Sterling Bancorp in Southfield, Mich., seems to be getting closer to putting a mortgage scandal in the rearview mirror.
The Office of the Comptroller of the Currency has barred the company’s founder and a former CEO from the banking industry in connection to their roles in the defunct Advantage Loan Program.
The OCC issued penalties against Scott Seligman and Thomas Lopp in separate consent orders. Seligman, who wasn’t a bank officer, was cited for conduct that contributed to the bank violating the Ability to Repay rule with the Advantage Loan Program.
“The bank originated ALP loans without making a reasonable and good faith determination of applicants’ ability to repay the loan and did not ensure that documents used to verify applicants’ employment, income, and assets were obtained from third parties and were reasonably reliable,” Seligman’s consent order said.
The OCC said in its order against Lopp that the former chairman, president and CEO failed to “appropriately oversee” the mortgage program, supervise employees, and intervene when an individual, presumably Seligman, issued directives to employees.
Lopp’s failures “contributed to a poor compliance culture at the bank,” his order said.
Seligman and Lopp consented to their orders without admitting or denying wrongdoing. Seligman was assessed a $400,000 civil money penalty, while Lopp was fined $150,000.
The consent orders indicates that the OCC “appears to have completed its investigations” of bank-related parties, Thomas O’Brien, hired as chairman, president and CEO in 2020 to turn Sterling around, said in a press release.
“These current regulatory orders, civil money penalties and banking industry prohibitions are a stark reminder of the damage caused by certain individuals,” O’Brien added. “The price we have paid was steep and it is only through the hard work of Sterling’s board and management that the company and the bank are today in the strong position that both enjoy.”
Issues surfaced with the low-documentation mortgage program in 2019. In June 2019, Sterling agreed to a formal agreement with the OCC tied to Bank Secrecy Act and anti-money laundering compliance. The OCC claimed that the bank originated numerous loans that were based on false or fraudulent loan information.
Sterling fired several employees and abruptly discontinued the mortgage program in December 2019 after discovering alleged fraud. Suspension of the program created a significant revenue hole for Sterling.
Lopp, who was promoted to CEO shortly before the mortgage program was discontinued, resigned in May 2020, citing health reasons. A month later, Sterling hired O’Brien.
O’Brien closed branches, returned Sterling to profitability and started working on resolving regulatory and legal issues.
Sterling agreed in September 2022 to pay a $6 million civil money penalty to the OCC and a $12.5 million payment to address a class-action lawsuit. At that time, it was freed from the 2019 written agreement.
Sterling then agreed to pay $27.2 million in restitution to non-insider shareholders as part of a plea agreement with the Justice Department. It also agreed to further enhance its compliance program and internal controls.
The Securities and Exchange Commission announced last June that it did not plan to pursue an enforcement action against Sterling.