The Maryland State Bank Commission has ordered that $50,000 in damages be paid to 17 frustrated borrowers of General Mortgage Services Inc., a defunct Bethesda mortgage banking firm. It is the largest amount ever awarded to consumers by the state agency after such an investigation of lending practices.
The borrowers, who will receive individual cash awards ranging from $300 to $14,500, were customers of General Mortgage Services, which the state agency closed in December for allegedly falsifying information on dozens of borrowers' loan packages. The firm, formerly located at 4712 Rosedale Ave., has since had its license revoked, and its former employes are now working for various mortgage companies in the metropolitan area.
The borrowers have not yet received their cash awards because state law gives the parties involved in the case 15 days to appeal.
The money for the borrowers, most of whom live in Montgomery County, will not come directly from General Mortgage or its former principals, but from the $50,000 in bond money the company posted with the state when it obtained its operating license. As with most bonds, such funds are insured through an outside bonding company.
"As far as our involvement goes, this closes the file on General Mortgage Services," said Perry McAtee, Maryland's acting assistant bank commissioner. The Maryland attorney general's office is still probing the company's former officers in connection with possible criminal code violations.
Ellen Ballman, General Mortgage's former secretary and treasurer as well as its majority shareholder, declined to comment on the bank commissioner's ruling. Ballman, who now works with Capital Mortgage Bankers in Rockville, referred all questions to John Frederickson, a Baltimore attorney.
Frederickson would not comment specifically on any of the bank commissioner's actions, but said the cash judgments "are preliminary determinations and they do not represent any final conclusion regarding my clients."
The 17 borrowers complained to the bank commissioner's office before the mortgage company was shut down by the state. In some cases, the cash awards cover application fees and other up-front costs the borrowers paid for anticipated loans that General Mortgage failed to close on. In other instances, the awards will meet the increased monthly mortgage payments for loans in which General Mortgage did not honor the original locked-in, or promised, interest rates.
McAtee said his office had been negotiating with General Mortgage officials to alleviate the damages claimed by the 17 borrowers, but the talks broke down following several disputes. The state agency then ordered the individual awards be distributed to the borrowers through the mortgage firm's bond.
"The borrowers felt in one way or the other that they were wronged or they suffered damages," McAtee said.
Robert Wilson, one of the borrowers in the General Mortgage case, said he is "very pleased" with the bank commissioner's decision to award him $5,900. "They took hold of the case right from the beginning," he said.
He applied to General Mortgage in January 1986 for a loan to refinance the existing high-interest mortgage on his Bethesda home. He was given a locked-in rate of 10 percent and 2 points (2 percent of the loan amount).
Two days before his February settlement date, General Mortgage pushed the interest rate up to 10 1/4 percent and 3 points. Two days later, on the day of his loan's closing, the rate was increased to 10 1/2 percent and 3 1/4 points.
"I closed on the deal," said Wilson, adding that market conditions at that time essentially forced him to settle with General Mortgage.
"But I wasn't happy," he said. Consequently, Wilson took his case to the bank commissioner's office, arguing that General Mortgage's action would cost him about $7,000 in increased mortgage payments over the life of his loan.
In each of the 17 cases, the bank commissioner's office charged the company with a specific violation, depending on the complaint. The total cash judgment against General Mortgage exceeded the $50,000 bond by about $4,000. As a result, the state agency awarded the individual amounts on a pro rata basis.
"I think it's a victory for consumers," McAtee said. He noted that the cash awards were possible only because the state holds the $50,000 bond, which he said illustrates how important it is for borrowers to verify with the bank commission whether a mortgage banker or broker is licensed with a state agency.
Last December, the commission temporarily closed General Mortgage after uncovering seven cases of what it described as mortgage tampering. The agency charged that the firm falsified loan packages to enhance borrowers' financial backgrounds so that the loans would appear more attractive to investors on the secondary market.
Most home loans today are sold to investors by mortgage brokerage firms, such as General Mortgage. The mortgage firms make their profits by processing the loans and charging consumers for various up-front and closing fees.
As a result of the alleged loan-document tampering, state officials charged that General Mortgage was able to sell the loans to unsuspecting investors who bought notes that they otherwise would not have purchased.
After three months of investigations, the bank commissioner's office found another 46 similar cases at the firm. In March, the state permanently closed the Bethesda company, charging it with 53 counts of civil fraud. General Mortgage was also fined $53,000.