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FDIC Enforcement Decisions and Orders

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   [12,219] In the Matter of Commerce Bank & Trust Company, Worcester, Massachusetts, Docket No. 04-093b (5-26-04).

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.

   [.1] Compliance Committee—Establishment Required

   [.2] Compliance Program—Consumer Compliance Plan Required

   [.3] Compliance Program—Written Compliance Plan Required

   [.4] Audit—Review of Policies Required

   [.5] Home Mortgage Disclosure Act—Compliance Required

   [.6] Insurance—Flood Insurance—Compliance with FDIC Regulations Required

   [.7] Equal Credit Opportunity Act—Compliance Required

   [.8] Board of Directors—Motor Vehicle Policy Required

   [.9] Violations of Law—Corrections of Violations Required

   [.10] Mortgage—Review of Residential Mortgage Loans Required

   [.11] Management—Qualifications Specified

   [.12] Mortgage—Review of Residential Mortgage Loans Required

   [.13] Consumer Credit Transactions—Review Required

   [.14] Mortgage—Review of Mortgage Notes Required

   [.15] Compliance Program—Retain Qualified Personnel
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   [.16] Bank Operations—Internal Routine and Controls, Correction of Weaknesses Required

   [.17] Reconciliation of Books and Records—Maintain

   [.18] Board of Directors—Review Procedures

   [.19] Cease and Desist Orders—Consumer Disclosure

   [.20] Board of Directors—Written Plan Required

   [.21] Shareholders—Disclosure of Cease and Desist Order Required

   [.22] Progress Report—Written Report Required

In the Matter of
COMMERCE BANK & TRUST COMPANY
WORCESTER, MASSACHUSETTS
(Insured State Nonmember Bank; State Chartered Trust Company) and its wholly-owned subsidiary
1-800-EAST-WEST MORTGAGE COMPANY, INC.
WORCESTER, MASSACHUSETTS
ORDER TO CEASE AND DESIST

Commonwealth Docket No. 2004-007
FDIC Docket #FDIC-04-093b

   Commerce Bank & Trust Company, Worcester, Massachusetts (the "Bank"), has been advised of its rights to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of laws and/or regulations alleged to have been committed by the Bank and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b)(1), has waived those rights, and has been advised by the Division of Banks of the Commonwealth of Massachusetts (the "Division") of its concerns regarding the Bank's alleged failure to comply with certain statutes and regulations; and 1-800-East-West Mortgage Company, Inc. ("East-West"), has been advised by the Division of its concerns regarding East-West's alleged failure to comply with certain statutes and regulations.

   In consideration of the foregoing, the Bank and East-West entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC") and with the Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner") dated May 25, 2004, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of laws and/or regulations, the Bank and East-West consented to the issuance of this ORDER TO CEASE AND DESIST ("ORDER") by the Commissioner and the FDIC.

   The Commissioner and the FDIC considered the matter and determined that they had reason to believe that the Bank and East-West have engaged in unsafe or unsound practices and have committed violations of laws and/or regulations. The Commissioner and the FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST
Provisions Applicable to the Bank

   IT IS HEREBY ORDERED that the Bank, its directors, officers, employees, agents, and other institution-affiliated parties (as that term is defined in Section 3(u) of the Act, 12 U.S.C. §1813(u)), and its successors and assigns cease and desist from the following unsafe or unsound banking practices and violations:

   (a) Operating with a Board of Directors which has failed to provide adequate supervision over, and direction to, the management of the Bank in order to ensure compliance with laws and regulations referred to in the FDIC's Report of Examination-Compliance prepared as of December 30, 2002 (the "FDIC Report") and the Report of Examination (the "Division's Report") issued by the Division under Massachusetts General Laws chapter 167, section 2 pursuant to the examination of the Bank and East-West by the Division as of March 10, 2003;

   (b) Operating with certain officers and employees who do not have adequate knowledge and/or sufficient allocated time to
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   ensure compliance with the laws and regulations referred to in the FDIC Report and the Division's Report;

   (c) Operating with policies and internal routines and controls which are insufficient to ensure compliance with laws and regulations referred to in the FDIC Report and the Division's Report;

   (d) Operating in violation of the following laws and/or regulations:

       (i) Part 202, Regulation B of the Board of Governors of the Federal Reserve System, as more fully described on pages 35, 36, 37 and 41 of the FDIC Report;

       (ii) Part 339 of the FDIC's Rules and Regulations, 12 C.F.R. Part 339, as more fully described on pages 42-55 of the FDIC Report; and,

       (iii) Part 203, Regulation C of the Board of Governors of the Federal Reserve System, as more fully described on pages 56, 57, 58, 60, 61 and 62 of the FDIC Report;

       (iv) Part 3500, Regulation X of the Department of Housing and Urban Development, as more fully described on pages 65, 66, 68, 69, 72, 79 and 80 of the FDIC Report;

       (v) Part 205, Regulation E of the Board of Governors of the Federal Reserve System, as more fully described on pages 86-88 of the FDIC Report;

       (vi) Part 229, Regulation CC of the Board of Governors of the Federal Reserve System, as more fully described on pages 88-90 of the FDIC Report;

       (vii) Part 345 of the FDIC's Rules and Regulations, as more fully described on pages 62-65 of the FDIC Report.

       (viii) Part 332 of the FDIC's Rules and Regulations, as more fully described on pages 80-81 of the FDIC Report;

       (ix) Part 230, Regulation DD of the Board of Governors of the Federal Reserve System, as more fully described on pages 90-91 of the FDIC Report;

       (x) Part 343 of the FDIC's Rules and Regulations, as more fully described on pages 82-83 of the FDIC Report;

       (xi) Part 338 of the FDIC's Rules and Regulations, as more fully described on page 85;

       (xii) Massachusetts General Laws chapter 255B, section 14, as more fully described on pages 24-25 of the Division's Report; and

       (xiii) The Division's regulation 209 CMR 32.15(5), as more fully described on page 27 of the Division Report.

   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 1. Upon the effective date of this ORDER, the Bank's Board of Directors (the "Bank's Board") shall increase its supervision and oversight of the Bank's compliance program. At a minimum, the Bank's Board should:

       (a) oversee the Bank's review and revision of its compliance program;

       (b) review and revisit the roles and responsibilities of the Bank's Compliance Officer and its Compliance Committee to ensure that the Bank has a more effective and centralized approach to compliance management;

       (c) supervise and proactively oversee the Bank's compliance program and its Compliance Officer, including careful consideration of all reports submitted to the Bank's Board from such officer and timely and effective responses;

       (d) carefully review and consider the results of the Bank's consumer compliance audits and take effective and timely actions to correct or cause the correction of any shortcomings in the Bank's compliance program that are brought to light by such audits;

       (e) foster a positive compliance culture at the Bank so that its employees will understand that consumer compliance is a priority; and,

       (f) supervise and monitor the bank's compliance with the requirements of this ORDER.

   The actions required by this paragraph shall be in a form and manner acceptable to the Regional Director of the FDIC's New York Regional Office ("Regional Director") and the Commissioner as determined at subsequent examinations and/or visitations.

   [.2] 2. The Bank and the Bank's Board shall increase their supervision and oversight of East-West's compliance activities to ensure that East-West is complying with all applicable consumer compliance laws and
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   the provisions of this ORDER applicable to it. Toward this end, the Bank's Board shall at a minimum:

       (a) reevaluate the manner in which the Bank currently supervises and oversees East-West's practices, policies, operations and its compliance program;

       (b) take actions to ensure that Bank management and other personnel who are responsible for overseeing East-West's compliance program have sufficient time and resources to carry out these responsibilities;

       (c) become and remain familiar with East-West's policies, practices, operations, and compliance program, through whatever means are necessary;

       (d) review East-West's compliance audits and the responses to such audits by East-West's management; and,

       (e) review all reports submitted by East-West to the Commissioner and the Regional Director pursuant to paragraphs 21-22 of this ORDER, and record the results of such reviews in the Bank's Board minutes.

   [.3] 3. Within 60 days from the effective date of this ORDER, the Bank shall revise and implement its written compliance program. The revised compliance program shall be adopted by the Bank's Board and shall set forth revised policies and procedures designed to meet the Bank's compliance responsibilities on an ongoing basis. The Bank's Board shall take actions to ensure implementation of, and adherence to, the revised compliance program. At a minimum, the revised compliance program shall specifically address the following areas:

       (a) the retention, within 60 days from the effective date of this ORDER and continuously thereafter, of a qualified Compliance Officer who shall be given stated written authority by the Bank's Board to implement and supervise the Bank's compliance program. The duties and responsibilities of this position shall be clearly defined in writing. The Compliance Officer shall be provided with the necessary training, authority, time, resources, and responsibility to effectively administer the Bank's compliance program. The Compliance Officer shall report directly to the Bank's Board on a monthly basis and such report shall be documented in the minutes of the Bank's Board meeting;

       (b) the duties and responsibilities of the Bank's Compliance Committee;

       (c) consideration of staffing levels and revisions to job descriptions, if necessary, to ensure that all Bank personnel responsible for any aspects of the compliance program have sufficient time to fulfill their responsibilities;

       (d) the review, development and implementation of written consumer compliance policies and procedures for all applicable consumer compliance laws and regulations, including department-wide loan and deposit procedures and consumer complaint procedures. Such policies and procedures should be sufficiently detailed to provide employees with the information they need to perform their duties in compliance with applicable laws and regulations. The consumer complaint procedures should identify the person or persons who are responsible for handling such complaints and the protocol to follow when receiving a complaint;

       (e) ongoing training in consumer compliance laws and regulations for all appropriate personnel, including both operation and lending staff, and the development and implementation of a system to test employees on their knowledge of compliance-related laws and regulations to monitor training effectiveness. The Bank shall document the training activities for its recordkeeping purposes. The training program should be updated periodically, at reasonable intervals to ensure that appropriate personnel are provided with the most current and up-to-date information;

       (f) the creation and implementation of an effective internal review and monitoring system for the purpose of ensuring that the Bank is operating in compliance with all consumer laws and regulations. Such system should be designed, at a minimum, to detect and identify any weaknesses that may exist in the Bank's compliance efforts prior to audits and/or examinations; to include periodic reviews of disclosures and standardized forms and calculations for various loan and deposit products; and to provide for periodic reviews of document filing and retention procedures. The Bank's Board and management shall require all departments of the Bank which are engaged in activities subject to the statutes and regulations cited in clause (d) on pages 3 and 4 of this


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       ORDER, to participate in the review and monitoring efforts.

   A copy of the revised written compliance program should be forwarded to the Regional Director and the Commissioner upon completion. The program and its implementation must be maintained in a manner satisfactory to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.4] 4. Within 60 days of the effective date of this ORDER, the Bank's Board shall review and revise as appropriate the Bank's formal independent audit program which may be conducted either externally or internally. This review should examine and define the scope and determine the frequency of such audits, considering the compliance risk profile of the institution. In addition, the audit reports should be thoroughly reviewed by the Bank's Board and fully documented in the minutes. The program shall include policies and procedures for internally monitoring the Bank's compliance with applicable consumer laws and regulations, including a quarterly review of the Bank's compliance program by the Compliance Officer, the results of which shall be in writing, reported directly to the Bank's Board, and recorded in the minutes of the Bank's Board meeting at which the report is made. The Bank's Board should implement and monitor corrective action in areas/departments where deficiencies have been identified. Thereafter, the Bank's Board should review the scope and frequency of such audits on a periodic basis to ensure that the audits continue to be appropriate for the Bank's compliance activities and any new risks that have been identified through the Bank's monitoring efforts, form reviews, or prior audits.

   [.5] 5. Within 60 days from the effective date of this ORDER, the Bank shall develop and implement procedures to ensure compliance with the Home Mortgage Disclosure Act ("HMDA"), 12 U.S.C. §2801 et seq., as implemented by Regulations of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 203, which requires a lending institution to report data to its supervisory agency about home purchase and home improvement loans it originates or purchases, or for which it receives applications; and to disclosure certain data to the public.

   [.6] 6. Within 60 days from the effective date of this ORDER, the Bank shall develop a policy and implement procedures to ensure that it complies with the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended, 42 U.S.C. §§ 4001-4129, as implemented by Part 339 of the FDIC Rules and Regulations, 12 C.F.R. Part 339. The policy and procedures are to include but are not limited to:

       (a) preparation, mailing or delivering a written notice of special flood hazard determination to the borrower and to the servicer in all cases whether or not flood insurance is available under the National Flood Insurance Act of 1968, as amended, for the collateral securing the loan, as required in section 339.9 of the FDIC's Rules and Regulations, 12 C.F.R. §339.9;

       (b) ensuring that flood hazard insurance coverage is obtained when required, pursuant to section 339.3 of the FDIC's Rules and Regulations, 12 C.F.R. §339.3;

       (c) ensuring that flood hazard insurance coverage, where required, remains in force throughout the life of a loan, as required by section 339.3(a) of the FDIC's Rules and Regulations;

       (d) ensuring that the amount of flood hazard insurance coverage, where such insurance is required, is at least equal to the lesser of the outstanding principal balance of the loan or the maximum amount of coverage available for the particular property, as required by section 339.3(a) of the FDIC's Rules and Regulations; and,

       (e) ensuring compliance with section 339.7 of the FDIC's Rules and Regulations by sending proper notices to borrowers whose flood hazard coverage has become inadequate, and by force placing such insurance when borrowers who have received such notices fail to take appropriate corrective action.

   [.7] 7. (a) Within 60 days from the effective date of this ORDER, the Bank shall develop and implement procedures to ensure compliance with the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq., as implemented by Regulation B of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 202, governing loan applicants and notifications to customers against whom adverse action is taken. These procedures shall include but are not limited to, procedures to ensure that the Bank complies
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   with section 202.7(d) of Regulation B, 12 C.F.R §202.7(d), which provides, with certain exceptions, that a creditor shall not require the signature of a loan applicant's spouse or other person, other than a joint applicant, or any credit instrument if the applicant qualifies for an extension of credit under the creditor's standards of creditworthiness for the amount and terms of the credit requested.

   (b) In the case of each residential mortgage loan, home equity loan, and home equity line of credit originated by the Bank after December 30, 2002, in connection with which the Bank obtained the signatures of two or more joint owners of the mortgaged real estate on a note, guarantee, or other credit instrument other than a mortgage deed, the Bank shall send a letter ("Stage 1 Letter") to at least one of such joint owners asking if the joint owners intended to be joint applicants, or whether the signatures of one or more such joint owners were required by a Bank officer or employee. The form of the Stage 1 Letter which the bank proposes to send to such persons must be submitted to the Regional Director for approval before the Stage 1 Letters are sent. In any case where a recipient of a Stage 1 Letter replies that such a signature of a co-owner of the mortgaged property who did not originally intend to be an applicant was required by the Bank, and the Bank's action of requiring that signature was not consistent with 12 C.F.R. §202.7(d), the Bank shall advise the replying person, by letter ("Stage 2 Letter"), of the rights set forth in this paragraph. The form of the Stage 2 Letter which the Bank proposes to send to such persons must be submitted to the Regional Director for approval before the Stage 2 Letters are sent. The Bank must release any such co-owner from any liability or obligations imposed by such instrument (other than the mortgage deed) if the original applicant was able to qualify on his/her own for the credit requested. If the original applicant was not able so to qualify, and the co-signer was the applicant's spouse, the original applicant must be given the opportunity to substitute a different creditworthy person or signer of such instrument if he/she wishes to do so. The Bank shall promptly notify the Regional Director of any instances in which the Bank, having received a response to a Stage 1 Letter saying that the signature of one or more of the joint owners was required by a Bank officer or employee, determined not to send a Stage 2 Letter. The response shall identify the underlying loan transaction involved, and an explanation of the Bank's reason for making its determination, in order to assist FDIC in determining whether the determination not to send a Stage 2 Letter was consistent with the obligations imposed by this paragraph 7.

   [.8] 8. Within 30 days of the effective date of this ORDER the Bank's Board of Directors shall establish, implement, and maintain revised procedures which provide that the Bank, in the administration of its motor vehicle indirect lending program, ensures that the terms of all acquired retail installment sales of motor vehicle contracts properly include all applicable charges, defined by applicable laws or regulations as finance charges, in the calculation of the finance charge, the amount financed, and the annual percentage rate disclosed to the consumer. The revised procedures shall necessarily address and ensure that in any transaction in which a document preparation fee, or any similar fee, is collected in a retail installment sale of motor vehicle contract either purchased or acquired by the Bank, such fee shall be included in the finance charge for the purpose of determining the annual percentage rate in accordance with the twenty-one percent limitation set forth by Massachusetts General Laws chapter 255B, section 14.

   [.9] 9. Within 120 days of the effective date of this ORDER, the Bank shall correct all other violations of law as described on pages 92-102 in the FDIC Report and on pages 24-44 of the Division's Report, and implement procedures to prevent their recurrence. The Bank's actions as required by this paragraph must be satisfactory to the Regional Director and the Commissioner, respectively, as determined at subsequent examinations and/or visitations.

Provisions Applicable to East-West

   IT IS HEREBY ORDERED that East-West, its directors, officers, employees, and agents, and their successors and assigns cease and desist from the following unsafe or unsound mortgage lending practices and violations:

   (a) Operating with a Board of Directors which has failed to provide adequate supervision over, and direction to, the management of East-West in order to ensure compliance with laws and regulations referred to in the Division's Report;

   (b) Operating with officers and employees
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   who do not have adequate knowledge and/or sufficient allocated time to ensure compliance with the laws and regulations referred to in the Division's Report;

   (c) Operating with policies and internal routines and controls which are insufficient to ensure compliance with laws and regulations referred to in the Division's Report; and

   (d) Operating in violation of the following laws and/or regulations:

       (i) The Office of the Attorney General of Massachusetts' (the "Attorney General") regulation 940 CMR 8.00, as more fully described on pages 6-7, 7-10, and 14 of the Division's Report;

       (ii) The Division's regulation 209 CMR 32.00, as more fully described on pages 6-7, 7-10, and 14 of the Division's Report;

       (iii) Massachusetts General Laws chapter 183, section 56, as more fully described on pages 10-11 of the Division's Report;

       (iv) Massachusetts General Laws chapter 167, section 6, and Massachusetts General Laws chapter 140D, section 30, as more fully described on page 12 of the Division's Report;

       (v) Massachusetts General Laws chapter 184, section 17D, as more fully described on pages 15-16 of the Division's Report;

       (vi) 24 C.F.R. Part 3500, Regulation X of the Department of Housing and Urban Development, as more fully described on pages 17-20 of the Division's Report; and

       (vii) Massachusetts General Laws chapter 183, section 59, as more fully described on page 13 of the Division's Report;

   IT IS FURTHER ORDERED, that East-West, its officers and directors, and their successors and assigns, take affirmative action as follows:

   [.10] 10. Within 30 days of the effective date of this ORDER, East-West's Board of Directors shall cause to be made a review of all Massachusetts residential mortgage loan applications received by East West since February 12, 2001 in which (i) East-West accepted or collected any non-refundable fee or good faith deposit, prior to the consumer's receipt of the applicable disclosures required under either the Office of the Attorney General's Regulation 940 CMR 8.00 et seq., Massachusetts General Laws chapter 184, §17D, the Division's regulation 209 CMR 38.00 et seq., or 209 CMR 32.00 et seq., and (ii) no extension of credit by East-West to the consumer was made.

       (a) In any instance in which each of the provisions set forth in clauses (i) and (ii) of this paragraph 10 are satisfied, East-West shall reimburse the consumer for the full amount of such non-refundable fee or good faith deposit collected. The provisions of this subsection of the ORDER shall necessarily apply, without limitation, to transactions involving residential property located in Massachusetts for: the refinancing of a mortgage loan, an open-end credit plan secured by the consumer's dwelling; a variable rate transaction under 209 CMR 32.19(2); and any other mortgage loan application for the purchase or initial construction of residential property in which the consumer paid a non-refundable fee or good faith deposit prior to receiving the required, applicable disclosure referenced above;

       (b) Within 30 days of the effective date of this ORDER, East-West's Board of Directors shall revise East-West's application procedures to ensure that prior to accepting or collecting any fee from a consumer, other than a credit report fee, appraisal fee, or other similar third party fee, East-West shall provide the consumer with the written disclosures required by applicable state and federal laws and regulations. Such procedures shall prohibit East-West from accepting or collecting any non-refundable fee or good faith deposit in a residential mortgage loan transaction except to the extent that the amount and terms of such non-refundable fee or good faith deposit have been previously disclosed to the consumer in writing, which disclosure shall be in the form specified by the applicable statute, rule or regulation;

       (c) Within 30 days of the effective date of this ORDER, East-West's Board of Directors shall submit to the Commissioner a list of all borrowers identified pursuant to the above described review to whom a reimbursement is owed by East-West in accordance with paragraph (10)(a) of this ORDER; and


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       (d) Within 45 days of the effective date of this ORDER, East-West's Board of Directors shall submit to the Commissioner, evidence of the reimbursements issued to consumers in accordance with paragraph (10)(a) of this ORDER. Such evidence shall include the consumers' names, the date the application was submitted, the check numbers, the amount of the reimbursements, and sufficient evidence to illustrate receipt of the reimbursements.

   [.11] 11. Within 180 days of the effective date of this ORDER, East-West, with the approval of the Bank's Board of Directors, shall have and retain qualified management to administer the operations of East-West, it being understood that East-West shall, as soon as practicable following the effective date of this ORDER, begin a search for qualified management to administer the operations of East-West. East-West's Board of Directors shall take action to ensure that each member of management is provided the necessary time and written authority to implement the provisions of this ORDER.

       (a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at East-West. At a minimum, management shall include the following:

         (i) a chief executive officer with proven ability in managing a mortgage lender of comparable size and in effectively implementing lending, investment, and operating policies in accordance with sound lending practices; and

         (ii) a compliance officer with significant appropriate experience relevant to managing the operations of a mortgage lender of similar size and complexity in accordance with sound lending practices.

       (b) The qualifications and acceptability of management shall be assessed on its ability to:

         (i) comply with the requirements of this ORDER;

         (ii) comply with applicable laws, rules and regulations, and regulatory bulletins; and

         (iii) restore all aspects of East-West to a satisfactory compliance condition, including management effectiveness, implement revised compliance programs and training procedures, and implement and monitor all internal control procedures adopted pursuant to this ORDER.

       (c) Prior to permitting the individuals identified pursuant to paragraph 11(a) of this ORDER to perform in the designated capacity on behalf of East-West, East-West shall submit such personnel selections to the Commissioner for review of the qualifications and acceptability of such individuals; and

       (d) As long as this ORDER remains in effect, East-West shall notify the Commissioner, in writing, at least 30 days prior to any proposed change in the chief executive officer or compliance officer of East-West.

   [.12] 12. Within 30 days of the effective date of this ORDER East-West's Board of Directors shall cause to be made a review of all Massachusetts residential mortgage loan applications since February 12, 2001 and shall identify any mortgage loan transaction in which (i) East-West either directly or indirectly through a mortgage broker in a brokered loan transaction, provided a consumer with an initial disclosure indicating that the interest rate for which the consumer had applied had been locked, or provided any other mortgage loan commitment or agreement guaranteeing a specified interest rate, or the consumer otherwise exercised an interest rate lock option under any rate lock correspondence provided either directly or indirectly by East-West (said specified rate may be referred to hereinafter as the "Locked Rate"), (ii) East-West charged or collected from the consumer any fee or point in consideration of locking the interest rate in the mortgage loan transaction, and (iii) the interest rate at which the mortgage loan was closed was greater than the interest rate contained in any of the documents identified in clause (i) of this paragraph 12, through no fault of the consumer.

       (a) In any instance in which each of the provisions set forth in clauses (i), (ii), and (iii) of this paragraph 12 are satisfied, East-West shall indemnify and reimburse the consumer, in full, for an amount which is equal to the excess interest charges actually paid by the consumer resulting from the application of a higher rate than the Locked Rate, except that (1) with respect to loans that were subsequently refinanced at a rate equal to or lower than the Locked Rate or were refinanced at a rate higher than the Locked Rate with another


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       lender prior to the effective date of this ORDER for any purpose exclusive of a purpose to lower the interest rate, East-West's reimbursement obligation with respect to such loan shall end at the date of such refinance, and (2) East-West shall have the option to refinance any and all such consumers at the respective Locked Rates, provided that no points, fees or other costs are incurred by such consumers. Any and all costs incurred by East-West in indemnifying and reimbursing any consumer under this paragraph 12 of the ORDER, shall be borne by East-West and shall not be charged to the consumer or otherwise discounted from the indemnification and reimbursement required by this paragraph 12 of the ORDER;

       (b) In the case of each qualifying mortgage loan under paragraph 12 of this ORDER, East-West shall send a letter to the applicable borrower for the purpose of notifying such borrower of East-West's intent to issue a lump sum reimbursement of excess interest previously paid by the borrower and, as applicable, to notify the borrower of East-West's continued obligations under the provisions of this ORDER relative to the borrower's account, or to extend an offer to the borrower to refinance the mortgage loan under the interest rate and terms required by this ORDER. The forms of letters which East-West proposes to send to such borrowers must be submitted to the Commissioner for approval before the letters are sent.

       (c) East-West shall maintain its books, records, and files in a manner which will permit the Division's examiners to review the borrower accounts identified under subparagraph 12(a) of this ORDER at any subsequent examination of the Bank and which will clearly illustrate how any indemnification or reimbursement of excess interest issued to the borrower beyond 120 days after the effective date of this ORDER was calculated.

       (d) The review required by this paragraph 12 of the ORDER shall also necessarily include and identify all transactions in which the provisions set forth in clauses (i) and (ii) of this paragraph 12 were satisfied, and in which the consumer either: (1) withdrew the mortgage loan application after East-West failed to offer an extension of credit under the terms previously disclosed by East-West as locked, or otherwise guaranteed, or (2) East-West issued a denial of an extension of credit at an interest rate equal to or higher than the terms included in the applicable document identified in clause (i) of this paragraph 12. In any qualifying transaction under the provisions of this subsection, East-West shall reimburse the consumer, in full, for any fees collected to lock the interest rate notwithstanding any terms included in the rate lock agreement, or other document prepared by East-West, which would otherwise render such fees nonrefundable;

       (e) Within 60 days of the effective date of this ORDER, East-West's Board of Directors shall submit to the Commissioner a list of all borrowers identified pursuant to the above described review of residential mortgage loan applications to whom a reimbursement is owed by East-West in accordance with subparagraphs (a) and (d) of this paragraph 12; and

       (f) Within 120 days of the effective date of this ORDER, East-West's Board of Directors shall submit to the Commissioner, evidence of the reimbursements issued to consumers in accordance with subparagraphs (a) and (d) of this paragraph 12. Such evidence shall include the consumers' names, the date the application was submitted, the location of the property, a copy of the rate lock agreement or similar agreement, the relevant portion of the note disclosing the interest rate at which the mortgage loan was closed, the relevant portion of the refinanced Note or revised payment schedule as applicable, the check numbers, the amount of the reimbursements, and sufficient evidence to illustrate receipt of the reimbursements. It being understood that indemnification and reimbursement of the excess interest, referenced in subparagraph 12(a) of this ORDER, which is incurred by borrowers after the effective date of this ORDER, may be made by East-West on an annual basis and that evidence of such reimbursements need not be submitted to the Commissioner within the timing provisions otherwise applicable under this subparagraph 12(f).

   [.13] 13. Within 30 days from the effective date of this ORDER, East-West shall conduct a review of all consumer credit transactions
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   originated since February 12, 2001 in which the consumer has exercised a right of rescission under Massachusetts law. Pursuant to such review, East-West shall ensure the following:

       (a) In any instance in which the amount returned to the consumer by East-West after an exercise of the right of rescission was less than the amount collected by East-West in the credit transaction, East-West shall refund to the consumer the amount of such difference such that the consumer receives a refund in full of all amounts paid to East-West in the transaction. The requirements of this subsection shall also necessarily apply to any consumer credit transaction in which the consumer has exercised a right of rescission under applicable law or regulation and for which, as of the effective date of this ORDER, East-West has not yet refunded any portion of the amount paid by the consumer in such transaction;

       (b) Within 45 days of the effective date of this ORDER, East-West shall submit to the Commissioner, evidence of the refunds issued to consumers in accordance with paragraph 13(a). Such evidence shall include the consumers' names, the date of consummation of the transaction, the total amount received by East-West in the transaction, the amount, if any, previously refunded to the consumer, the amount of the refunds issued under this paragraph of the ORDER, the check numbers, and sufficient evidence to illustrate receipt of the refunds; and

       (c) Within 30 days of the effective date of this ORDER, East-West's Board of Directors shall establish, implement, and maintain revised procedures which ensure that East-West complies with applicable laws and regulations governing transactions in which a consumer exercises a right of rescission such that all amounts received from the borrower in the transaction, are refunded to the borrower, in full, within the timing requirements of the applicable law or regulation.

   [.14] 14. East-West's Board of Directors shall cause to be made a review of all mortgage notes secured by a first lien on a dwelling house of one to three separate households in Massachusetts, occupied in whole or in part by the mortgagor, which were originated by East-West on or after February 12, 2001, identifying each mortgage note which contains a prepayment penalty provision which exceeds the maximum terms permitted for such provision as set forth by Massachusetts law. The requirements of this paragraph shall necessarily apply to both home equity loans and home equity lines of credit, secured by a first lien on a dwelling house of one to three separate households in Massachusetts, occupied in whole or in part by the mortgagor (a "qualifying mortgage loan" under this paragraph).

       (a) Within 30 days of the effective date of this ORDER, East-West shall submit to the Commissioner a list of all borrowers identified pursuant to the above described review of all qualifying mortgage loans. Upon review and approval from the Commissioner, East-West shall take applicable actions set forth by the following provisions of this paragraph within the relevant time periods.

       (b) East-West shall within 30 days of the effective date of this ORDER establish, implement, and maintain revised procedures to ensure that in any transaction originated after the effective date of this ORDER in which such a provision is to be included, East-West shall provide the consumer with a prepayment penalty disclosure in accordance with, and within the timing provisions set forth by the Division's regulation 209 CMR 32.00 et seq. If a prepayment penalty obligation is to be included on a qualifying mortgage loan, the prepayment penalty disclosure shall clearly describe the circumstances under which the provision would be triggered and shall include only such terms as are within the limitations set forth by Massachusetts law;

       (c) East-West shall amend the terms and conditions of all qualifying mortgage loans that East-West either owns, or with respect to which it retains servicing or other rights, sufficient to change the prepayment penalty provisions of such qualifying loans, provided that the loan remains outstanding as of the effective date of this ORDER. Notwithstanding the terms and conditions included in the qualifying mortgage loan agreements, East-West shall provide that such a provision will not cause the borrower to pay any amount in excess of the limitations, nor beyond the permissible time periods set forth by Massachusetts law. Within 30 days of receiving approval from the Commissioner, East-West


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       shall notify the applicable borrowers, in writing, of such changes to the prepayment terms of the borrower's loan(s);

       (d) In any instance in which a qualifying mortgage loan originated by East-West after February 12, 2001 was (i) prepaid either in part of in full prior to the effective date of this ORDER, and (ii) the borrower was charged an amount in excess of the limitations set forth by Massachusetts law, East-West shall refund to the borrower the amount so collected in excess of the applicable limitations;

       (e) Within 30 days of receiving approval from the Commissioner, East-West shall submit to the Commissioner evidence of the reimbursements issued to consumers in accordance with paragraph 14(d) of this ORDER. Such evidence shall include the consumers' names, the date the application was submitted, the check numbers, the amount of the reimbursements, and sufficient evidence to illustrate receipt of the reimbursements;

       (f) For all qualifying mortgage loans originated by East-West on or after February 12, 2001 and before the effective date of this ORDER that (i) remain outstanding and (ii) are not, as of the effective date of this ORDER, within East-West's ownership or control sufficient to change the prepayment penalty terms, East-West shall provide full reimbursement of the amount of the prepayment penalty charged to borrowers who incur a prepayment penalty in excess of the limitation or beyond the permissible time period for such penalty under Massachusetts law. Within 30 days of receiving approval from the Commissioner, East-West shall notify all affected borrowers, in a form acceptable to the Commissioner, of the borrower's right to receive such reimbursement from East-West.

   [.15] 15. Within 60 days of the effective date of this ORDER, East-West shall have and retain, with approval from the Board of Directors of the Bank, qualified personnel to administer East-West's consumer complaint processing, investigation, and resolution functions. The Board of Directors of East-West shall take action to ensure that such personnel are provided the necessary time and written authority to implement the provisions of this paragraph of the ORDER.

       (a) East-West shall establish, implement, and maintain written policies and procedures to ensure that an effective consumer complaint resolution function is maintained and operated which addresses matters, including but not limited to, internal controls, timeliness and adequacy of responses, compliance with applicable federal and state laws, regulations, and regulatory bulletins, and with the provisions of this ORDER;

       (b) East-West shall designate personnel to perform in the capacity of an ombudsman relative to any future request from the Division to produce any of East-West's books, records, accounts, or other relevant, supporting documentation as the Division may require in processing and administering any consumer complaint submitted to the Division about East-West. Such personnel shall be responsible for the timeliness, the accuracy and adequacy of East-West's response to the Division's production request.

       (c) With East-West's written response to the Division's Report, submitted to the Division pursuant to paragraph 21 of this ORDER, East-West shall notify the Commissioner in writing, of the personnel designated to satisfy this paragraph of the ORDER. The written response to the Commissioner shall indicate the individual(s) name, title, business address, business telephone number, business facsimile number, and business email address. East-West shall also notify the Commissioner, in writing, if East-West seeks to change the employee(s) designated in accordance with this subparagraph;

       (d) East-West shall adopt and implement procedures designed to ensure that within the time that this ORDER is in effect, East-West shall restore its rating assigned by the Better Business Bureau serving Central Massachusetts (the "BBB") to a level of "satisfactory", it being understood that whether such rating is actually restored is not within the control of East-West. East-West shall contact the BBB and thereafter take action to resolve any consumer complaints referenced on page 4 of the Division's Report which remain pending, in addition to any other consumer complaints which are designated by the BBB as currently pending, as of the effective date of this ORDER. With the written progress reports to be submitted to the Commissioner under paragraph 22 of this


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       ORDER, East-West shall provide a description of all such complaints which have either been closed during the preceding calendar quarter or which remain pending as of the date of East-West's submission of the written progress report to the Commissioner; and

       (e) East-West shall take action to ensure that all applicable staff receives sufficient training to ensure compliance with the consumer complaint policies and procedures implemented by East-West in accordance with this ORDER.

   [.16] 16. Within 60 days from the effective date of this ORDER, East-West's Board of Directors shall revise, adopt, and implement written policies and procedures to provide effective guidance and control over East-West's consumer compliance function and corresponding internal control standards. The revised policies and procedures shall include, at a minimum, revisions to address and correct all violations and areas of concern cited in the Division's Report, including, but not limited to, the Division's findings pertaining to sales and marketing practices, loan processing procedures, form completion, and loan pricing policies. The revised policies and procedures shall also require that East-West's Board of Directors supervise and oversee East-West's consumer compliance program and its Compliance Officer to ensure that East-West complies with the standards set forth therein.

   [.17] 17. Within 60 days from the effective date of this ORDER, East-West shall establish, implement, and maintain written policies and procedures to ensure that it maintains all books, records, and accounts in accordance with the requirements of Massachusetts General Laws chapter 167, section 6. The policies and procedures are to include but are not limited to:

       (a) Providing that East-West conducts on-going, periodic reviews of document filing and retention procedures, and its compliance thereto, to ensure its books, records, and accounts are maintained in a manner sufficient to evidence compliance with applicable federal and state laws, rules and regulations, and regulatory bulletins;

       (b) Implementing procedures to ensure the full cooperation of all East-West employees with the Division and the FDIC during all future examinations of East-West which shall necessarily provide for complete and timely access to its books, records, accounts, and any other additional, relevant materials pursuant to the provisions of Massachusetts General Laws chapter 167, section 2; and

       (c) Providing that all applicable staff of East-West with form completion and/or document filing and retention responsibilities, receive adequate training to ensure proper implementation and execution of the revised policies and procedures adopted by East-West under this paragraph.

   [.18] 18. East-West's Board of Directors shall review the origination, processing, and underwriting functions of East-West to address and correct the matters identified by the Division and detailed in the Division's Report on pages 3-5, inclusive. Pursuant to such review, the Board of Directors shall adopt and implement revised procedures to ensure that East-West provides consumers with new, accurate disclosures when required in accordance with applicable provisions of the Division's regulation 209 CMR 32.00 et seq.by the occurrence of subsequent events which render prior disclosures inaccurate. Also, the Board of Directors shall adopt and implement revised procedures to ensure that East-West complies with the requirements of Massachusetts General Laws chapter 184, section 17D(d) and (e) relative to both the notice and timing provisions of the statute. The Board of Directors shall establish a system of internal controls to further address the remaining matters identified by the Division on pages 3-5 of the Division's Report and to monitor East-West's compliance with the revised procedures adopted pursuant to this paragraph.

   [.19] 19. (a) East-West shall review its origination and processing functions to address and correct the matters identified by the Division and detailed in the Division's Report on page 14, and pages 16-24, inclusive, relative to East-West's disclosure of all fees and premiums charged and collected as compensation by East-West in a mortgage loan transaction in Massachusetts, as well as all third party mortgage-related fees collected from consumers to be paid by East-West, on the consumer's behalf;

   (b) Pursuant to the above review, East-West shall adopt and implement revised procedures to ensure that East-West provides each consumer with accurate disclosures which (i) are completed in good faith to reflect as much information as is available at the time the disclosure must be
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   provided, (ii) when required to be disclosed on multiple disclosures in the mortgage loan transaction, disclose to the consumer through consistent terminology and amounts throughout the mortgage loan transaction the costs and fees collected in the processing and origination of the mortgage loan, (iii) when permitted to be disclosed as a range of charges by an applicable law, rule or regulation, disclose such fee or premium within a range that reflects a reasonable relationship to the charge the consumer will likely incur at the settlement of the mortgage loan in the applicable transaction, and (iv) are reflective of East-West's experience in residential mortgage loan transactions in Massachusetts; and

   (c) East-West shall establish a system of internal controls to monitor its compliance with the revised procedures adopted pursuant to this paragraph.

   [.20] 20. Within 60 days of the effective date of this ORDER, East-West's Board of Directors shall submit to the Commissioner acceptable, revised written policies and procedures which shall govern East-West's operating procedures and compensation practices applicable to account executives, branch managers, mortgage loan originators, processors, and underwriters. The policies and procedures shall, at a minimum, consider and ensure that:

       (a) Written standards are established, implemented, and maintained to monitor the compliance of all loan originators, processors, underwriters, and other applicable staff with the revised written policies and procedures required under paragraph 16 of this ORDER. Such standards shall further set forth the procedures that East-West shall maintain to monitor and control the extent and conditions under which a loan officer, processor, or underwriter may set or effect the mortgage loan interest rates to be offered to consumers;

       (b) East-West, after review by its Board of Directors, adopts, implements, and monitors a system of written procedures which sets forth East-West's interest rate lock commitment practices. The written procedures shall consider and address, at a minimum, (i) the content and timing of applicable consumer disclosures, (ii) internal procedures applicable to the processing and review of all interest rate lock commitment requests, or similar requests, from consumers, (iii) internal standards governing who shall be authorized to obtain or approve an interest rate lock commitment, or similar agreement, on behalf of East-West, (iv) effective and prompt consumer dispute resolution guidelines, and (v) the supervision of all applicable staff to monitor and maintain compliance with the written procedures adopted pursuant to this paragraph 20;

       (c) The written procedures adopted pursuant to subparagraphs (a) and (b) above, are sufficiently tailored to expressly remove any financial gain or incentive to the loan originator, processor, underwriter, or other applicable staff to delay the submission, acceptance, processing, or execution of a request from a consumer to lock a mortgage loan interest rate with or through East-West;

       (d) All employees of East-West described in this paragraph 20, and any other applicable staff, receive adequate training to ensure proper implementation and execution of the revised operating procedures and compensation practices and to require that all applicable employees receive training on the terms of, and compliance with, the provisions of this ORDER; and

       (e) A system of internal controls is established to monitor East-West's continued compliance with the revised operating procedures and compensation practices.

   21. Within 90 days of the effective date of this ORDER, East-West shall submit to the Commissioner and the Regional Director a written response which has been signed and approved by a majority of the members of East-West's Board of Directors and which shall be entered in the minutes of the proceedings at the next scheduled meeting of East-West's Board of Directors. The written response shall address each of the alleged violations and areas of concern specified in the Division's Report. The written response shall describe the revised policies and procedures adopted by East-West's Board of Directors in accordance with paragraph 16 of this ORDER to implement all corrective actions set forth in the "Examiner's Comments and Conclusions" section of the Division's Report.

       (a) East-West's Board of Directors shall establish, implement, and maintain internal


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       review standards to monitor East-West's compliance with (i) the revised policies and procedures implemented pursuant to this paragraph 21, (ii) the provisions of this ORDER, and (iii) the relevant statutes, rules and regulations, and Regulatory Bulletins applicable to residential mortgage loan transactions in Massachusetts. Such procedures and policies shall be designed to prevent the recurrence of the violations and areas of concern addressed in the Division's Report; and

       (b) East-West's Board of Directors shall establish, implement, and maintain procedures and policies to ensure that all applicable staff receives adequate instruction and ongoing, periodic training to ensure proper implementation and execution of the revised practices and procedures implemented pursuant to this ORDER.

   22. On the thirtieth (30th) day after the end of each calendar quarter following the date of this ORDER, beginning with the calendar quarter ending June 30, 2004, East-West shall furnish a written progress report to the Commissioner and the Regional Director, which has been approved by East-West's Board of Directors and which shall be entered in the minutes of the proceedings at the next scheduled meeting of East-West's Board of Directors. The progress reports shall address and include the following:

       (a) A description of the form, content, and manner of any actions taken to address each paragraph of this ORDER applicable to East-West, and the results thereof;

       (b) Written findings prepared by East-West's Board of Directors detailing a review of management's and staff's adherence to the policies, programs, and procedures adopted pursuant to this ORDER and to applicable statutes, regulations, and rules, as well as a description of any operational changes or initiatives implemented during such quarter which are intended to improve East-West's compliance condition in Massachusetts and the results thereof;

       (c) All actions taken by East-West's Board of Directors pursuant to this ORDER and the content of the written progress reports required by this paragraph 22, shall be duly entered in the minutes of the proceedings of the next regularly scheduled meeting; and

       (d) The reporting requirement to the Commissioner and the Regional Director contained in this paragraph 22 shall remain in effect and shall not be amended or rescinded without the prior written modification, termination, or suspension of the applicable provision of this ORDER from the Commissioner and the Regional Director.

General Provisions

   [.21] 23. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Bank's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to both the FDIC, Accounting and Securities Section, Washington, D.C. 20429, and the Division, at least 15 days prior to dissemination to shareholders. Any changes requested to be made by either the FDIC or the Division shall be made prior to dissemination of the description, communication, notice, or statement.

   [.22] 24. Within 30 days of the end of the first calendar quarter following the effective date of this ORDER, and within 30 days of the end of each calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Commissioner have released the Bank in writing from making further reports. A copy of each such report shall be incorporated into the Bank's Board of Directors' minutes.

   25. Notwithstanding any term of this ORDER to the contrary, the Commissioner and the Regional Director may, in their discretion, issue a written extension of time to the Bank, East-West, and/or to other persons subject to this ORDER, to comply with any requirements of this ORDER.

   26. Nothing in this ORDER shall be construed as permitting the Bank or East-West to violate any law, rule, regulation, or regulatory
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   bulletin to which the Bank or East-West is subject.

   27. In consideration of the foregoing ORDER, the Commissioner agrees not to pursue any further formal measures against the Bank, East-West, or any of their officers and directors, or their successors or assigns relative to this matter.

   This ORDER shall become effective immediately.

   The provisions of this ORDER shall be binding upon the Bank, East-West, and their directors, officers, employees, agents, and other institution-affiliated parties, and their successors and assigns.

   The provisions of the ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the Commissioner and the FDIC.

   This ORDER does not relieve the Bank, East-West, their respective Boards of Directors, or any of their respective officers, employees, agents, or their successors and assigns of any responsibilities or obligations such parties may have to comply with other actions or agreements entered by or with the Commissioner or Regional Director.

   Pursuant to delegated authority.

   Dated: May 26, 2004.

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