An Illinois bank company has closed its mortgage unit after an internal investigation found fraud, according to a filing with the Securities and Exchange Commission.

Castle BancGroup in De Kalb shuttered CasBanc Mortgage Inc. in January, the filing said, after uncovering irregularities in the underwriting and documentation of some mortgage loans it originated and sold. The irregularities include falsification of applicants' asset, income, and employment information, according to documents filed late last week.

Dewey Yaeger, president of $525 million-asset Castle BancGroup, said Monday that the company "was not in any position to comment" but that it was preparing a statement.

The investigation, by Castle BancGroup and an outside consultant, is ongoing. Accused are CasBanc Mortgage employees at several branches and at companies doing business with the unit. An appraisal company "inflated the value of property and thus made it appear that loans were secured fully when, in fact, they were not," the SEC filing said.

Castle BancGroup, which had a rough 1999, said in the SEC filing that its liquidity will be further damaged if it has to repurchase many of the loans under investigation.

Castle's earnings plummeted to $261,000 in 1999, from $4.7 million in 1998. It put most of the blame on the mortgage unit, which lost $3.8 million.

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