The following are some of the common violations our exam teams in each industry found during examinations in the last quarter:
- MSB Programs
- Mortgage Originations – Mortgage Broker
- Mortgage Originations – Consumer Loan
- Mortgage Servicing
- Escrow Agent
Changes – Remember to make timely updates to material business changes in the NMLS. You must do so within 30 days. See WAC 208-690-110, and for changes of control see WAC 208-690-115.
Permissible Investment (PI) and Transmission Liability Reporting and Coverage – You must prepare and maintain monthly PI reports in order to demonstrate adequate PI as required under RCW 19.230.200 and RCW 19.230.210. Note, the Department provides model PI and Average Daily Transmission Liability (ADTL) forms for your use on the agency’s website.
Money Transmission Volume Reporting – You must ensure that all licensed money transmission activity volumes are accurately reported annually within the Annual Assessment Report AND quarterly through the NMLS call reports. Accurate volume is necessary to determine financial requirements for surety bond amounts, tangible net worth, and PI and ADTL. Reported volumes will be reviewed and compared between Annual Assessments, the NMLS, and examination documentation for accuracy and consistency. Inaccurate volume reporting could lead to violations of multiple statutes, including, but not limited to: RCW 19.230.050, RCW 19.230.060, 19.230.110, RCW 19.230.152, and RCW 19.230.200.
Mortgage Originations – Mortgage Broker
The most common violations over the last quarter are:
- Failure to file accurate MCRs
- Failure to develop and implement an adequate Anti-Money Laundering program
- Failure to develop a compliant business resumption plan
The first two are common and have been for years. As a matter of reason, MCR applications in process at the end of the prior quarter must equal applications in process at the beginning of the current quarter. Many times the reported count and principal balance do not match from the end of one quarter to the beginning of the next. Though examiners are seeing better AML programs, actually tailored for a mortgage broker business rather than a money services business, we continue to see lax implementation around the training and independent testing requirements. If the program says there is yearly staff training and independent testing, examiners will ask for the records.
The common defect in business resumption plans is many do not address possible business disruptions, such as natural disasters (earthquake, volcanic eruption, flood). Brokers should brainstorm various scenarios that could disrupt the business and decide how they will react in that situation. For instance, how would business continue if local internet and/or cell service is out for an extended period? The Department understands companies cannot foresee all possible scenarios or have a solution for every possible disaster. However, many companies say their information is in the cloud, so business is protected from disruption. That is not necessarily true; business resumption plans should be detailed and comprehensive.
Mortgage Originations – Consumer Loans
Surety Bonds – The amount of the surety bond licensees are required to hold is based on the volume of activity from the prior year. Licensees must review and update surety bond amounts based on previous year volume by March 1 of each year. See WAC 208-620-320.
Supervisory Plans – This continues to be one of the most common examination findings. WAC 208-620-301(6) requires that licensed managers prepare and maintain written supervisory plans for the employees they supervise. Plans must include the number of employees supervised, their physical locations, how the supervisor will adequately supervise employees not in the same location as the supervisor, and the type and volume of work performed by the supervised employees. The Department publishes a model supervisory plan template that can be found at Consumer Loan Companies Forms.
Mortgage Loan Servicing
The most common residential mortgage loan servicing violations over the last quarter are:
- Failed to file accurate Consolidated Annual Reports
- Failed to properly maintain escrow accounts
- Failed to provide accurate and complete escrow analyses
Examiners continue to find annual reporting as of December 31 of the subject year whereas the instructions ask for all servicing accounts during the year, including loans paid off or transferred out during the year. Another error is misreporting loans subserviced by servicers licensed under the Consumer Loan Act or not licensed under the Act. Depository servicers are not licensed under the Consumer Loan Act, while non-depository servicers are licensed under the Act.
Escrow account errors involve paying taxes or insurance late and not canceling forced placed insurance as of the date a borrower obtains homeowners insurance. Inaccurate escrow analyses usually do not include all the months in an escrow account computation year.
Overall, escrow agents’ compliance remains strong. Common violations usually involve failure to perform duties expeditiously, such as not refunding property tax overpayments in a timely manner. The Department also cited overdrawn escrow accounts when insufficient recording fees were collected. Agents must deposit sufficient funds in to the trust account before disbursing fees.