interest Overcharges

3

9. The 2018 regulatory examination further disclosed that in 7 of 25 funded loans

4 reviewed, or approximately 28%, Mortgage Solutions was charging the borrower per diem interest in

5 excess of one day prior to the disbursement of loan proceeds in violation of California Financial

6 Code section 50204, subdivision (o) for loans made under its CRMLA license and Financial Code

7 section 22161, subdivision (a)(5), Business and Professions Code section 17200, Civil Code section

8 2948.5 and California Code of Regulations, title 10, section 1457 (d) for loans made under its CFL

9 license. A California Additional Per Diem Interest Charge Disclosure was found in the 5 loans with

10 a Monday or after bank holiday disbursement of loan proceeds, but the disclosures were not prepared

11 in accordance with California Civil Code section 2948.5, subdivision (b) or were not applicable, and

12 therefore were not considered in calculating per diem interest charges. The per diem interest

13 overcharges averaged $71.00 per loan. The range of per diem interest overcharges was between

14 $18.31 and $200.17. The range of days that interest was overcharged was between 1 and 6 days.

15

10. On or about August 31, 2018, the Commissioner, based upon the findings of the 2018

16 regulatory examination and pursuant to Financial Code sections 50307, subdivision (b) and 22159,

17 subdivision (b), directed Mortgage Solutions to conduct a self-audit regarding per diem interest

18 charges for all loans originated from August 18, 2014 through August 31, 2018, make appropriate

19 refunds, and submit a report as to the findings of the self-audit (per diem self-audit report). On or

20 about December 14, 2018, Mortgage Solutions submitted its per diem self-audit report to the

21 Commissioner. The per diem self-audit report filed with the Commissioner, which covered the

22 period from August 18, 2014 through September 5, 2018, disclosed 325 per diem interest

23 overcharges out of 2,390 loans or 13.6% with refunds totaling $24,113.16.

24

11. In testing the accuracy of the per diem self-audit, the Commissioner discovered that

25 Mortgage Solutions was incorrect in 7 of the 30 (23.3%) sampled loans1. Mortgage Solutions failed

26 to discover per diem interest overcharges in 7 of the 25 sampled loans disclosed as no overcharge.

27 Accordingly, the Commissioner has determined the per diem self-audit is unreliable.

28

1 The sampling included 25 loans disclosed as no overcharge and 5 loans disclosed as overcharges.

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1

IV.

2

Recording Fee Overcharges

3

12. The 2018 regulatory examination additionally disclosed that in 25 of 25 funded loans

4 reviewed, or 100%, Mortgage Solutions had charged the borrower in excess of the amount paid to

5 the county recorder for recording documents and/or failed to obtain/maintain evidence to support the

6 recording fee charges in violation of Financial Code section 50204, subdivision (i) and/or Financial

7 Code section 50314 for loans made under its CRMLA license and Financial Code section 22336,

8 subdivision (a) and/or Financial Code section 22156 for loans made under its CFL license. The

9 recording fee overcharges averaged $71.64 per loan. The range of recording fee overcharges was

10 between $10.00 and 317.00.

11

13. On or about August 31, 2018, the Commissioner, based upon the findings of the 2018

12 regulatory examination and pursuant to Financial Code sections 50307, subdivision (b) and 22159,

13 subdivision (b), directed Mortgage Solutions to conduct a self-audit regarding recording fee charges

14 for all residential mortgage loans originated from August 18, 2014 to the present if Mortgage

15 Solutions could not substantiate the charges, make appropriate refunds, and submit a report as to the

16 findings of the self-audit (recording fee report). On or about November 16, 2018, Mortgage

17 Solutions submitted its recording fee report to the Commissioner. The recording fee report filed

18 with the Commissioner, which covered the period from August 18, 2014 through September 5, 2018,

19 disclosed 219 recording fee overcharges out of 2,385 loans or 9.2% with refunds totaling $9,029.52.

20 The Commissioner found no discrepancies in testing the accuracy of the recording fee report.

21

V.

22

CRMLA Suspension/Penalty Statutes

23

14. Financial Code section 50327 provides in pertinent part:

24

(a) The commissioner may, after notice and a reasonable opportunity to

be heard, . . . suspend or revoke any license, if the commissioner finds that: 25

26

(1) the licensee has violated any provision of this division or rule or order

of the commissioner thereunder; or (2) any fact or condition exists that, if

27

it had existed at the time of the original application for license, reasonably

would have warranted the commissioner in refusing to issue the license originally. 28

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1

15. Financial Code section 50513 provides in pertinent part:

2

(a) The commissioner may do one or more of the following:

3

(4) Impose fines on a mortgage loan originator or any residential mortgage

4

lender or servicer licensee employing a mortgage loan originator pursuant

to subdivisions (b), (c), and (d).

5

(b) The commissioner may impose a civil penalty on a mortgage loan originator

6

or any residential mortgage lender or servicer licensee employing a mortgage

7

loan originator, if the commissioner finds, on the record after notice and

opportunity for hearing, that the mortgage loan originator or any residential

8

mortgage lender or servicer licensee employing a mortgage loan originator

9

has violated or failed to comply with any requirement of this division or any regulation prescribed by the commissioner under this division or order issued

10

under authority of this division.

11

(c) The maximum amount of penalty for each act or omission described in

12

subdivision (b) shall be twenty-five thousand dollars ($25,000).

13

(d) Each violation or failure to comply with any directive or

order of the commissioner is a separate and distinct violation or

14

failure.

15

VI.

16

CFL Suspension/Penalty Statutes

17

16. Financial Code section 22714 provides in pertinent part:

18

(a) The commissioner shall suspend or revoke any license, upon notice

19

and reasonable opportunity to be heard, if the commissioner finds any of the following:

20

. . .

21

(2) The licensee has violated any provision of this division or any rule or

22

regulation made by the commissioner under and within the authority of this

division.

23

24

17. Financial Code section 22172 provides in pertinent part:

25

(a) The commissioner may do one or more of the following:

26

(4) Impose fines on a mortgage loan originator or any finance lender or broker

27

licensee employing a mortgage loan originator pursuant to subdivisions (b), (c),

and (d).

28

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