New York Department of Financial Services Enforces Consent Order Against NewRez

Key Takeaways

• The New York Department of Financial Services and several other state regulators have entered into a settlement agreement with NewRez LLC following a multi-state examination.
• This enforcement action addresses noncompliance with the Real Estate Settlement Procedures Act (RESPA) regarding lender-placed insurance procedures.

Deep Dive

This regulatory action signifies the conclusion of a coordinated multi-state investigation led by the District of Columbia into the mortgage servicing operations of NewRez. For compliance teams, this highlights the increasing trend of "multi-state" or "collective" enforcement actions where regulators from various jurisdictions (including Connecticut, Georgia, Iowa, Mississippi, Pennsylvania, South and South Dakota, Texas, and Vermont) collaborate to address systemic issues through a single, unified settlement.

The core of the noncompliance identified in the Report of Examination (ROE) pertains to 12 C.F.R. § 1024.37, which governs lender-placed insurance (LPI). This regulation requires specific procedures when a mortgage lender purchases hazard, flood, or wind coverage on behalf of a borrower. The findings suggest that NewRez failed to adhere to the strict requirements of Regulation X, necessitating significant remediation for impacted borrowers and the implementation of new internal controls.

While the document does not specify a future deadline for the settlement itself, it notes that the examination period covered November 1, 2020, to October 31, 2021, and the Report of Examination was issued on September 12, 2022. Compliance professionals should note that NewRez has already implemented procedures designed to ensure future compliance with regulatory recommendations. The agreement serves as a formal closure to the specific findings in the ROE but leaves regulators with the authority to enforce statutes regarding any activities outside this scope.

For compliance professionals in the mortgage servicing sector, the recommended action is to conduct a thorough audit of lender-placed insurance (LPI) workflows and documentation processes. It is critical to ensure that all hazard and flood insurance applications strictly adhere to Regulation X requirements to avoid similar multi-state scrutiny. Furthermore, organizations should review their "remediation" protocols to ensure that when errors are identified, they are addressed promptly and transparently to mitigate the risk of escalated enforcement.

The risk implications are primarily centered on Consumer Protection and Operational Risk. Failure to maintain accurate and compliant servicing operations can lead to significant reputational damage, legal costs associated with multi-state settlements, and the potential for increased regulatory oversight. The impact assessment suggests that even if a firm does not admit wrongdoing, the cost of remediation and the burden of heightened supervision represent a tangible operational drain.

Source: New York Department of Financial Services