Take Our 3 Question Survey
Note: We make changes based on responses.
Winter 2017 Newsletter
Spotlight on Compliance - Common Origination Violations
The following are some of the more common violations that our Mortgage Broker and Consumer Loan exam teams found during their examinations in the last quarter:
Failed to provide accurate Rate Lock Agreement within three business days of lock
This is a violation of WAC 208-620-510(3)(b), and (c), which state, in part:
(3) Residential mortgage loans—Rate locks. Within three business days of receipt of a residential mortgage loan application you must provide the borrower with the following disclosure about the interest rate:
(b) If a rate lock agreement has been entered into, you must disclose to the borrower whether the rate lock agreement is guaranteed and if so, if guaranteed by a company other than your company, you must provide the name of that company, whether and under what conditions any rate lock fees are refundable to the borrower, and:
(c) If the borrower wants to lock the rate after the initial disclosure, you must provide a rate lock agreement within three business days of the rate lock date that includes the items from (b) of this subsection.
Many generic rate lock agreements do not contain information about whether the lock is guaranteed and by whom.
Failed to provide accurate and timely Notice of Action Taken
This is a violation of Regulation B, 12 CFR, Section 1002.9(a)(2), which states in part:
(a) Notification of action taken, ECOA notice, and statement of specific reasons
(2) Content of notification when adverse action is taken. A notification given to an applicant when adverse action is taken shall be in writing and shall contain a statement of the action taken; the name and address of the creditor; a statement of the provisions of section §701(a) of the Act; the name and address of the federal agency that administers compliance with respect to the creditor; and either...
(i) A statement of specific reasons for the action taken; or...
Common mistakes include not sending the Notice within thirty days of taking adverse action or making a counter-offer, not sending an additional Notice within ninety days of an unaccepted counter-offer, and putting the name of a mortgage broker rather than the lender for “creditor”.
Failure to provide complete Electronic Signatures in Global and National Commerce Act disclosures
This is a violation of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section7001(c)(1)(B)(iv), which states:
(c) Consumer disclosures
(1) Consent to electronic records
Notwithstanding subsection (a) of this section, if a statute, regulation, or other rule of law requires that information relating to a transaction or transactions in or affecting interstate or foreign commerce be provided or made available to a consumer in writing, the use of an electronic record to provide or make available (whichever is required) such information satisfies the requirement that such information be in writing if –
(A) the consumer has affirmatively consented to such use and has not withdrawn such consent;
(B) the consumer, prior to consenting, is provided with a clear and conspicuous statement —
(iv) informing the consumer (I) how, after the consent, the consumer may, upon request, obtain a paper copy of an electronic record, and(II) whether any fee will be charged for such copy
Item (B)(iv) above is often missing from the E-sign disclosures.
Finally, below are some common advertising violations which have been provided before but continue to appear in examination reports.
Use of the words “Best” or “Lowest” relating to rates or fees in advertisements.
Licensees are prohibited from using the words “best” or “lowest” relating to fees and rates in licensees’ advertisements.
WAC 208-620-630(5) and WAC 208-660-440(7) restrict licensees from referring to the rates or fees they offer as the lowest or best since these statements cannot be substantiated.
Making Unsubstantiated Statements in Advertisements
The examiners are finding unsubstantiated statements in licensees’ advertisements. Examples of these statements include:
- “We can improve your credit score”
- “We guarantee our financing options are better than other lenders”
Statements that cannot be supported or proven may be considered an unfair, misleading, or deceptive practice toward consumers. Licensees should ensure that all statements made in advertisements are accurate and can be substantiated.
Please see RCW 31.04.027(1), (2), and (7) and RCW 19.146.0201(1),(2),and (7).
Failing to disclose additional terms when advertising a triggering term
Licensees must ensure that when triggering terms are used in advertisements, additional required terms are also included. Regulation Z 12 CFR Section 1026.24(d) requires additional terms to be disclosed when a triggering term is advertised. For example:
Triggering terms include:
- The amount or percentage of any down payment
- The number of payments or period of repayment
- The amount of any payment
- The amount of any finance charge
Additional required terms include (as applicable):
- The amount or percentage of the down payment
- The terms of repayment, which reflect the repayment obligations over the full term of the loans, including any balloon payment
- The “annual percentage rate,” and if the rate may be increased after consummation
Licensees should review Regulation Z and its corresponding Official Staff Commentary to ensure compliance with these regulations.
See also: WAC 208-620-640 and WAC 208-660-446.