HCI Mortgage - Retail, Net Branch

Update - 2009-07-28: We had several unconfirmed reports that the Commonwealth of Pennsylvania Department of Banking was investigating other improprieties of HCI Mortgage, and on 2009-07-24 the story came out in the form of an "Order to Show Cause" filed against the company and its owner and CEO Richard Harsche.

The complaint cites Harsche's guilty plea to felony tax evasion in addition to HCI Mortgage's failure to comply with the "Assurance of Discontinuance" with New York's State Attorney General for the payment of $540,000 in fines for discriminatory practices.

Also outlined in the document was HCI's failure to meet the net worth requirement as determined by an examination by the department which commenced 2009-03-13, and the misappropriation of funds through an unnamed warehouse lender. Harsche is reported to have admitted an undisclosed amount of funds for a refinance transaction were diverted to the company's operating account.

The Order requests payment of a fine in the amount of $20,000 for "engaging in dishonest, fraudulent, illegal, unfair and unethical business practices," revocation of the company's license to do business, a ban against Richard Harsche from "engaging in any mortgage loan business," and reimbursement of the Department's $17,277.44 examination expense.

The company has the right to request an administrative hearing.

Original Listing 2009-07-23: We have spoken with former HCI Mortgage President Doug Lawrence who told us, "for all intents and purposes, HCI Mortgage is closed." This has been confirmed by other sources as well.

Lawrence had resigned from HCI effective 2009-03-01 due to owner Richard Harsche's "problems" with the IRS. Responding to other allegations we were investigating, Lawrence dismissed reports of loans that had remained unfunded since April of 2009 as "absolutely false," stating that "all approvals had been rescinded." He said there are "no plans at this time" for HCI Mortgage to file bankruptcy, and stressed that Harsche is not involved in the newly-formed company he currently operates out of HCI's old office in Newport Beach, CA whose name "will soon be announced."

Sentencing for former HCI Mortgage President, owner and CEO Richard Harsche has not yet been scheduled per public records. The Sarasota, FL bay-side vacation house (registered in wife Joyce's name per Manatee County records) remains on the market pending sale now for nearly 120 days at $899,000 per several listings (MLS #A3905393: 1, 2, 3, and Zillow).

Original Ailing listing - 2009-07-03: More than likely Lake Ariel, Pennsylvania-based Home Consultants Inc. (dba HCI Mortgage) is or will soon be out-of-business, perhaps in part due to a guilty plea from owner Richard Harsche. We've received a number of recent tips that point to a complete shutdown of the company and its network of retail and net branch offices. HCI had both a retail and net branch operation doing business in 25+ states per their branch recruiting web site (view cached). CityTownInfo lists 22 offices, but several sources we spoke with indicated the company had between 70 and 80 remote offices at peak.

We attempted to contact all of those 22 offices, and were met most often with "disconnected" or "invalid" numbers. The few that were still active phone listings were no longer operating as HCI Mortgage branches (and acknowledged such). The main office is answered by an auto-attendant that offers no access to a "live operater." A former office in Mississippi is forwarded the same location, along with the toll-free number for an office in California. The primary web site is no longer working. The Reverse Mortgage department web site is still active, but the phone is answered with a recording that says "the office has been closed."

A tipster writing on behalf of himself (and others) sent us an inquiry back in March saying they "have not been paid on loans closed over two months ago." Then a few weeks ago, we were told that HCI Lending had stopped doing business in New York, closed all of its branches in the state and surrendered the licenses. This was confirmed by additional sources:

"HCI Mortgage surrendered its NY License today (2009-05-08) due to its inability pay fines and its quarterly assessment from 2008. All branches in NY were terminated effective today... the quarterly assessment from q-4 2008 and q-1 2009 was never paid, they were officially suspended on Oct 18th [of 2008] and continued to do business until now."

To date, we have not been able to verify this with the PA or NY State Banking Departments, who declined to comment or acknowledge any pending actions and do not report any such activity on their respective web sites. As of the posting date, HUD still shows 10 locations in MI, PA, NJ and NY on its FHA-approved lender list, and Home Consultants Inc. is still listed as an active "Mortgage Lender" in the database of Pennsylvania's Department of Banking.

Our research led us to an article in the Pennsylvania Scranton Times from mid-April. HCI owner Richard Harsche plead guilty to "two federal counts, both related to tax evasion." From the article -- Lying to IRS costs man at least $500G:

"In 2003, Mr. Harsche filled out tax return documents listing his taxable income as $30,475, according to information provided in court. But IRS investigators said his taxable income was actually $411,983 and that he owed an additional $140,479 in unpaid taxes.

Assistant U.S. Attorney William Houser said Mr. Harsche spent $195,406 in 2002 to purchase a vacation home in Florida. Investigators say he bought the house using funds from four different companies he owned or ran -- Home Consultants Inc., Hamlin Village, OK Funding and First Penn Abstract -- and wrote the purchase off as a business expense.

Mr. Harsche also deposited almost $104,000 into Swiss bank accounts, writing it off as "interest expenses" generated by the companies, Mr. Houser said.Mr. Harsche also admitted to lying in IRS documents pertaining to a settlement he proposed for unpaid taxes he owed in 1992 through 1994. Mr. Houser said Mr. Harsche failed to list his ownership interest in a number of corporations he controlled, including Home Consultants Inc., also known as HCI Mortgage, which had a net value of more than $1 million."

The IRS case (still pending sentencing) could mean up to 10 years imprisonment and over half a million dollars in fines, fees and penalties for Harsche, but it's not the only legal trouble that's plagued the company of late. HCI Mortgage was one of two lenders that reached a settlement with New York Attorney General Andrew Cuomo in January of 2009 for discriminatory practices. According to the NY AG's press release, HCI Mortgage and Consumer One Mortgage were ordered to pay $665,000 in restitution for "illegally charging Black and Latino customers higher brokerage fees."

The company averaged $15.5 million per month in originations for 2007. That represents a big drop from average monthly volume in 2006 which topped $21.4 million, with a significant portion (more than 36% that year) of total applications coming from African American and Hispanic borrowers.

Former branches and their managers are still owed substantial reserve funds according to reports we received, a familiar story we've seen play out with other defunct net branch operations. Sources we spoke with said they never expect to see the monies returned, and wouldn't be surprised to see a bankruptcy filing.

Please contact us if you can provide additional information (past or present) on this company.