Common Exam Findings

The following are some of the common violations our exam teams in each industry found during examinations in the last quarter:

MSB Programs

  • Material Change Reporting
    Licensees must use NMLS as the primary reporting method to inform the Department of all changes as required by the Act, including but not limited to, all material changes and adverse or disciplinary actions. Additionally, changes to authorize delegates including the deletion of authorized delegates and location address or name changes must be reported quarterly as required by WAC 208-690-120 using NMLS.
  • Permissible Investments
    Licensees are required to maintain permissible investment levels pursuant to RCW 19.230.200. Monthly reports about permissible investments are required to be maintained per RCW 19.230.170(c). These monthly reports about permissible investments must include the monthly calculation of the average daily transmission liability per WAC 208-690-085.
  • Report of an Adverse or Disciplinary Action
    Licensees must report an adverse or disciplinary action to the Department within one business day after the licensee has reason to know of the occurrence as required by RCW 19.230.150(3).
  • Money Transmission Volume Reporting
    Licensees 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

  • Mortgage Call Report (MCR)
    Examiners continue to cite inaccurate MCRs as the most common violation. This includes end of quarter pipeline totals not matching the beginning totals for the next quarter, not tracking changes in loan amounts, reporting loan activity that does not match the applications list provided for examinations, and not reporting broker fees collected while reporting closed loans. See RCW 19.146.390 and WAC 208-660-400.
  • Failure to Provide Required Information in Advertisements
    This is due to not including the company’s name, license number, and a link to its NMLS Consumer Access website in all websites. Some social media sites do not allow a link to the NMLS, in which case a link to the Company’s home page that includes the NMLS link is acceptable, as long as the link is “once click away” from the social media site. See WAC 208-660-446.
  • Failed to Develop a Compliant Mortgage Loan Originator Compensation Agreement
    Examiners continue to routinely see compensation agreements based on the amount of lender-paid compensation to the broker. Regulation Z prohibits payments to an originator based on a term of the transaction and lender-paid compensation is a term of the transaction. Per Supplement I (staff commentary) to Regulation Z, “Transaction term defined. A ‘term of a transaction’ under §1026.36(d)(1)(ii)… includes:

    The payment of any loan originator or creditor fees or charges for the credit, or for a product or service provided by the loan originator or creditor related to the extension of that credit, imposed on the consumer, including any fees or charges financed through the interest rate;”

    Compensation based on the amount of gross fees is the main practice Regulation Z’s Loan Originator Rule was written to prohibit. Payments based on gross fees create an incentive to maximize gross fees and steer a borrower to the lender paying the highest compensation.

Mortgage Originations – Consumer Loans

  • Failed to Advertise in Compliance with the Act
    Licensees are prohibited from advertising rates or fees as “lowest” or “best.” Rates described as "lowest," "best," or other similar words cannot be proven to be actually available at the time they are advertised. See WAC 208-620-630(5).
  • Failed to Register Trade Names with the Department
    Licensees may only advertise using the name on their license or by using an approved trade name in compliance with the Consumer Loan Act. Team names are generally considered trade names. See WAC 208-620-620.
  • Inadequate or Nonexistent MLO Supervisory Plans
    This continues to be one of the most common examination findings. WAC 208-620-301(4) 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 published a model supervisory plan form.
  • Unlicensed Processing and Underwriting Supervisors
    Any manager who is the day-to-day operational supervisor of loan processors or underwriters must hold an MLO license. The license can be from any state. See WAC 208-620-301 for additional details.

Mortgage Loan Servicing

  • Failed to File a Complete and Accurate Consolidated Annual Report with the Department
    The main cause of this violation is reporting servicing totals as of December 31 of the subject year. The annual report instructions say to report the servicing totals on January 1 of the subject year. For loans boarded during the year the instructions say to report the boarded balance. Reporting totals as of December 31 excludes loans transferred out or paid off during the year and reports lower balances than reporting per the instructions.
  • Failed to Properly Maintain a Suspense Account
    Per WAC 208-620-900(3)(d), when a suspense account contains enough money to make a full payment, you must apply that money to the mortgage as of the date the full amount became available in the suspense account. Sometimes this violation is due to slow analysis and clearing of suspense funds. In other cases, it is when trial payments are made on a modification and companies put all trial payments into suspense until the end of the trial period. The regulation does not have an exception for trial payments.
  • Failed to File an Accurate Washington State MCR
    The most common error leading to this finding is when the Delinquency Status as of End Date (All Loans), lines S300 through S315 of MCR Section III, do not match Servicing Activity, lines S510 through S540 of MCR Section III. The other cause is clerical errors found when comparing the MCR to servicing activity lists supplied for examinations.
  • Failed to Maintain a Link to the Company’s NMLS Consumer Access Web Page on Home Page
    This is self-explanatory.

Escrow Agent

  • Information security program
    The Agent does not adequately document the ISP is reviewed, at least annually, and updated based on the Agent’s risk profile.
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