The DFS examination, which covered loans closed from January 2008 through August 2011, revealed that Prospect Mortgage charged homeowners upfront discount fees in exchange for lower interest rates over the life of their mortgages, but then never actually gave the borrowers the promised interest rate discounts.
In addition to deceptive practices related to interest rate discounts, Prospect was responsible for facilitating mortgage loan origination activities through unlicensed originators, as well as conducting business with entities and branch locations that were not allowed to work in New York.
Other violations of New York Banking Law and regulations that Prospect violated included failing to disclose loan origination information, failing to issue commitment agreements to certain borrowers, and failing to maintain compliant books and records.
Prospect Mortgage agreed to pay a $3 million penalty and provide restitution totaling $427,155 to the homeowners harmed by the interest rate scam who were harmed by false advertising.
To correct its compliance systems problems, Prospect will provide the DFS with quarterly compliance progress reports on corrective actions to ensure their organization is adhering to state laws and regulations.
Prospect Mortgage is one of the nations largest independent residential retail lenders. The Sherman Oaks, Calif.-based mortgage banking company had approximately $7 billion in new loan volume in 2012.
The company is licensed to do business in New York under the name Prospect Lending.
Prospect Mortgage could not be reached for comment regarding this consent order.
Lenders have a legal responsibility to deal honestly and fairly with consumers, and when they fail to meet that standard New York State will hold them accountable, Cuomo said in a press release. Todays action should serve as a reminder to all mortgage lenders that we will continue to root out deceptive mortgage practices.