(Updates to add company response in paragraphs 10-11)
The Consumer Financial Protection Bureau (CFPB) took action against New Day Financial, also called NewDay USA, for deceiving servicemembers and veterans seeking cash-out refinance loans.
The CFPB on Aug. 29 found that NewDay USA gave misleading and incomplete cost comparisons to borrowers refinancing in North Carolina, Maine, and Minnesota. These cost comparisons made the company’s loans appear less expensive relative to their existing mortgages.
“NewDay USA baited veterans and military families into cash-out refinance mortgages by hiding the true costs of these loans,” CFPB Director Rohit Chopra said. “NewDay USA’s misconduct has no place in the VA home loan program.”
The CFPB is ordering NewDay USA to pay a $2.25 million civil penalty to the CFPB’s victims relief fund.
The non-bank direct mortgage lender headquartered in West Palm Beach, Fla., specializes in offering mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). The company currently operates under the brand NewDay USA and uses patriotic imagery and other marketing tactics to build trust with military-connected families.
NewDay USA gave borrowers misleading information about the costs of its cash-out refinances, the CFPB said. NewDay USA originated at least 3,000 cash-out refinances in North Carolina and Maine through 2020 and Minnesota through 2018, most of which included these misleading comparisons.
The CFPB, VA, and Ginnie Mae have long been concerned about the practice known as loan “churning,” where lenders aggressively push veterans to repeatedly refinance their VA home loans, often unnecessarily. In some cases, after a veteran had obtained a cash-out refinance loan with a high rate and bad terms, they would quickly be inundated with refinance offers advertising a lower rate at an additional cost. While mortgage lenders profited from refinancing VA home loans through fees and selling the loans on the secondary market, borrowers may have faced higher overall costs, CFPB officials said.
Ginnie Mae had previously taken action against several lenders – including NewDay USA – over concerns about loan churning. The CFPB also previously took action against New Day Financial in 2015 for paying illegal kickbacks and deceiving borrowers about a veterans’ organization’s endorsement of NewDay USA products.
In addition to paying a $2.25 million fine, NewDay USA was ordered to stop misrepresenting loan costs to borrowers.
In response, NewDay USA noted it operates in 44 states and the District of Columbia and that the CFPB claims involved only three of those states. The company said the claims focused on a single type of disclosure that was accurately provided to consumers on a half-dozen other federally mandated disclosures and closing documents.
“NewDay USA has been under CFPB scrutiny for nearly a decade, beginning with a 2015 inquiry, when the agency decided to create new law questioning our marketing partnership with the Veterans of Foreign Wars. It was unprecedented,” NewDay USA CEO Rob Posner said. “Today, after yet another exhaustive, government-funded investigation, the CFPB has unearthed nothing more than clerical errors that caused no financial harm to Veteran borrowers.”