By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

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

FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST

In the Matter of

NOVASTAR HOME MORTGAGE, INC.;
and SERGE BEVIL, individually;
Kansas City, Missouri

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

The Commissioner of Banks ("Commissioner") having determined that NOVASTAR HOME MORTGAGE, INC. ("NovaStar Home Mortgage" or the "Corporation"), located at 8140 Ward Parkway, Kansas City, Missouri 64114 has engaged, or is engaged in, or is about to engage in, acts or practices constituting violations of Massachusetts General Laws chapter 255E, and applicable regulations found at 209 CMR 42.00 et seq., hereby issues the following FINDINGS OF FACT AND TEMPORARY ORDER TO CEASE AND DESIST ("TEMPORARY ORDER") pursuant to General Laws chapter 255E, section 7(b).

FINDINGS OF FACT

  1. The Division of Banks ("Division"), through the Commissioner, has jurisdiction over the licensing and regulation of persons and entities engaged in the business of either a mortgage lender or a mortgage broker in Massachusetts, or both, pursuant to Massachusetts General Laws chapter 255E, section 2.

  2. NovaStar Home Mortgage is, and at all relevant times, has been a corporation organized under the laws of the State of Delaware. NovaStar Home Mortgage is licensed by the Commissioner as a mortgage lender and mortgage broker as required by Massachusetts General Laws chapter 255E, section 2. The Commissioner issued NovaStar Home Mortgage's initial license to engage in the business of a mortgage lender and mortgage broker in the Commonwealth of Massachusetts on July 13, 2001.

  3. NovaStar Home Mortgage is licensed by the Commissioner to conduct business as a mortgage lender and mortgage broker at 607 Main Avenue, Norwalk, Connecticut, 06851 according to records maintained on file with the Division. According to records submitted by the Corporation to the Division, Serge Bevil has been, and continues to perform in the capacity of a branch manager for the aforementioned licensed location.

  4. However, as of the effective date of this ORDER, NovaStar Home Mortgage has neither applied for, nor obtained, a mortgage lender or mortgage broker license from the Commissioner pursuant to Massachusetts General Laws chapter 255E, section 2, to engage in the business of a mortgage lender or mortgage broker company at 200 Baker Avenue, Suite 101, Concord, Massachusetts.

A. Conducting Business with an Unlicensed Mortgage Broker in the Corporation's Capacity as a Mortgage Broker

  1. Pursuant to Massachusetts General Laws chapter 255E, section 8, the Division conducted an examination/inspection of the books, papers, records, and files maintained at 200 Baker Avenue, Suite 101, Concord, Massachusetts on September 26, 2003.

  2. During the course of the inspection, the Division's examiners observed the following loan files maintained in the Corporation's books and records which disclosed NovaStar Home Mortgage as the mortgage broker in mortgage loan transactions on residential property located in Massachusetts. The loan files inspected by the examiners which contained documents disclosing NovaStar Home Mortgage as the mortgage broker in the mortgage loan transaction, included, but were not limited to, the following:

Loan Number Situs of Property Settlement Date
636891804Raynham, MAJune 3, 2003
636893203Seekonk, MAJune 4, 2003
636916302West Wareham, MAJune 10, 2003
636892111Boston, MAJune 11, 2003
00009232389Billerica, MAJune 24, 2003

  1. In each of the mortgage loan transactions indicated in Section 5 of this ORDER, the corresponding settlement statement, in the section of the document reserved for "Items payable in Connection with the Loan," disclosed the payment of origination fees to NovaStar Home Mortgage as compensation for the Corporation's rendering of mortgage broker services in the identified transactions.

  2. In each of the mortgage loan transactions indicated in Section 5 of this ORDER, the corresponding settlement statement, in the section of the document reserved for "Items payable in Connection with the Loan," further disclosed the payment of fees and expenses commonly associated with the costs of negotiating or placing a residential mortgage loan to "KN Mgt. [Management]." The fees and expenses paid to KN Management included appraisal fees, credit report fees, courier fees, processing fees, application fees, and flood certification fees.

  3. The Division has obtained documents suggesting that KN Management is a company located and operating at 200 Baker Avenue, Suite 101, Concord, Massachusetts.

  4. As of the effective date of this TEMPORARY ORDER, KN Management has neither applied for, nor obtained, a mortgage lender or mortgage broker license from the Commissioner pursuant to Massachusetts General Laws chapter 255E, section 2, to engage in the business of a mortgage lender or mortgage broker company in the Commonwealth.

  5. The Office of the Attorney General of Massachusetts regulation 940 CMR 8.06(9) prohibits a mortgage broker from conducting business with a person which should be licensed under Massachusetts General Laws chapter 255E and which it knows or should know is an unlicensed mortgage broker.

B. Conducting Business with an Unlicensed Mortgage Broker in the Corporation's Capacity as a Mortgage Lender

  1. During the course of the inspection, the Division's examiners reviewed a mortgage loan file, maintained in the Corporation's books and records, which contained documentation relating to a consumer's (the "Applicant") application for the refinancing of a mortgage loan held on a residential property located in Leominster, Massachusetts. The loan file inspected by the examiners contained a document, issued by NovaStar Home Mortgage to the Applicant, which constituted a notice of denial of the application for an extension of credit.

  2. The loan file referenced above in Section 12 also contained the Applicant's completed application for the extension of credit on the subject property. The completed loan application was taken by telephone and was accepted by Approved Discount Mortgage, LLC, 200 Baker Avenue, Suite 101, Concord, Massachusetts on April 15, 2003.

  3. The books, papers, records, and files maintained at the 200 Baker Avenue, Suite 101, Concord, Massachusetts location further indicated NovaStar Home Mortgage's participation in the following transactions in which Approved Discount Mortgage, LLC was performing in the capacity of a mortgage broker relative to residential property in Massachusetts:

Loan Number Situs of Property Settlement Date
636849128Burlington, MAMay 20, 2003
0048367726-9502Worcester, MAMay 29, 2003
636891804Raynham, MAJune 3, 2003
636916302West Wareham, MAJune 10, 2003

  1. As of the effective date of this TEMPORARY ORDER, Approved Discount Mortgage, LLC has not obtained a mortgage lender or mortgage broker license from the Commissioner pursuant to Massachusetts General Laws chapter 255E, section 2, to engage in the business of a mortgage lender or mortgage broker company in the Commonwealth.

C. Conducting Business under Massachusetts General Laws chapter 255E, section 2 Through an Unlicensed Person Operating on the Corporation's Behalf

  1. On February 10, 2003, NovaStar Home Mortgage submitted to the Division an application to obtain a mortgage lender and mortgage broker license which, if approved by the Commissioner, would authorize the Corporation to engage in business under Massachusetts General Laws chapter 255E, section 2 at 607 Main Avenue, Norwalk, Connecticut, 06851. The license application designated Serge Bevil as the individual selected by NovaStar Home Mortgage to perform in the capacity of a branch manager at the subject location.

  2. On February 26, 2003, the Commissioner issued mortgage lender and mortgage broker license number MC3010 and thereby authorized NovaStar Home Mortgage to conduct business under Massachusetts General Laws chapter 255E, section 2 at 607 Main Avenue, Norwalk, Connecticut, 06851.

  3. Massachusetts General Laws chapter 255E, section 2 states, in part, that,:

    No person shall act as a mortgage broker or mortgage lender with respect to residential property unless first obtaining a license from the commissioner; provided, however, that any person who is employed by or associated with a licensed mortgage broker or mortgage lender in the capacity of a mortgage broker or mortgage lender under the direction of said licensed mortgage broker or mortgage lender shall not be required to obtain such license.

  4. The Division's position on the licensing requirements of Massachusetts General Laws chapter 255E, section 2 has been, and is, that in order for a person to qualify for the exemption from the licensing requirement of the statute, the following conditions must be satisfied prior to engaging in the licensed activity:

    1. the individual must be exclusively employed by the person or entity licensed under Massachusetts General Laws chapter 255E, section 2;

    2. the individual must complete and submit to the Division an affidavit that certifies that the condition of subsection (a) is met;

    3. the individual seeking to claim such an exemption must be primarily engaged in the activity that the individual is seeking to perform under the direction of a licensed mortgage lender or mortgage broker; and

    4. the licensed person or entity must complete and submit to the Division a Statement of Accountability of all of the activities of the individual who is sought to be exempted from licensing.

  5. During the course of the inspection, the Division's examiners reviewed the following mortgage loan files, maintained in the Corporation's books and records, which contained completed mortgage loan applications in which Serge Bevil accepted the application on behalf of multiple entities, both licensed and unlicensed by the Commissioner under Massachusetts General Laws chapter 255E, section 2:

Loan Number Situs of Property Entity Accepting Application License Status(at Application)
636892111Boston, MANovaStar Home MortgageLicensed
636891804Raynham, MAApproved Discount Mortgage, LLCUnlicensed
0000932444Attleboro, MAPlatinum Capital GroupUnlicensed

  1. On or about March 19, 2003, Serge Bevil signed and submitted a letter to the Division in support of the license application of another individual seeking a license from the Commissioner under Massachusetts General Laws chapter 255E, section 2. The letter submitted by Serge Bevil appeared on the letterhead of Landmark Financial, located at 607 Main Avenue, Norwalk, Connecticut, 06851 and represented Serge Bevil as the owner of Landmark Financial.

    CONCLUSIONS OF LAW

  2. Based upon the information contained in paragraphs 1 through 21, NovaStar Home Mortgage is not an entity otherwise exempted from the licensing requirements of Massachusetts General Laws chapter 255E, section 2 for those engaged in the business of a mortgage lender or mortgage broker company, or both, in Massachusetts.

  3. Based upon the information contained in paragraphs 1 through 21, NovaStar Home Mortgage has engaged in the business of a mortgage lender and mortgage broker in Massachusetts, as those activities are defined under Massachusetts General Laws chapter 255E, section 1, at 200 Baker Avenue, Suite 101, Concord, Massachusetts, during all relevant times, without a license to conduct business at such location.

  4. Based upon the information contained in paragraphs 1 through 21, NovaStar Home Mortgage, while acting in the capacity of a mortgage broker, has unlawfully conducted 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.

  5. Based upon the information contained in paragraphs 1 through 21, NovaStar Home Mortgage, while acting in the capacity of a mortgage lender, has unlawfully conducted 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.

  6. Based upon the information contained in paragraphs 1 through 21, Serge Bevil is not exclusively employed in the business of a mortgage lender or mortgage broker by NovaStar Home Mortgage.

  7. Based upon the information contained in paragraphs 1 through 21, NovaStar Home Mortgage, while acting in the capacity of a mortgage broker, has conducted business through Serge Bevil, an individual that is neither exclusively employed in the business of a mortgage lender or mortgage broker by NovaStar Home Mortgage nor individually licensed to engage in such activity by the Commissioner and an individual who performed on behalf of multiple unlicensed entities relative to residential property in Massachusetts.

  8. Based upon the information contained in paragraphs 1 through 21, the Commissioner has determined that:

    1. NovaStar Home Mortgage has engaged, or is about to engage in, acts or practices which warrant the belief that the Corporation is not operating honestly, fairly, soundly and efficiently in the public interest in violation of standards governing the licensing and conduct of a mortgage broker including, but not limited to, the provisions of the Division's regulations at 209 CMR 42.00 et seq.

    2. The public interest will be irreparably harmed by delay in issuing an ORDER TO CEASE AND DESIST to NovaStar Home Mortgage.

    ORDER TO CEASE AND DESIST

  9. After taking into consideration the FINDINGS OF FACT and CONCLUSIONS OF LAW stated herein, it is hereby:

  10. ORDERED that NovaStar Home Mortgage, its officers, directors, employees, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage broker, as defined under Massachusetts General Laws chapter 255E, §1, relative to any residential property in Massachusetts, not otherwise expressly permitted by the terms of this TEMPORARY ORDER. Therefore, NovaStar Home Mortgage is ordered to immediately cease soliciting or accepting residential mortgage loan applications from consumers for residential property located in Massachusetts.

  11. IT IS FURTHER ORDERED that NovaStar Home Mortgage, its officers, directors, employees, and their successors or assigns, shall immediately cease engaging in the activities of a mortgage lender, as defined under Massachusetts General Laws chapter 255E, §1, relative to any residential property in Massachusetts.

  12. IT IS FURTHER ORDERED that NovaStar Home Mortgage shall immediately place any fees previously collected from Massachusetts consumers relative to any pending mortgage loan applications in a separate escrow account maintained at a federally insured bank.

  13. IT IS FURTHER ORDERED that NovaStar Home Mortgage shall place its entire open application list to a qualified lender with no loss to applicants. The open application list to be placed with a qualified lender shall include all transactions in which NovaStar Home Mortgage was performing in the capacity of either a mortgage broker or a mortgage lender. NovaStar Home Mortgage shall obtain the prior approval of the Commissioner before placing such applications to the qualified lender.

  14. IT IS FURTHER ORDERED that NovaStar Home Mortgage shall submit to the Commissioner a detailed record of all of the Corporation's pending residential mortgage loan applications on property located in Massachusetts. The records to be produced shall be submitted to the Commissioner within five (5) days of the effective date of this TEMPORARY ORDER and shall include all information on file, regarding NovaStar Home Mortgage's open application list, including but not necessarily limited to, the following:

    The names of all individuals from whom NovaStar Home Mortgage has accepted an application for a residential mortgage loan; the applicants' addresses and telephone numbers; the amount of all prepaid loan fees submitted by the customer; the amount of each loan; application status (i.e. filed, submitted to lenders); scheduled closing dates; an indication of whether NovaStar Home Mortgage was performing in the capacity of a mortgage broker or a mortgage lender in the transaction; and a list of applicable wholesale lenders. The latter list should include telephone numbers of contact persons familiar with NovaStar Home Mortgage's submitted loans.

  15. IT IS FURTHER ORDERED that NovaStar Home Mortgage shall immediately secure all pending mortgage loan application files and shall make such files, in their entirety, available to the Commissioner upon request.

  16. IT IS FURTHER ORDERED that NovaStar Home Mortgage shall submit to the Commissioner the Corporation's year-to-date balance sheet and statement of income and expense. The balance sheet should indicate NovaStar Home Mortgage's cash position at each of its depository banks as well as the corresponding bank account numbers. The balance sheet and statement of income and expense shall be signed and dated by an authorized officer of NovaStar Home Mortgage under the pains and penalties of perjury to certify that the information reported is true and accurate and prepared in accordance with generally accepted accounting principles.

  17. IT IS FURTHER ORDERED that this TEMPORARY ORDER shall become effective immediately and shall remain in effect unless set aside, limited, or suspended by the Commissioner or upon court order after review under General Laws chapter 30A.

  18. IT IS FURTHER ORDERED that a hearing will be scheduled on this matter to determine whether or not such TEMPORARY ORDER shall become permanent and final only upon receipt of a written request for such a hearing from NovaStar Home Mortgage within twenty (20) days of the effective date of this TEMPORARY ORDER. If no hearing is requested within this twenty (20) day period, this TEMPORARY ORDER shall become permanent and final until it is modified or vacated by the Commissioner.

By ORDER AND direction of the Commissioner of Banks.

Dated at Boston, Massachusetts, this 31st day of October, 2003.

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