Washington State regulators are proposing a hefty financial penalty against Newrez after charging the company with numerous mortgage servicing violations in response to an investigation into more than 125 consumer complaints.

The Washington State Department of Financial Institutions seeks to fine the lender and servicer nearly $4.2 million for repeated violations of consumer laws in the five-year period between 2021 and 2026. Regulators this week issued a statement of charges, which alleged Newrez provided inaccurate information about loans, escrow and insurance obligations to borrowers and credit bureaus, among a host of other accusations. 

"Washington homeowners rely on licensed mortgage servicers to correctly service their loans, and we will hold companies accountable when they put consumers at risk of losing their homes or when they financially harm consumers," state DFI director Charlie Clark said in a press release. 

The penalty is one of the largest ever sought by Washington regulators against a financial services company outside of multistate enforcement, officials also said. 

"DFI closely monitors consumer complaints and takes action when serious violations are discovered," Clark added. In addition to the fine, the statement of charges ordered Newrez to fix the issues behind the complaints, which first appeared in 2023, according to the department.  

The list of accusations note several infractions beginning from servicer loan onboarding and continuing through foreclosure and comes after an official state investigation into the complaints. 

• Incorrect onboarding of several loans, resulting in inaccurate credit reporting and escrow accounts, as well as errors related to private mortgage insurance obligations. 

• Payments applied incorrectly and inaccurate statements sent to borrowers on at least 16 occasions. 

• Improper servicer maintenance of escrow accounts for 62 Washington consumers, which led some homeowners already in compliance to unnecessarily purchase force placed insurance totaling over $67,000, Washington DFI said. 

• Unfair or deceptive practices against 29 homeowners, including failure to mediate in good faith during foreclosure or respond to consumer concerns promptly and delivery of misleading or inaccurate information. 

Newrez responds to accusations

In a statement, Newrez, which is a mortgage subsidiary of Rithm Capital, said it was disappointed by the "surprise nature" of Washington State's announcement and that charges arrived without warning or normal engagement. 

"While we are still reviewing the specifics of each claim, we fundamentally disagree with the state's charges and the way our practices have been characterized and intend to vigorously contest the action and its allegations," the company wrote in a statement to National Mortgage News. 

The Washington order allows Newrez to request a formal hearing on the charges. 

"Newrez takes its obligations to our customers and investors very seriously and is committed to operating in compliance with all applicable state and federal laws," it added.

The announcement arrives after several other lawsuits targeted servicing operations of the Fort Washington, Pennsylvania-based mortgage company over the past three years.

A number of the lawsuits cite pre-acquisition activity and conduct that occurred at Specialized Loan Servicing, a unit of Computershare purchased by Rithm Capital and Newrez in 2024, including attempted collections of forgiven "zombie" second liens originated prior to the Great Recession.

Late last year, Newrez agreed to pay $4.7 million in restitution to resolve charges it faced in Massachusetts for alleged prior violations committed by SLS. 

Luminate Home Loans falls under similar state scrutiny

The development puts additional focus on state-level enforcement activity, which mortgage attorneys had predicted would intensify as the Trump administration pulls back on federal oversight.

Also in Washington State, earlier this year, officials agreed to resolve charges against Luminate Home Loans, issuing a $100,000 fine on the lender after it admitted to unlicensed origination activity, insufficient surety bond levels and several disclosure violations. 

Luminate originator Joel Sarysz, a former loan officer who was also named in the original statement of charges, had lost his mortgage license years earlier, yet helped a number of borrowers obtain home loans. 

At the same time, state officials determined under examination that Luminate had employed other unlicensed LOs as managers as well as failed to maintain sufficient surety bond. Examiners also found multiple instances of undated loan applications and failure to provide rate-lock agreements and closing disclosures. 

Per the consent order agreement, Luminate surrendered its consumer loan license and agreed to suspend all lending activity in the state until 2031. A stay issued on half of the original fine means the remaining $50,000 penalty will be waived upon full compliance with terms of the consent order. 

Previously, Sarysz separately signed his own consent order in late January, paying a smaller fine and agreeing to suspension of his loan officer license until 2034.

Officials at parent company Luminate Bank did not respond to a National Mortgage News request for a response prior to publication. Despite its status as a subsidiary of a bank, Luminate Home Loans fell under nonbank licensing policies at the time of the violations. The lender merged with American Equity Bank in 2020, with the entire organization later rebranding under the Luminate name. 

Eyes fall on state regulators

Easing federal oversight, including termination of prior enforcement against financial services companies, turned into a regular theme in the first year of President Trump's second term. Changes in Washington, D.C., though, resulted in changes at state regulators, including the hiring of former federal officials. 

In the last 12 months, California passed a new law protecting homeowners from zombie seconds collections, a rule now being contested by mortgage leaders. Meanwhile, state officials across the country have also shown little hesitation in penalizing lenders for any unlicensed activity.