The embattled Mortgage Lenders Network USA, which has been building this state-of-the-art, 305,000-square-foot facility in Wallingford, has received a cease-and-desist order from the state Department of Banking.

The Connecticut Department of Banking has issued a temporary cease-and-desist order to embattled Middletown-based Mortgage Lenders Network USA, citing several possible violations, including the subprime lender’s failure to pay loan proceeds to at least 75 Connecticut borrowers after agreeing to make the loan.

The order, issued last Friday, requires the company to cease and desist all actions that could violate Connecticut law, and notified the company that fines of up to $100,000 per violation could be issued. The order also said that from July 13, 2006, to Jan. 2 of this year, MLN made at least 1,409 loans in states other than Connecticut but failed to disburse the funds in a timely manner.

“This order comes after days of negotiation between eight states and the company in an attempt to have MLN fund as many outstanding loans as possible,” Connecticut Banking Commissioner Howard Pitkin said in a prepared statement. “My primary responsibility is the protection of the citizens of Connecticut; therefore, time was given to the company to complete a deal to fund the loans. As a result, nearly 400 of the outstanding loans were funded nationally.”

Banking departments in five New England states – as well as New York, Pennsylvania and Michigan – were involved in the efforts, according to the Connecticut DOB.

MLN is a subprime lending company that closed down its wholesale business earlier this month and furloughed 880 of its 1,900 employees.

‘An Overall Process’

In an e-mail statement, Mitch Heffernan, chief executive officer of Mortgage Lenders Network, said, “The issuance of the notices and orders is part of an overall process in which the company and its regulators continue to work together to resolve all outstanding consumer concerns so that the company will be able to move forward with its business.”

The cease-and-desist order went on to describe other possible violations, some of which did not involve MLN’s failure, to fund loans it had promised to borrowers.

According to the order, between Dec. 22 and Dec.29 of last year, MLN agreed to fund at least 18 secondary mortgages on Connecticut properties, but failed to fund the loans in a timely manner. The company also issued commitments for 23 first or second mortgages in Connecticut between Dec. 29 and Jan. 3 of this year, but failed to close the loans.

Last month, on Dec. 13 – around the time when rumors about MLN’s problems began circulating – the Connecticut DOB requested that the company provide information about its loan portfolio, financial statements, warehouse line account statements, a statement of good standing from each of its warehouse lenders, statements from warehouse lenders indicating the amount currently outstanding and the currently available funds and total line of credit, and specific information about the funding of loans to borrowers. But, according to the order, MLN failed to provide the information.

A couple of weeks later, on Dec. 29, the DOB sent a letter to MLN giving the company an opportunity to show compliance in order to retain its licenses. The letter included a request for written statements from MLN’s warehouse lenders detailing their current position on their relationship with the company.

MLN responded on Jan. 2 but did not provide the information the DOB requested, according to the order, which reads, “The commissioner was not persuaded that respondent showed any such compliance.”

The order cited some earlier possible violations, as well.

During the two years between August 2004 and August 2006, MLN employed or retained at least 40 originators without registering them, according to the order.

From March 15 to Aug. 26, 2006, MLN refinanced at least four first mortgage loans for customers in Connecticut and imposed prepaid finance charges that, when aggregated with the charges on earlier loans made by MLN, exceeded 5 percent of the principal amount, which is not allowed under Connecticut law. A similar incident happened last July, when MLN refinanced one first mortgage loan and also imposed prepaid finance charges of more than 5 percent, according to the order.

MLN has been building a state-of-the-art, 305,000-square-foot facility in Wallingford and had hoped to bring 1,000 new jobs to the state. Executives said earlier this month that the project had not experienced a “change in direction.”

Despite the recent difficulties of subprime lenders across the country, it was not subprime loans that prompted the company to shut down its wholesale lending division and furlough the employees.

Heffernan last week told American Banker that the company mispriced its A++ loans last year. He told the publication that the suffering mortgage market compounded its problems when warehouse lenders started marking down its loans, and not just the $600 million worth of loans it mispriced.