The Massachusetts attorney general filed suit yesterday against a Quincy mortgage broker, charging the firm with falsifying applications from customers to ensure they would qualify for loans.Brokers at Lehi Mortgage Services Inc. inflated incomes and savings account balances of loan applicants to boost their qualifications, the lawsuit filed in Suffolk Superior Court said. The civil suit charges Lehi with engaging in unfair and deceptive practices and fraudulently procuring loans, and it seeks to stop the firm from making new mortgages.The suit is based on an audit conducted by the Massachusetts Division of Banks of 100 loans the firm closed in 2006 and 2007.That audit, conducted last fall, determined that at least one in four of the applications contained fake information, according to the lawsuit. The banking division referred the results of its audit to the attorney general's office.
Lehi Mortgage "engaged in a widespread practice" of submitting false information about bank accounts and incomes that "it knew or should have known were inflated," the attorney general's suit said.Boston lawyer Jonathon Friedmann, who represents Lehi, declined to comment. "We have not seen the suit yet," he said.Loan brokers are intermediaries who shop for competing mortgage offers on behalf of borrowers, and they are paid a fee by the lender who wins the business.The lawsuit is the latest action by state regulators to crack down on subprime mortgage lenders and brokers in the wake of the foreclosure crisis, which has resulted in a near-record number of homeowners in Massachusetts losing their properties and many others facing foreclosure.In the subprime market, many borrowers purchased homes they could not afford using these expensive loans, and regulators said many applications were falsified. The Division of Banks in recent months has closed several mortgage firms for falsifying mortgage applications or for charging extraordinarily high fees.
At Lehi Mortgage, the state said 23 applications contained inflated or fake bank account statements from Citizens Bank - some of the accounts didn't exist at all. In three cases, a single Citizens employee in a Dorchester branch created verification of deposit forms, or VODs, with incorrect statements from the bank. Lenders often require these verification forms be submitted with a prospective borrowers' loan application.One of the falsified Citizens statements said Lehi's client had $18,341 in her bank account; in fact, she had $25, the suit said.
Citizens fired the employee in August, the court document said.
Citizens spokesman Michael Jones said the bank is cooperating with the state's investigation.
Lehi also inflated loan applicants' incomes, the suit said. In one application, an unnamed borrower earned an annual salary of $29,858. But in two different applications for loans, his income was stated as $63,000 and $55,800.
The suit said the Division of Bank's audit of Lehi's activity uncovered 26 problem loan applications out of 100 audited. Lehi also has offices in Mattapan, Lynn, and Dorchester.