Mortgage Professionals Should be Optimistic About the Future

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62 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET local edition Bank President gets two years in Prison Inspector general and delaware's U.s. attorney go after perpetrator of $1.5M fraUd agaInst tarp recIpIent. DELAWARE // A Delaware man has been sentenced to two years in federal prison for his role in a fraud and money-laundering scheme in- volving a bank that was a recipient of funds from the Troubled Asset Relief Program (TARP). According to an announce- ment by the Special Inspector General for TARP (SIGTARP) and U.S. Attorney General for Delaware, Charles M. Oberly III, James A. Ladio, 58, of Wilmington, Delaware, pleaded guilty to two counts of bank fraud and two counts of money laundering on December 17, 2013. Evidence revealed during the sentencing, showed Ladio, while president and CEO of MidCoast Community Bank, recruited two former MidCoast customers to obtain loans from MidCoast, after which the customers would lend the proceeds back to Ladio. Former Wilmington Trust market manager Brian Bailey and Ladio were involved in a decade-long loan-swap scheme in which the two men provided more than 20 loans to each other, the proceeds from which totaled more than $1.5 million. Ladio entered into a Global Restructuring Agreement in 2010 after Wilmington Trust called his loans, and he took part in the scheme in order to make his principal and interest payments as outlined in the agreement. "Ladio, former president and chief executive officer of MidCoast Community Bank and a leader in the Delaware banking commu- nity, was sentenced to spend the next two years in federal prison for bank fraud against three banks, including TARP bank Wilmington Trust Corporation," said Christy Romero, TARP's special inspector general. "For more than a de- cade involving more than 20 transactions, Ladio lined his pockets by fraudulently securing Wilmington Trust loans through former Wilmington Trust of- ficer Brian Bailey in exchange for Ladio making sweetheart loans to Bailey," Romero added. "Ladio used the loans to pay off personal debt." Romero vowed that SIGTARP and its law enforcement part- ners will continue to hold those accountable who conned the federal government—and American taxpayers—out of TARP funds. "We will not rest in our efforts to identify and investigate those indi- viduals, unravel their crimes, and support their prosecution," Romero said. "We are proud to stand together with the United States Attorney's Office for the District of Delaware in our combined fight against bailout-related crime." regulators shutter california's Frontier Bank Bank of soUthern calIfornIa pIcks Up deposIts froM 2014's 17th faIled Bank. CALIFORNIA // Regulators an- nounced the closing of a California bank, marking the state's first insured-bank collapse in more than two-and-a-half years. The Office of the Comptroller of the Currency (OCC) closed down the Palm Desert-based Frontier Bank—also known as El Paseo Bank—citing a lack of as- sets and earnings "due to unsafe and unsound practices." The agency also found the bank was "likely to incur losses that will deplete its capital, the bank is significantly undercapitalized, and there is no reasonable pros- pect that the bank will become adequately capitalized." Frontier Bank's closing brings the nationwide tally of failed banks to 17 for the 2014 calendar year, com- pared to 23 in 2013. Annual closings soared to 157 as recently as 2010, the worst year for banks since the sav- ings and loan crisis. Frontier Bank is the first insured institution to fall in California since April 2012, when Palm Desert National Bank went down. OCC appointed FDIC as re- ceiver of Frontier Bank's deposits and assets, which were estimated to total $82.1 million and $86.4 million, respectively, as of June 30. As receiver, FDIC announced an agreement with San Diego's Bank of Southern California, which will pay a premium of 1.06 percent to acquire all of the failed bank's deposits. The estimated cost to FDIC's deposit insurance fund to cover Frontier Bank's failure is $4.7 million, the agency said. california lender censured for alleged mortgage steering cfpB slaps franklIn loan wIth $730k fIne for IncentIvIzIng eMployees to saddle Borrowers wIth hIgh-Interest loans. CALIFORNIA // The Consumer Financial Protection Bureau (CFPB) announced it has ordered the California-based residential mortgage lender Franklin Loan Corporation to pay $730,000 in restitution for rewarding its employees with bonuses for sug- gesting loans with higher interest rates to borrowers. Franklin Loan, which has 18 locations in Southern California and one in Chicago, originated about $887 million in mortgage loans between 2011 and 2013, ac- cording to CFPB. The bureau's investigation revealed that dur- ing a period of about two and a half years, Franklin Loan paid out quarterly bonuses to 32 loan officers on the basis of the inter- est rates of loans closed. The amount of bonuses paid totaled at least $730,000, and the loan of- ficers were given higher bonuses for securing higher interest rates. According to CFPB, more than 1,400 borrowers were affected. CFPB's investigation found Franklin Loan's actions of paying bonuses to employees based on interest rates to be in violation of the Federal Reserve Board's Loan Originator Compensation Rule, which prohibits mortgage lenders from compensating loan officers according to loan terms, such as interest rates. "Today's action will put $730,000 back in the pockets of consumers who may have never suspected that they had been harmed," CFPB Director Richard Cordray said. "Paying bonuses for steering borrowers into more expensive loans violates their trust and is against the law." According to CFPB, the bureau has requested a fed- eral district court to approve a consent order that would require Franklin Loan to stop illegally compensating employees and refund the money already paid out to affected consumers. Franklin Loan has agreed to end the practice of paying bonuses to loan officers based on loans' interest rates and will re- fund $730,000 to consumers who paid higher interest rates as a result of loan officers' manipula- tion of their mortgage decisions.

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