Bank slapped with $6 million penalty for originating phone mortgage loan applications

A $6 million penalty has been assessed against a Michigan bank for originating false or fraudulent mortgage loan applications, the regulator of national banks said Thursday.

In a release, the Office of the Comptroller of the Currency (OCC) said the penalty against Sterling Bank and Trust, Federal Savings Bank (FSB ) of Southfield, Mich., was imposed last month after the agency found that the bank provided the phony forms related to its advantage loan program (ALP). The ALP, the OCC said, was a low-document mortgage loan program and the bank’s primary loan product during an eight-year period ending in December 2019.

“These loan applications contained falsified applicant income and employment information and debt-to-income ratios and relied on falsified supporting documents, such as verification of employment documents, letters of explanation, and gift letters,” the agency said in the consent order it reached with the bank. “In addition, loan documents failed to disclose the use of third- party mortgage brokers. Despite deficiencies within the ALP, the Bank did not take appropriate corrective action and continued to grow the ALP.”

The OCC said over the eight-year period, the bank (among other things): falsified applicants’ employment and income information as well as other supporting loan documents; failed to make a reasonable and good faith determination of applicants’ ability to repay and to ensure that documents used to verify applicants’ employment, income, and assets were obtained from third parties, were reasonably reliable, and that there were proper quality control mechanisms to ensure the accuracy and reliability of the bank’s loan documents; and failed to properly disclose the involvement of, or fees paid to, third-party mortgage brokers on loan estimates and closing disclosures. The OCC said the bank’s actions violated various state and federal laws.

Other enforcement actions taken by the OCC in September, the agency said, included civil money penalties (CMPs) against a former bank board chairman and a former bank chief executive.

The agency said it assessed a $70,000 CMP against H. Dee Robison, former president and CEO of The First National Bank and Trust Co. of Vinita, Vinita, Okla. The OCC said that, while serving as both a loan officer and later bank CEO, Robison (among other things) failed to disclose conflicts of interests to the bank’s board and failed to recuse himself from business transactions with and decisions involving entities in which he held an ownership interest. He also failed to ensure third-party vendors, including those he had a personal interest in, properly documented the work they performed for the bank, the OCC said, and “failed to ensure the bank performed appropriate diligence before engaging such service providers.”

Also last month, the agency said it assessed a $50,000 CMP against John Paul Austin III, former board chairman for CornerstoneBank of Atlanta, Ga., after he ignored a consent order imposed on the bank in 2012 and in place until 2021. The order required the bank to obtain a written determination of no supervisory objection (“NSO”) before significantly deviating from the bank’s strategic plan.

However, Between June 2017 and February 2019, the OCC said, Austin was both a board member and chairman of the bank, during which time he caused bank employees to open approximately 18 accounts for non-U.S. businesses without obtaining an NSO from the OCC as required by the consent order and without ensuring the bank had the requisite controls commensurate with the increased risk of the accounts.

Twelve of those accounts, the OCC said, were opened after the OCC rejected the bank’s NSO request to open such accounts.

The OCC noted that all three CMPs were issued with the consent of the parties.

OCC Enforcement Actions and Terminations