New York State Gov. Andrew M. Cuomo has announced that Prospect Mortgage LLC has agreed to pay a $3 million penalty and deliver restitution to homeowners after a Department of Financial Services (DFS) examination uncovered that the company engaged in deceptive practices on interest rates that harmed consumers. The DFS examination revealed that Prospect charged homeowners upfront ‘discount fees’ in exchange for lower interest rates over the life of their mortgages, but then never actually delivered the promised interest rate discounts. In addition to the $3 million penalty, Prospect Mortgage agreed to provide refunds totaling $427,155 to the 270 New York homeowners who were harmed by this false advertising.
“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,” Governor Cuomo said. “Today the State is doing just that, enforcing the law on a company that engaged in illegal practices and delivering restitution to homeowners. This action should serve as a reminder to all mortgage lenders that we will continue to root out deceptive mortgage practices.”
Benjamin M. Lawsky, superintendent of Financial Services, said, “Our examination uncovered that the company sold consumers a false bill of goods by charging them for interest rate discounts that never materialized. We will continue to aggressively pursue these types of abuses and any other schemes that unfairly harm homeowners.”
Prospect Mortgage LLC is one of the nation’s largest independent residential mortgage bankers with a nationwide network of branches and approximately $7 billion in new loan volume in 2012. The company is licensed to do business in New York under the name “Prospect Lending.” In addition to deceptive practices related to interest rate discounts, DFS’ examination also uncovered numerous additional violations of New York Banking Law and regulations at Prospect, including:
►Conducting business with unlicensed entities, and through unauthorized websites and unlicensed branch locations;
►Facilitating mortgage loan origination activities through unlicensed mortgage loan originators;
►Failing to disclose loan origination information;
►Failing to issue commitment agreements to certain borrowers; and
►Failing to maintain compliant books and records.
DFS’ examination also found that Prospect’s compliance systems need substantial improvement. To help correct that and other problems, Prospect will provide DFS with quarterly compliance progress reports on corrective actions to ensure their organization is in compliance with New York laws and regulations.