East-West Mortgage Co. to Amend Policies.

By Chris Reidy, The Boston Globe Knight Ridder/Tribune Business News

Jun. 2--East-West Mortgage Co. has agreed to revise its procedures for fee disclosures and mortgage rate-locks after federal and state regulators determined that its practices violated regulatory guidelines.

The accord was outlined in a cease-and-desist order issued last week by the Massachusetts Division of Banks and the Federal Deposit Insurance Corp. against East-West and its parent, Commerce Bank & Trust Co. of Worcester.

David Cotney, the Division of Banks' senior deputy commissioner, said the order resulted from routine bank inspections and 102 consumer complaints since 2001.

Jerome Olin, chief executive of Commerce, said his company has been "working cooperatively with state and federal regulators for several months and has already taken actions to correct these issues." Commerce also is offering reimbursements to customers who felt they had been misled or charged improper fees, he said; those reimbursements could amount to as much as $1 million.

As part of the order, Commerce neither admitted nor denied any wrongdoing. It paid no fines.

According to Cotney, East-West charged consumers a $199 "good-faith deposit" fee for applying for a mortgage, but failed to disclose that this fee was nonrefundable if the mortgage didn't close.

East-West, which does much of its business on the phone or over the Internet, also agreed to spell out its rate-lock provisions more clearly. When mortgage rates shot up last summer, many consumers scrambled to refinance, but some who thought they had locked in a rate were told later that only a higher rate was available when the loan closed. The Division of Banks received 281 complaints last year against a variety of mortgage companies from consumers who felt they got stuck with a higher rate than promised.

Regulators also faulted East-West for guidelines that call for excessive penalties to be charged to consumers who pay off their mortgages early.

To prevent recurrences, Commerce has invested in new technology systems, instituted a comprehensive internal compliance program, and improved employee training programs, Olin said.

Andrew Mahoney, a Web designer from Melrose who refinanced his mortgage a year ago, said he was "astonished" that the Division of Banks finally took action. Mahoney and his wife originally thought East-West promised them a 5.5 percent rate, only to be told at closing that it would be 5.75 percent. Feeling they had no choice, they accepted the offer, then filed a complaint with the division. The division dismissed the complaint on the grounds that there was insufficient evidence, Mahoney said. Then in February, "out of the blue," East-West called him and ultimately offered a 5.625 percent rate, he said. Yesterday Mahoney said he was "ecstatic" that the Division of Banks had finally issued an order against East-West.

"I think the Division of Banks has been very slow to react," he said.

Cotney said the division conducted a lengthy investigation, and it's the division's policy not to comment until an investigation has been completed.

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