Mortgage

NewDay Financial fined for widespread cheating on licensing exams

Chief operating officer ordered to resign position

[Update 1: Article updated with a statement from NewDay]

NewDay Financial, which was already in hot water with the Consumer Financial Protection Bureau over its business practices, is now in the crosshairs of another financial regulator, this time for rampant cheating on mortgage loan originator license testing.

The Multi-State Mortgage Committee announced Monday a settlement agreement between 43 state mortgage regulators and NewDay, stemming from an investigation into allegations of extensive cheating on mortgage loan originator testing required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.

Under the terms of the settlement, NewDay was fined $5,280,000 for the violations.

“As soon as we became aware of the wrongdoing, we initiated an internal investigation, self-reported the issues to our regulators and took aggressive steps to correct the mistakes and ensure they can never be repeated,” NewDay said in a statement.

“We did all of these things because we have a responsibility to our nation’s Veterans to always act with integrity in everything we do,” NewDay continued. “We remain committed to providing financial solutions that improve the lives of our nation’s Veterans. To be clear, while we take this issue seriously, we also believe it is important to note that there was not a single suggestion of direct harm to our borrowers.”

According to the MMC, employees of NewDay violated the Nationwide Mortgage Licensing System & Registry’s rules of conduct by taking information from the testing program and storing the information for the purpose of teaching other employees what was on the test.

Additionally, the MMC said that several NewDay employees admitted that members of NewDay’s compliance staff would take continuing education course and quiz requirements on behalf of the company’s employees, and in some cases, receive compensation for taking the tests for others.

According to the consent order, at least 20 NewDay employees admitted that other NewDay employees had taken their continuing education requirements for them, stretching back to December 2005 and continuing until the practice was uncovered as part of the investigation.

Among the NewDay employees who had their continuing education courses taken for them were NewDay’s chief executive officer, Robert Posner and NewDay’s chief operating officer, Paul Alger.

An investigation by the state of Maryland determined that Posner had continuing education requirements completed for him by other employees at least 18 times. The MMC said that Posner stated that he was unaware of his requirements and only became aware of this activity after the initial complaint was disclosed to NewDay.

Alger also acknowledged that members of the NewDay compliance team took continuing education courses for him at least 18 times as well. Like Posner, Alger also contended that he was unaware of the continuing education requirements and became aware of it when the initial compliant was filed.

But the Maryland investigation found that Alger not only had “direct knowledge” of the testing requirements, but also the fact that other NewDay employees were taking the tests for him and also condoned these acts while they were occurring.

As part of the settlement, Alger will be removed from his role as COO, but may maintain his ownership interest in NewDay and “may remain employed with New Day, however, he shall not hold any position that would be deemed a ‘control person’ under the NMLS standards or a position in senior management, either by title or by action,” the MMC said in the settlement agreement.

Additionally, the MMC said that NewDay is required to hire an independent auditor to evaluate NewDay’s policies and procedures and review NewDay’s training and education program to determine if additional “remedial action” is necessary. The auditor is to report back to the MMC within 270 days after being retained, with a follow-up report 270 days thereafter, the MMC said.

NewDay is also required to submit a report from NewDay within 270 days, “identifying the manner in which the company proposes improving its corporate management and governance structures, with an eye to best business practices for a mortgage company of its size and scope of business.”

According to the MMC, mortgage regulators from the following states participated in the agreement: Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming, and the District of Columbia.

“The MMC coordinated the investigation of this matter, identifying a pattern of inappropriate conduct, and negotiated, on behalf of the participating state regulators, a resolution that will permit the company to continue to operate while ensuring compliance with all state and federal laws,” said Karyn Tierney, chair of the MMC and deputy commissioner of the Arkansas Securities Department.

“This case demonstrates the manner by which state mortgage regulators cooperate to more efficiently and effectively supervise mortgage companies, including resolving compliance issues through a coordinated enforcement action,” Tierney continued.

Click here to see a copy of the consent order detailing the charges against NewDay.

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