Residential Mortgage Loan Servicing News

Examination Summary- January through March 2019

Exam Type Rating Number of Licensees
File Reviews 1 2
File Reviews 2 11
File Reviews 3 5
File Reviews 4 0
Desk Review w/o Files n/a 0

During the first quarter of 2019, the residential mortgage loan servicing team conducted 18 examinations. Two exams were conducted onsite, the remainder were offsite. Since there were no unrated Desk Review Exams this quarter, there are more “1”, “2” and “3” rated exams than the previous quarter. The previous quarter featured zero “1” ratings, seven “2” ratings, and three “3” ratings.

The most common violation was failure to maintain records. The Department conducted more examinations of small servicing operations in the first quarter, with relatively minimal Washington State activity. The most common missing documents were the application (1003), promissory note, and closing disclosure.

WAC 208-620-520(1) states:

What are the records I must maintain and for how long must I maintain them?
Unless otherwise indicated in this section, you must maintain the following records for a minimum of three years after making the final entry, or the period of time required by federal law, whichever is longer:

(1) General records. Each licensee must maintain electronic or hard copy books, accounts, records, papers, documents, files, and other information relevant to making loans or servicing residential mortgage loans.

The second most common violation was using suspense funds to pay a company’s own servicing fees. This is prohibited by WAC 208-620-551(5) which says:

(5) You are prohibited from using any funds in a suspense account to pay your own fees for servicing.

Money in a suspense account is awaiting additional funds until it is equal to a monthly payment at which time it is to be applied to the loan in the order of priority established by the promissory note or deed of trust. Regulation Z, §1026.36(c)(1)(i) and (ii) also specify how suspense funds are to be applied, which comports with WAC 208-620-551(5):

(i) Periodic Payments. ...A payment qualifies as a periodic payment even if it does not include amounts required to cover late fees, other fees, or non-escrow payments a servicer has advanced on a consumer’s behalf.

(ii) Partial payments. …(B) On accumulation of sufficient funds to cover a periodic payment in any suspense or unapplied funds account, treat such funds as a periodic payment received in accordance with paragraph (c)(1)(i) of his section.

A company paying its own servicing fees from suspense funds is in violation of state and federal servicing regulation.