Item
1.01 Entry Into a Material Definitive Agreement
On April
22, 2009, First Mariner Bank (the “Bank”), a wholly-owned subsidiary of First
Mariner Bancorp, entered into an agreement (the “Consent Agreement”) with the
Federal Deposit Insurance Corporation (the “FDIC”) relating to alleged
violations of consumer protection regulations relative to its fair lending
practices pursuant to which it consented to the issuance of a Order to Cease and
Desist, Order for Restitution, and Order to Pay (the “Order”). The Bank did not
admit to the FDIC’s allegations that it discriminated against any “protected
class” borrowers on a limited number of loans, many of them made to Hispanic
borrowers in Northern Virginia, but agreed to settle the dispute to avoid
further distraction and litigation expense. The following summaries
of the Consent Agreement and the Order are qualified by reference to the actual
text of such documents, copies of which are attached hereto as Exhibits 10.1 and
10.2, respectively, and incorporated herein by reference.
The
Consent Agreement and Order are based on findings by the FDIC that the Bank
allegedly engaged in acts of discrimination in violation of the Equal Credit
Opportunity Act (the “ECOA”) and the Fair Housing Act (the “FHA”) in 2005, 2006
and 2007 and in violation of Section 5 of the Federal Trade Commission Act
(“Section 5”) in 2006 and 2007. The alleged violations of the ECOA
and the FHA are based on the FDIC’s belief that the Bank charged higher prices
certain Hispanic, African American and female borrowers (“Affected Borrowers”)
under residential mortgage loans, in the form of discretionary interest rate and
point “overages”, than it charged to similarly-situated non-minority
borrowers. The alleged violations of Section 5 are based on the
FDIC’s belief that the Bank’s disclosures for its payment-option adjustable-rate
mortgage loans contained misleading information regarding the costs of the
loans.
By
signing the Consent Agreement, the Bank consented to the issuance of the Order
and the FDIC agreed to take no further action against the Bank in respect of the
alleged violations. The Order requires the Bank to pay up to $950,000
in restitution to the Affected Borrowers. It also imposes a civil
money penalty of $50,000. The Bank had reserved $950,000 in the final
quarter of 2008 to cover the cost of settling the claims of the Affected
Borrowers. Other than requiring the Bank to cease and desist from
violating the ECOA, the FHA and Section 5, the Bank must develop and implement
policies and procedures to (i) monitor and ensure compliance with fair
lending laws and disclosure laws and regulations, (ii) ensure that the costs,
terms, features and risks of the loans and services are adequately disclosed to
applicants, and (iii) ensure the composition, qualifications, objectivity and
independence of the internal auditor, audit staff and Audit
Committee. The Bank must also conduct or sponsor quarterly financial
literacy and education courses where it provides residential mortgage
loans. Further, the Bank is prohibited from offering “payment-option”
adjustable rate mortgage loans, although the Bank ceased offering these loans in
2007. Management believes that neither the Consent Agreement nor the
Order will have a material impact on the Bank’s financial performance in
2009.
This Item
1.01 contains forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995. Forward-looking statements do not
represent historical facts, but are statements about management’s beliefs, plans
and objectives about the future, as well as its assumptions and judgments
concerning such beliefs, plans and objectives. These statements are
evidenced by terms such as “anticipate”, “estimate”, “should”, “expect”,
“believe”, “intend”, and similar expressions. Although these
statements reflect management’s good faith beliefs and projections, they are not
guarantees of future performance and they may not prove true. These
projections involve risk and uncertainties that could cause actual results to
differ materially from those addressed in the forward-looking
statements. For a discussion of these risks and uncertainties, see
the section of the periodic reports that First Mariner Bancorp files with the
Securities and Exchange Commission entitled “Risk
Factors”.
The exhibits that are filed or furnished within this report are listed in
the Exhibit Index that immediately follows the signatures hereto, which list is
incorporated herein by reference.