State orders mortgage co.: Stop illegal programs

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October 2, 2008

Bailout issues hit home

By Bethany Bray

First Call Mortgage Co.Inc. — an Andover company the state says has used deceptive business practices and improperly sold reverse mortgages to seniors — was given a cease and desist order by the State Division of Banks last week.

The order temporarily forbids First Call Mortgage from soliciting or accepting any residential mortgage applications.

Reverse mortgages are loans that enable senior homeowners, typically 62 years and older, to convert the equity in their home into income. Massachusetts law prohibits a lender from making a reverse mortgage without a plan that has been approved that includes mandatory counseling.

"First Call Mortgage has failed to demonstrate and maintain the character, reputation, integrity and general fitness that would warrant the belief that the mortgage lender and mortgage broker business will be operated honestly, fairly and soundly in the public interest, in violation of Massachusetts General Laws," the state Division of Banks said in a nine-page report

In the report, First Call, headquartered on the fifth floor of Brickstone Square off York Street, is listed as violating several state laws, including:

making reverse mortgage loans without approval from the state

providing potentially "false or misleading" language to consumers failing to provide a seven-day "cooling off" period for applicants prior to settlement of a reverse mortgage

violating book and record-keeping standards

failing to ensure that consumers who obtained reverse mortgage loan applications had "completed the mandatory counseling program" through an agency approved by the state Executive Office of Elder Affairs failing to notify the state in writing at least 15 days prior to a change in ownership. Company President Carl McFadden of Reading sold 50 percent of his interest in the company to two outside owners on Aug. 27, 2007, according to the report.

The state's report said order will become permanent if the company does not request a hearing within 20 days and successfully fight the order.

Messages left with a manager at First Call in Andover over two days were not returned for comment.

First Call Mortgage was also cited for unfair and deceptive practices for altering mortgage loan documents and misrepresenting applicants' incomes. The state's investigation of First Call revealed that the company gave applicants misleading literature that mentioned a locked interest rate, which did not contain language indicating that the form was "merely a request and not a commitment to lock in the rate with a mortgage lender," said the state's report.

Kathy Urquhart, director for elder services for the town of Andover, said that reverse mortgages are promoted to seniors often, and are tempting to some who hope to stay in their homes as long as possible. Urquhart said she hasn't heard of any seniors who frequent the town's senior center having a bad experience with First Call Mortgage.

"We advise that anyone going for a reverse mortgage talks to a lawyer and gets some counseling," said Urquhart. "It's something that's certainly being promoted right now. People want to stay in their homes, and if you bought your home 40, 50 years ago, the value is in the property."

Another option for seniors is to defer their property tax, and the town puts a lien on the home, with a 5 percent interest rate, said Urquhart. Although less risky than a reverse mortgage, many seniors hesitate to have a lien.

"There are a lot of options and it can be confusing. Unfortunately, people start looking at options when they're in crisis. They don't have time to sleep on things and look at all the possibilities," she said.

Ron Hill, a financial consultant with Baystate Financial Services in Andover, said he hardly ever recommends reverse mortgages to clients.

"For some people, it can be a useful tool in retirement, but the people it can be beneficial to is a very small percentage. If the home and equity in it are about the only asset that the client has, then you can start thinking about it, but there are a number of things that have to be considered. It is not to be entered into lightly at all," he said.

Hill said he urges anyone considering a reverse mortgage to talk with an attorney, accountant or financial adviser before making a decision.

"At first it sounds like a tantalizing idea in some respects, but when you look at the numbers and restrictions, it very seldom is the right solution. It should never be done casually, or out of fear. In difficult times, sometimes people make irrational financial decisions."

First Call Mortgage was one of four companies to receive cease and desist orders Sept. 24 from Bank Commissioner Steven Antonakes. The three other companies are California-based.

All three companies given cease and desist orders on Sept. 24 have been ordered to place all pending applications with a qualified lender at no cost to the consumer, said the state's report.

The companies were ordered to provide the Division of Banks complete copies of files for all reverse mortgage loans.

The state order is the result of an investigation that began July 14 into First Call Mortgage's books, accounts and records, according to the cease and desist order.

First Call has a second office in Bedford, N.H.

Concerned?

Massachusetts seniors are encouraged to consult the Division of Banks at 617-956-1500 to address any questions they may have about reverse mortgages or First Call Mortgage in Andover.

Seniors can contact their local elder service provider at 1-800-AGE-INFO to learn about additional programs and services.

Gov. Deval Patrick's administration launched a new reverse mortgage Web site for seniors last month. Visit www.mass.gov/reversemortgage for information.