[Update: Updated with a statement from NewDay, and a clarification on the nature of the sanctions]
NewDay Financial, already punished this year by the Consumer Financial Protection Bureau for its business practices and by the Multi-State Mortgage Committee for widespread cheating on licensing exams, is now completely banned from lending in the state of New York due to that same cheating on licensing exams.
According to the New York Department of Financial Services, New Day Financial, which does business as NewDay USA, will pay a $1 million penalty to NYDFS and surrender its mortgage banker’s license to do business in New York after its employees, including senior executives, engaged an extensive scheme to cheat on state-required continuing education courses and exams.
NewDay is a Maryland-based, nonbank mortgage lender owned by Chrysalis Holdings, a private company. Its primary business is originating refinance mortgage loans guaranteed by the Veterans Administration.
The charges mark the second time in 2015 that NewDay has run afoul of regulators for cheating on exams.
Earlier this year, the Multi-State Mortgage Committee announced a settlement agreement between 43 state mortgage regulators and NewDay, stemming from an investigation into allegations of extensive cheating on mortgage loan originator testing.
Under the terms of that settlement, NewDay was fined $5,280,000 for the violations.
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.
In a statement, NewDay said that the sanctions stem from self-reported violations, all of which were remedied by the MMC settlement.
"As we already stated six months ago when this issue was first reported, 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," the company 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. "In fact, the vast majority of the issues raised by NYDFS, with the exception of a few matters from an exam almost four years ago, were fully addressed and resolved six months ago as part of a previously announced comprehensive agreement with a 43-state coalition. We not only stand by our management team, we are supremely confident in their ability and commitment to lead this company."
NewDay also noted that it elected to relinquish its mortgage lending license, rather than continue operating in the state of New York.
According to the NYDFS, at least 20 NewDay mortgage loan originators did not take the required continuing education courses and exams themselves. Instead, they had NewDay compliance staff take the required courses and exams on their behalf.
The NYDFS said that the cheating scheme extended all the way to NewDay’s chief executive officer.
According to the NYDFS, NewDay’s chief executive officer, Robert Posner, had continuing education requirements completed on his behalf by other employees on at least 18 occasions.
In addition, NewDay’s former chief operating officer, Paul Alger, who was forced to resign as part of the MMC settlement, had continuing education requirements completed on his behalf by other employees on at least 18 occasions, and, in at least one instance, directly asked a compliance staff member to take the required courses in his place.
Additionally, the NYDFS investigation revealed that on multiple occasions, NewDay loan originators told the former vice-president of training information they learned while taking Secure and Fair Enforcement for Mortgage Licensing Act MLO licensing exams.
On multiple occasions, NewDay loan originators took and shared with senior management and other MLOs screen-shots of questions included in the NMLS approved continuing education courses, the NYDFS said.
According to the NYDFS, NewDay’s former head of licensing arranged for compliance staff to take the required continuing education exams on behalf of NewDay MLOs.
Additionally, the former vice president of training encouraged MLOs to report back to NewDay staff with information MLOs acquired while taking SAFE MLO licensing exams in order to update NewDay’s internal test preparation materials for new MLOs.
The NYDFS also said that the former senior vice president of the reverse division was aware that NewDay MLOs took and shared screen-shots of materials included in the NMLS approved continuing education courses, and had personally received copies of these materials.
According to the NYDFS, despite NewDay’s decision to “terminate or separate from certain senior managers for their participation in or knowledge” in the cheating scheme, NewDay’s parent company, Chrysalis Holdings, subsequently rehired two of the former senior managers, which in the eyes of the NYDFS raised doubts regarding NewDay’s “purported concern for remedying its culture of fraud and dishonesty.”
The NYDFS also said that its examination uncovered numerous additional compliance failures, such as improper issuance of subprime home loans; misrepresenting loan terms; failing to provide discount points notification; failing to maintain minimum line of credit; and submitting false volume of operations report.
NewDay was already fined $2 million this year by the CFPB for deceptive mortgage advertising and kickbacks.
As part of that agreement, NewDay paid “lead generation fees” to the veterans’ organization and the broker company, in addition to paying a $15,000 monthly licensing fee to the broker company.
As part of this arrangement, NewDay was named the “exclusive lender” of the veterans’ organization.
However, at no point did NewDay disclose to consumers that the veterans’ organization had a financial relationship with NewDay.
“NewDay employees – including senior managers – participated in a widespread, extensive cheating scheme that casts serious doubt on the integrity of the company,” NYDFS Acting Superintendent Anthony Albanese said. “These exams are important because they help ensure that loan officers know and follow the law, and do not abuse homeowners. The type of dishonest conduct uncovered in this case is simply unacceptable and will not be tolerated in New York.”