By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE LENDER AND
MORTGAGE BROKER
LICENSING
Docket No. 2003-035-CO

CONSENT ORDER


In the Matter of
NOVASTAR HOME MORTGAGE, INC.
Kansas City, Missouri

Mortgage Lender and Mortgage Broker
License No. MC1834, et al.


WHEREAS, NovaStar Home Mortgage, Inc, Kansas City, Missouri ("NovaStar Home Mortgage" or the "Corporation"), a licensed mortgage lender and mortgage broker under Massachusetts General Laws chapter 255E, section 2 has been advised of its right to Notice and Hearing pursuant to General Laws chapter 255E, section 7(a), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("CONSENT AGREEMENT") with representatives of the Division of Banks ("Division") dated December 30, 2003, whereby, solely for the purpose of settling this matter, and without admitting any allegations or implications of fact or the existence of any violation of state or federal laws and regulations governing the conduct and operation of a mortgage lender and/or a mortgage broker, NovaStar Home Mortgage agrees to the issuance of this CONSENT ORDER ("ORDER") by the Commissioner of Banks ("Commissioner");

WHEREAS, pursuant to General Laws chapter 255E, section (7)(b), the Commissioner issued a Findings of Fact and Temporary Order to Cease and Desist, Docket No. 2003-035 (the "TEMPORARY ORDER"), against NovaStar Home Mortgage on October 31, 2003, as a result of, among other alleged violations, NovaStar Home Mortgage's alleged violation of applicable Massachusetts statutes and the Division's regulations which prohibit a mortgage lender or mortgage broker from conducting business with a person or entity which should be licensed under Massachusetts General Laws chapter 255E and which the Corporation knew or should have known was an unlicensed mortgage broker;

WHEREAS, prior to the issuance of the TEMPORARY ORDER, an examination/inspection of NovaStar Home Mortgage was conducted pursuant to General Laws chapter 255E, section 8, as of September 20, 2002, to assess the Corporation's level of compliance with applicable Massachusetts statutes and the Division's regulations governing the conduct of those engaged in the business of a mortgage lender and a mortgage broker, respectively, in the Commonwealth;

WHEREAS, the Report of Examination/Inspection (the "Report") issued pursuant to the Division's examination/inspection of NovaStar Home Mortgage as of September 20, 2002 alleged substantial non-compliance with applicable state and federal statutes, rules, and regulations governing the conduct of those engaged in the business of a mortgage lender and mortgage broker in Massachusetts;

WHEREAS, the Division drafted, and on May 21, 2003 NovaStar Home Mortgage received by certified mail, a copy of both (a) the Stipulation and Consent to the Issuance of a Consent Order and (b) the Consent Order, collectively No. 2003-009, which accompanied the Report and which sought to address the compliance matters identified during the Division's examination/inspection of NovaStar Home Mortgage as of September 20, 2002 and whereas, as of the effective date of this ORDER, the Division has not received from NovaStar Home Mortgage a signed copy of the Stipulation and Consent to the Issuance of a Consent Order referenced above;

WHEREAS, in recognition of the Division and NovaStar Home Mortgage having reached the following mutual agreement under this ORDER to resolve the matters raised by the TEMPORARY ORDER and the Report, the Commissioner has terminated the TEMPORARY ORDER on this day of December 2003; and

WHEREAS, the parties now seek to resolve by mutual agreement, the matters identified in the TEMPORARY ORDER.

ORDER

NOW COME the parties in the above-captioned matter, the Division and NovaStar Home Mortgage, and stipulate and agree as follows:

  1. Within thirty (30) days of the effective date of this ORDER, the senior officers of NovaStar Home Mortgage shall conduct a review of the Corporation's quality control procedures to ensure that adequate measures have been established and implemented to ensure that NovaStar Home Mortgage:

    1. In any transaction in which the consumer's application has been placed with NovaStar Home Mortgage by, through, or on behalf of any person or entity acting as a mortgage broker, the Corporation shall conduct reasonable due diligence, prior to accepting the loan application, to confirm that the mortgage loan application was obtained by a qualified mortgage broker authorized to engage in the business of a mortgage broker in Massachusetts;

    2. Refrains from either issuing or accepting any fee, payment, any portion thereof, or any other form of compensation, to or from any entity which is required to be licensed under Massachusetts General Laws chapter 255E, section 2 and which NovaStar Home Mortgage knows, or through reasonable efforts could know, has failed to obtain the relevant license from the Commissioner;

    3. Provides all applicable staff with adequate instruction and training to ensure proper implementation and execution of revised practices and procedures developed by the Corporation to prevent any participation in unlicensed activity under Massachusetts General Laws chapter 255E and the Division's regulation 209 CMR 42.00 et seq.; and

    4. Maintains a system of internal controls to monitor the Corporation's compliance with the revised practices and procedures established and implemented pursuant to this Section of the ORDER.

  2. Within thirty (30) days of the effective date of this ORDER, NovaStar Home Mortgage shall prepare and submit to the Commissioner an acceptable response to each of the matters cited in the "Examiner's Comments and Conclusions" section of the Report, pages 1-2 through 1-8, inclusive. NovaStar Home Mortgage's response to the Report shall incorporate, but shall not be limited to, ensuring the following:

    1. NovaStar Home Mortgage shall review and revise the Corporation's policies and procedures to ensure that all processing fees, loan fees, points, or similar fees collected as compensation for administrative costs incurred in originating the mortgage loan are not charged to consumers except to the extent that such fees or points have been properly disclosed to the consumer, in writing, prior to the closing of the mortgage loan;

    2. NovaStar Home Mortgage shall reimburse the borrower identified in the Report, where the amount actually paid by the borrower for processing fees and origination points, as recorded on the settlement agreement, exceeded the amount disclosed in writing as processing fees and origination points prior to closing. The amount of such reimbursement shall equal nine hundred and seventy-eight dollars ($978.00), the difference between the actual charge assessed to the individual borrower and the amount disclosed, in writing, prior to closing;

    3. With NovaStar Home Mortgage's first written progress report that is to be submitted to the Division pursuant to Section 6(c) of this ORDER, NovaStar Home Mortgage shall provide evidence of the refund issued to the borrower, including the borrower's name, the check number, and the amount of the reimbursement;

    4. NovaStar Home Mortgage, when acting in the capacity of a mortgage broker, shall immediately cease collecting loan discount fees from consumers or otherwise disclosing the Corporation's compensation derived from the mortgage loan transaction as a loan discount fee. Furthermore, NovaStar Home Mortgage, when acting in the capacity of either a mortgage lender or mortgage broker, shall revise its procedures to ensure that all loan fees, points, or other similar fees charged in a residential mortgage loan transaction are accurately and consistently disclosed to consumers in all documents prepared by the Corporation;

    5. The Corporation shall establish, implement, and maintain procedures and policies to monitor NovaStar Home Mortgage's compliance with the provisions of this Section of the ORDER and with the Massachusetts statutes and the Division's regulations governing the conduct of those engaged in the business of a mortgage lender and mortgage broker in Massachusetts. Such procedures and policies shall be designed to prevent the recurrence of the violations and areas of concern addressed in the Report; and

    6. NovaStar Home Mortgage shall establish, implement, and maintain procedures and policies to ensure that all applicable staff receives adequate instruction and ongoing, periodic training to ensure proper implementation and execution of the revised practices and procedures implemented pursuant to this Section of the ORDER.

  3. NovaStar Home Mortgage shall immediately cease engaging directly or indirectly in the business of a mortgage lender and/or mortgage broker at any location in the Commonwealth without first obtaining a license from the Commissioner for such location in accordance with Massachusetts General Laws chapter 255E, section 2.

    1. NovaStar Home Mortgage shall pay the amount of twenty-two thousand, five hundred dollars ($22,500.00) in satisfaction of an administrative penalty, collected in consideration of NovaStar Home Mortgage's alleged engaging in activity governed under Massachusetts General Laws chapter 255E with persons or entities which had not obtained a license from the Commissioner to engage in such activity. NovaStar Home Mortgage shall remit payment in full, payable to the "Commonwealth of Massachusetts," with the executed copy of the Consent Agreement, to the Office of the Commissioner of Banks, One South Station, 3 rd Floor, Boston, Massachusetts 02110. The Division shall remit the payment for deposit into the General Fund of the Commonwealth.

  4. NovaStar Home Mortgage shall maintain its books, records, accounts, and files for all Massachusetts residential mortgage loan transactions in accordance with the provisions of the Division's regulation 209 CMR 42.09 (1) and in a manner consistent with the terms of the Division's regulation 209 CMR 48.00 et seq.

    1. NovaStar Home Mortgage shall fully cooperate with the Division and certifies that during all future examinations/inspections of NovaStar Home Mortgage, the Division's examiners will have complete and timely access to the Corporation's books, records, and accounts in accordance with the Division's regulation 209 CMR 48.00 et seq. NovaStar Home Mortgage shall implement procedures to ensure the full cooperation of all NovaStar Home Mortgage employees with the Division, including employees at NovaStar Home Mortgage's licensed locations in the Commonwealth. Such procedures shall necessarily provide for complete and timely access to NovaStar Home Mortgage's books, records, and accounts which are maintained at a licensed location in Massachusetts; and

    2. Failure to provide the Division with complete and timely access to NovaStar Home Mortgage's books, records, and accounts in accordance with the standards of the Division's regulation 209 CMR 48.04(1) while this ORDER is in effect, shall constitute grounds for either the suspension of the Corporation's authority to maintain its books, records, and accounts for all Massachusetts residential mortgage loan transactions at a location outside the Commonwealth or the suspension or revocation of the Corporation's license(s) pursuant to the Division's regulation 209 CMR 48.06(2) and General Laws chapter 255E, section 6, or both, as the Commissioner finds appropriate.

  5. NovaStar Home Mortgage shall comply with all laws and regulations applicable to its conducting the business of a mortgage lender and mortgage broker, including, but not limited to, Massachusetts General Laws chapter 255E, and the Division's regulation 209 CMR 42.00 et seq. Such obligations shall necessarily include the duty to address and correct, within thirty (30) days from the effective date of this ORDER, all violations as specified in the Report and in accordance with Section 2 of this ORDER.

  6. On the thirtieth (30 th) day after the end of each calendar quarter following the date of this ORDER, NovaStar Home Mortgage shall furnish written progress reports to the Division, which shall address and include the following:

    1. A description of the form, content, and manner of any actions taken to address each Section of this ORDER and the results thereof;

    2. Written findings, signed by an authorized senior officer of the Corporation, detailing a review of management's and staff's adherence to the policies, programs, and procedures adopted pursuant to this ORDER and to applicable statutes, regulations, and rules, as well as a description of any initiatives implemented during such quarter which are intended to improve the Corporation's compliance condition in Massachusetts and the results thereof; and

    3. The first written progress report shall be submitted to the Division within thirty (30) days of the effective date of this ORDER.

  7. In consideration of the foregoing ORDER, the Division agrees not to pursue formal measures, relative to this matter, to suspend or revoke the Corporation's mortgage lender or mortgage broker license under General Laws chapter 255E, section 6 while this ORDER is in effect. However, the provisions of this ORDER shall not limit, estop, or otherwise prevent the Division, or any federal or state agency or department, from taking any other action affecting NovaStar Home Mortgage or any of its officers and directors, or their successors or assigns.

  8. Failure to comply with the provisions of this ORDER, as determined by the Division, shall constitute grounds for license suspension and/or revocation or other regulatory action under Massachusetts General Laws chapter 255E, section 6 and the Division's regulation, 209 CMR 42.00 et seq.

  9. This ORDER shall become effective immediately upon the date of its issuance.

  10. The provisions of this ORDER shall be binding upon NovaStar Home Mortgage, its officers and directors, and their successors or assigns.

  11. The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the Commissioner or upon an order of a court of competent jurisdiction.

  12. This ORDER and the CONSENT AGREEMENT are the complete documents representing the resolution of this matter. There are no other agreements between the Division and NovaStar Home Mortgage.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS:

Dated at Boston, Massachusetts, this 30th day of December, 2003.

By: Thomas J. Curry
Commissioner of Banks
Commonwealth of Massachusetts