Lender will get a new owner; Commerce to sell East-West.
WORCESTER - Commerce Bank and Trust Co. has struck a deal to sell its Marlboro-based mortgage lending subsidiary, 1-800-East-West Mortgage Co., to a group of investors led by East-West President David R. Bernotas.
"We've signed a definitive purchase agreement that has contingencies relative to licensing and other regulatory rules, which we are going through right now," Mr. Bernotas said.
He declined to identify the other investors or to disclose the agreed-upon sale price.
East-West is licensed as a mortgage lender in Florida and all of the New England states except Vermont. Mr. Bernotas said he expected to have the necessary regulatory approvals for the sale from those states and from the U.S. Department of Housing and Urban Development by the end of the year.
Commerce Bank President Brian W. Thompson also confirmed that a sale is pending.
"Nothing has happened yet," Mr. Thompson added. "But if successful, the business would be owned by a different owner."
East-West originates roughly $500 million in mortgage loans a year, which it then sells to other lenders in the secondary market, Mr. Bernotas said.
He said he expected East-West's senior management team to stay on after the sale and that the company would keep its headquarters in Marlboro. The only significant change in the business Mr. Bernotas said he could foresee is the potential to expand into other states.
He said East-West has weathered the real estate market's collapse and financial crisis in good shape because the majority of its loans are conventional mortgages, not the kinds of exotic financial products that got some lenders into trouble.
"We've been very fortunate. When the whole world melted down with the sub-prime market going awry, we weren't affected by that at all. We weren't dependant on those kinds of loans," he said.
But the bank subsidiary did find itself in regulatory trouble several years ago, before Mr. Bernotas took over as president and chief executive officer.
In 2005, East-West agreed to pay $150,000 to settle with federal regulators over charges of taking kickbacks in exchange for business referrals. East-West also agreed to stop accepting anything of value and cooperate with the federal investigation of lawyers, appraisers, title companies and others involved.
HUD and the Federal Deposit Insurance Corp. alleged that beginning in January 2002, East-West had a "give-to-get policy" under which it requested and accepted tens of thousand of dollars in gift certificates to upscale Boston-area restaurants and tickets to Boston Red Sox and New England Patriots games from closing lawyers and others involved in mortgage loans.
In return, East-West allegedly referred business to those lawyers and other businesses, according to the settlement agreement. East-West did not admit guilt or liability as part of the settlement.
Commerce Bank bought the mortgage company's assets in November 2000. In 2004, the bank agreed to reimburse East-West customers about $1 million as part of another settlement agreement with the state Division of Banks and the FDIC.
In that case, regulators said East-West failed to disclose that a mortgage application fee was nonrefundable among other issues.
Bob Kievra of the Telegram & Gazette staff contributed to this report.