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  • Staff photo by Bob Hammerstrom

    Mortgage Specialists offices in Nashua, Thursday, June 3, 2010.


  • Staff photo by Bob Hammerstrom

    Mike Gill of Mortgage Specialists Thursday, June 3, 2010.


  • Read the New Hampshire Banking Department's 2002 complaint against The Mortgage Specialists.
Sunday, July 18, 2010

Banking officials filed complaints on mortgage firm’s practices

The company’s giant electronic billboard is practically a landmark on Amherst Street in Nashua, at the intersection of Cannongate Road. The Mortgage Specialists, with its Las Vegas-style promotion and high-profile owner, is one of the biggest players in the Southern New Hampshire mortgage market.

It is also one of the most scrutinized and highly penalized.

The company continues to originate home mortgages despite a history of banking violations, including widely publicized fraud allegations in 2008 that resulted in the largest fine in history for a New Hampshire-based mortgage company.

New Hampshire Banking Department Commissioner Peter Hildreth, under fire for his failure to act more aggressively in the recent collapse of the Financial Resource Management investment firm, has been notified by his staff over the years of illegal conduct at The Mortgage Specialists but allowed the company to remain in business.

In a six-month examination, The Telegraph learned that Banking Department officials complained as early as 2002 that The Mortgage Specialists was either unwilling or unable to conduct business with “financial integrity.”

Specifically:

Banking officials in 2002 threatened to reject The Mortgage Specialists’ applications for license renewals at all of its New Hampshire branches and one in Massachusetts, saying the company’s past conduct did not warrant the public’s confidence.

At the same time, the Banking Department accused the company of violating seven state and federal laws, including operating the Manchester office without a branch license, but did not impose a fine.

Additionally, two ex-employees are suing The Mortgage Specialists, claiming they were fired for refusing to participate in illegal activity.

Both of those employees claim they have been contacted by the FBI regarding an investigation into The Mortgage Specialists.

Hildreth, who agreed last month to take paid leave while Gov. John Lynch tries to remove him from office for failing to act on allegations that Meredith-based Financial Resources Mortgage was operating a Ponzi scheme, said in an April 27 interview he hasn’t taken steps to shut down The Mortgage Specialists because there has been no evidence of harm to consumers.

Hildreth and other banking officials have declined to comment on whether they ever asked the state attorney general’s office to investigate the company. The FBI would not confirm or deny an investigation into the company.

Asked if he is confident The Mortgage Specialists is no longer participating in the kind of activity of which it was accused in 2002 and 2008, Hildreth said he couldn’t be 100 percent sure.

“I’m not there every day watching what’s going on in any of the institutions, so I’m not going to say there’s no fraud,” he said. “We go in, our examiners look for violations of the statute and rules, and when they find them, they hopefully get corrected. If not, they take action.”

Michael Gill, founder and president of The Mortgage Specialists, said his company’s record is “spotless.” An independent audit mandated by the Banking Department, which began about four months after the department’s 2008 inspection that led to fraud allegations, found no evidence of fraud in more than 2,000 files, according to an auditor’s report provided by Gill.

In a June 2 telephone interview with The Telegraph, Gill denied that banking officials took steps to revoke the company’s licenses in 2002 and repeatedly threatened to sue if that information was printed.

“I will sue your paper, and I will sue you personally, and I don’t care if I win because it will cost you hundreds of thousands of dollars,” he said.

Gill, 54, is no stranger to lawsuits. In Rockingham County Superior Court alone, the stack of cases involving The Mortgage Specialists as either a plaintiff or a defendant stands at least 2 feet high.

The Mortgage Specialists has sued at least five former employees in the last decade in various courts throughout the state. The company has sued the Banking Department and the city of Nashua. The company is currently suing a website created to chronicle the housing finance breakdown over an anonymous commenter who criticized Gill and The Mortgage Specialists’ business practices.

Complex history

The Mortgage Specialists has four locations, all in New Hampshire, including the one at 327 Amherst St. in Nashua. Before the housing market collapse, the company operated eight offices in two states, originating mortgages for customers in New Hampshire, Massachusetts and Maine.

Three of the company’s offices have shut down in the last two months alone.

The company voluntarily surrendered its branch license for the Salem location June 30, according to the online Nationwide Mortgage Licensing System & Registry, and shuttered that office.

In late May, The Mortgage Specialists voluntarily surrendered its branch licenses for both Massachusetts locations, in Peabody and Worcester, according to David Cotney, chief operating officer of the Massachusetts Division of Banks.

The company also used to have a Windham location but surrendered that license in September 2008 and closed the branch.

New Hampshire banking officials label The Mortgage Specialists as one of the largest retail mortgage brokers in Southern New Hampshire. According to Gill, the company has had quarters when it originated more Fannie Mae loans than any retail broker in the United States.

The Mortgage Specialists recently captured national attention as the plaintiff in a New Hampshire Supreme Court case with significant First Amendment implications. The company is suing Las Vegas-based website The Mortgage Lender Implode-O-Meter, seeking the name of an anonymous online commenter who criticized the company. The website is fighting back, arguing that it has the same rights as traditional media outlets to protect the identity of sources.

A Rockingham County Superior Court judge initially sided with The Mortgage Specialists, but that decision was partially reversed on appeal to the state Supreme Court in a decision handed down in April. The case now returns to the lower court for further proceedings.

Gill, a Derry resident who opened The Mortgage Specialists in 1989, is one of the most successful and controversial figures on the national horse-racing circuit. His horse racing career has been chronicled over the better part of a decade by national media including The New York Times, Sports Illustrated and ESPN.com.

Banking Department allegations of non-compliance with state and federal laws at The Mortgage Specialists date back as far as 1997. In the 2002 complaint issued by the Banking Department, obtained by The Telegraph through a Right-to-Know request, the department said The Mortgage Specialists had a history of failing to timely file documents that established an “inability and/or unwillingness to conduct the business of a mortgage banker or a mortgage broker with financial integrity.”

Despite Hildreth’s claim there has never been any evidence of consumer harm by The Mortgage Specialists, Banking Department staff suggested otherwise when they filed complaints against the company in 2002 and 2008, documents that were either signed by or delivered to Hildreth.

In 2002, the department accused The Mortgage Specialists of “failing to properly fund a loan” by requiring a customer to attend a second closing, six days after the first closing, where the interest rate on the loan was higher than the terms provided to the consumer in initial disclosure documents.

Other violations alleged in the complaint included posting advertisements that violated the Truth in Lending Act and operating the Manchester office without a branch license. The document said the company’s “experience, personnel and record of past or proposed conduct do not warrant the public’s confidence.”

The complaint was filed by the Banking Department’s Consumer Credit Division and signed by then-Chief Bank Examiner Robert Fleury, who was promoted to deputy commissioner shortly thereafter. The document was hand-delivered to Hildreth.

During the April 27 interview, Hildreth couldn’t immediately recall the complaint. According to Gill, the violations were minor and involved no harm to customers. Because the Banking Department was so slow to issue licenses at that time due to a backlog, he said, it was common for companies to open a branch location before receiving the actual license.

Gill hired the law firm of Shaheen & Gordon to represent him in an appeal of the Banking Department complaint. Firm co-founder William Shaheen is the husband of then-governor and current U.S. Sen. Jeanne Shaheen, who appointed Hildreth as banking commissioner in 2001.

Despite initial steps by Banking Department staff to deny The Mortgage Specialists’ licenses, the department reached a settlement with the company months later that allowed it to stay licensed without admitting any wrongdoing.

The settlement, reached “to avoid the expense of further litigation,” according to Banking Department records, came with 11 stipulations. It required The Mortgage Specialists, among other things, to issue refunds to certain customers who received mortgages through the Manchester office before it was licensed, hire a compliance officer and submit quarterly updates on its compliance plan to the Banking Department for a period of two years.

Some six years later, the company’s compliance officer was one of four employees named in the Banking Department’s 2008 cease-and-desist order, which accused The Mortgage Specialists of violating seven state laws.

Fines paid

In 2008, The Mortgage Specialists made headlines when the Banking Department accused it of illegal activity such as forging signatures and destroying records – discovered during a routine Banking Department inspection.

The company paid the record $425,000 fine, and no employees ever faced criminal charges.

Banking inspectors said it took The Mortgage Specialists employees four hours to retrieve 20 loan files that were being stored in an off-site location, even though it was just a 10- minute drive from the main office. When the files were presented to inspectors, all 20 were missing required documents, some of which later turned up in a shredding bin, according to department records.

In one file, inspectors said they found evidence that a customer who had applied for a 30-year fixed rate mortgage had instead received a so-called balloon loan, which requires a large lump-sum payment when the loan reaches maturity.

“The department has no confidence that the consumer has seen any of the documents, even those purportedly signed by the borrower, which would notify the consumer of the existence of a balloon payment due in thirty years,” Banking Department staff wrote.

Hildreth maintains that the $425,000 fine, which came shortly after Massachusetts fined the company $300,000 over similar allegations, was appropriate. In Massachusetts, inspectors accused The Mortgage Specialists of altering loan documents, failing to properly to maintain records and falsifying one customer’s income and asset records in three home loans, among other things.

To the best of his knowledge, Hildreth said, The Mortgage Specialists blamed the incident on just a couple of wayward employees who were not following company rules.

“I’m sure their argument was … these were rogue loan originators. We didn’t tell them to do it. We didn’t know they were doing it. They’ve left the business,” Hildreth said.

Gill attributes the incident to poor record keeping by just a few employees. The employees who attempted to clean up the files before the Banking Department inspection did so because they were afraid of him finding out, Gill said.

“It wasn’t fraud. It was sloppy paperwork,” he said.

The private audit banking inspectors ordered began some four months later, in December 2008. The auditor, a well-known accounting firm called CCR with five offices nationwide, inspected a sampling of files – 2,071 total – from March 25, 2005, to Dec. 1, 2008, and found no evidence of fraud.

Gill said the audit cost The Mortgage Specialists more than $1 million, and he wouldn’t have spent that kind of money if he hadn’t been confident there would be no findings of fraud. Instead, he would have closed down and retired a rich man, Gill said.

“You don’t spend millions to prove that you’re 100 percent honest,” he said.

Of the four people named in the Banking Department’s 2008 complaint, only one – Salem branch manager Dave Caillouette – admitted manipulating documents, banking officials allege in the complaint. He refused to say whether that was a company practice.

Caillouette agreed to stay out of the mortgage business permanently in a separate settlement with the Banking Department. He also agreed to a $75,000 fine – $50,000 of which was suspended for two years on the condition that he no longer violate banking, brokering or servicing laws.

Gill, the company’s owner; Lisa Tracy, the compliance officer; and Jean Duerr, the vice president of operations, all denied knowledge of the events, according to the Banking Department complaint.

Gill and Tracy eventually agreed to each personally pay $50,000 of the $425,000 fine. The company itself paid the remaining $325,000. Allegations against Duerr were eventually dismissed.

Pending lawsuits

By early this year, Duerr had a different story to tell. She filed suit against The Mortgage Specialists and Gill in February claiming she was placed on administrative leave and eventually fired after the inspection for refusing to participate in ongoing illegal activity.

Duerr, of Windham, who worked for the company from 1999-2008, claims it was common practice before Banking Department audits for employees to pull files out of storage and make sure they contained the necessary paperwork to meet regulatory requirements.

She admits in the lawsuit to traveling to the off-site storage location the day of the 2008 inspection but claims she refused to participate in doctoring paperwork, at one point asking Tracy and Gill to turn over the files “as is,” which they refused to do.

Shortly after the Banking Department discovered the alleged fraud, Duerr claims she was placed on temporary administrative leave while the company “pretended” to conduct an investigation, and was eventually fired. During this time, she claims, the FBI contacted her about an investigation into The Mortgage Specialists.

Duerr, through her attorney, declined to be interviewed by The Telegraph while the lawsuit is pending. The case is still in the early stages and a trial date has yet to be scheduled.

Gill claims Duerr was fired after the inspection because sloppy record keeping turned up in the department she oversaw. He also said the position was no longer needed because he eliminated the company’s in-house underwriting department.

He said the lawsuit is simply retaliation for being fired and has no merit.

A second lawsuit pending in Rockingham County Superior Court was filed by a Derry woman named Pamela Troiani, who worked as a loan originator/processor for The Mortgage Specialists at one point and later as an on-site contract underwriter, although during the second stint she was technically employed by another company.

Troiani is claiming Gill and Duerr, whom she worked with closely, conspired to remove her from the contract underwriter position after she refused to submit a mortgage with “inaccurate and misleading and fraudulent information/documentation.”

That case is also awaiting trial.

In a separate letter to the Banking Department, Troiani also claims to have knowledge of an FBI investigation into The Mortgage Specialists.

Hildreth said he was not aware of the lawsuits prior to being informed by a reporter. He stressed that the employees’ claims are just allegations until they’re proven in court.

“You can make the argument that just because someone is sued doesn’t mean they’re guilty,” he said. “That’s what our system is based on.”

The Banking Department inspects mortgage company files every 18 months, meaning The Mortgage Specialists was due for an inspection this past winter. Hildreth declined to provide the date of the last inspection or its results.

Ashley Smith can be reached at 594-6446 or asmith@nashuatelegraph.com.