HUD rescinds, then reinstates, license of Canton mortgage lender Equitable Trust
The Federal Housing Administration suspended Equitable Trust Mortgage Corp., a prominent Canton mortgage lender, from originating new FHA mortgages for six months. The FHA then reinstated the company a few days later after it agreed to make restitution averaging about $4,000 per borrower and pay a fine of more than a quarter of a million dollars.
The complex turn of events began Dec. 7, when the federal Department of Housing and Urban Development (HUD) announced it had suspended Equitable Trust.
According to HUD's statement, Equitable Trust Mortgage Corp. overcharged 37 borrowers; the higher fees were charged to 68 percent of minority borrowers. City Paper profiled David Carey, Equitable Trust's prominent frontman, in 2007, in a story that noted the overlap among Carey's customers, business partners, friends, and employees ("Where Credit is Due," Feature, Feb. 21, 2007).
HUD's Office of Inspector General opened an investigation of Equitable Trust shortly after City Paper's story was published ("HUD-Aches," Mobtown Beat, July 4, 2007). That investigation is ongoing, according to HUD, and was not the cause of the suspension.
HUD Spokesman Brian Sullivan says Equitable Trust's loan-default rate from November 2007 through October 2009, was 7.96 percent, "compared to the national average of 4.77" percent for similar loans. HUD considers a loan to be in default if it is more than 90 days past due. Sullivan says Equitable Trust made about 2,200 FHA-backed loans during those two years, 2,047 of which were low-downpayment, 30-year fixed mortgages.
In 21 cases, Equitable Trust "failed to properly disclose all loan origination fees, as well as lender fees to mortgage brokers (commonly called 'yield spread premiums'), on borrowers' Good Faith Estimates," the FHA stated in the press release.
"It is critical that FHA lenders apply our standards and do not overcharge borrowers," said FHA Commissioner David Stevens, according to the HUD statement. "The fact that a disproportionate number of these borrowers were minority families is also troubling."
The company's fee structure appears to be at issue. One employee of Equitable Trust, which operates in Bel Air under the name Benchmark Mortgage, says company officials told employees that the troubled loans were not underwritten by Equitable Trust, but instead "brokered"--for a fee--to another company which underwrote them according to FHA guidelines. The employee, who asked not to be identified by name, says that since the mortgage crisis hit in 2007, FHA loan guidelines have become so lax that Equitable Trust officials did not think the loans were sound. But instead of turning borrowers down, the employee contends, the company sent them to another company, allowing Equitable to charge a broker's fee while (company officials thought) insulating Equitable Trust from the loans, should they go bad.
When some of the loans did go bad, FHA tried to charge them back to the underwriter, the Equitable Trust employee says, but the underwriter went out of business, so FHA came back to Equitable Trust. FHA says that Equitable Trust's "broker's fee," when added to the origination fee, exceeded FHA's maximum allowable fee, which is one percent of a loan's face value.
A woman who answered the phone at Equitable Trust's White Marsh office on Dec. 8 and 9 said company officials were preparing a response, but none came before press time. Messages left at that office and on co-owner David Carey's cell phone were not returned.
On the afternoon of Dec. 11, FHA sent out another press release saying that Equitable Trust had settled the matter without admitting any wrongdoing.
"The settlement agreement is a victory for both HUD and the borrowers who were affected by ETM's actions," said Federal Housing Administration Commissioner David H. Stevens, according to the press release. "The settlement agreement imposes a significant penalty on ETM for violating HUD requirements, but also provides the wronged borrowers relief in these tough economic times.
The FHA statement says Equitable Trust "has paid HUD a civil money penalty in the amount of $277,500," and "agreed to refund the broker fee improperly charged to 37 borrowers." Borrowers can expect to receive refunds in amounts ranging from $500 to $9,135, according to FHA, with a total of $147,589.81 to be repaid to borrowers.
As Equitable Trust executives hashed out the deal with HUD, the Maryland Department of Labor, Licensing and Regulation (DLLR) announced on Dec. 10 that it had "summarily suspended the mortgage loan originator license" of Nicholas Elko, an Equitable Trust Mortgage employee, "for allegedly engaging in an illegal foreclosure rescue scheme in violation of Maryland's Protection of Homeowners in Foreclosure Act."
According to the DLLR press release, which later became part of an FBI press conference touting the progress of its "Mortgage Fraud Task Force," Elko promised a homeowner facing foreclosure that if she transferred the home to Elko, he would transfer it back after a period of time. "Instead, Elko allegedly refinanced the property multiple times through Equitable Trust Mortgage," the DLLR release says. "Each time that the property was refinanced, Elko stripped more and more equity out of the home, ultimately conveying the property to his mother."
Online court records indicate that Elko lost one house to foreclosure earlier this year and faces foreclosure on two other properties, including an Owings Mills home he lists as his principle residence. In early 2007, he transferred part ownership of a house on the 3100 block of Chesley Avenue to Diane M. Elko, his mother.
Nicholas Elko bought that house for $97,000 and immediately mortgaged it for $160,000, according to land records. After transferring part ownership to his mother, he refinanced the house, which is assessed at $225,800 for tax purposes, for $202,800. All the loans were made through Equitable Trust.
In July of last year, the home's previous owners, Anaieh Majillzadeh and Melissa Youngbar, filed a notice in land records revoking Elko's "power of attorney," claiming Elko had been their "foreclosure consultant," but had "failed to provide disclosures and notices required by" the Protection of Homeowners in Foreclosure Act.
"[The suspension] took him completely off guard," says Ed Price, a lawyer representing Elko who notarized the initial sale of the Chesley Avenue property. "He didn't know he was under investigation. There was no hearing." Saying he hopes for a hearing in January, Price reads an "official statement" on the matter:
"Mr. Elko denies the State of Maryland's allegations and intends to vigorously defend his reputation by immediately seeking reinstatement of his license from the Department of Labor, Licensing and Regulation."
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