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

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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.

Demonstrating Permissible Investments Coverage 

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 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).

Mortgage Originations – Mortgage Broker

Inaccurate Mortgage Call Reports (MCRs)

Examiners continue to cite inaccurate Mortgage Call Reports (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 if 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: B.   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;

Use of Prohibited Language in Advertising

 WAC 208-660-440(7) - says advertisements cannot claim a company has the “best” or “lowest” rates or fees.  This includes in borrower testimonials posted to websites a company controls.  Examiners continue to see multiple companies advertising they have the best rates, best deals, or lowest pricing.

Mortgage Originations – Consumer Loans

Undated Residential Mortgage Loan Applications

The Act requires licensees to indicate the date the application was taken or revised on all residential mortgage loan applications.  The Department recommends that licensees utilize their loan origination software to date applications when initially generated and revised. WAC 208-620-550(18).

Failed to Advertise in Compliance with the Act

Licensees are prohibited from advertising rates as 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).

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 Properly Maintain a Suspense Account

This occurs when servicers do not apply a full payment to the mortgage as of the date a full payment is available in the suspense account.  Another cause is paying servicing fees from suspense accounts.  The money in suspense is only for principal, interest, and escrow items.

Failed to File a Complete and Accurate Consolidated Annual Report with the Department

This continues to be the most common examination finding.  The instances during the last quarter were due to not reporting loans paid off or transferred during the year, and reporting subservicing conducted by a company with a Washington State Consumer Loan License when the subservicer is a bank that does not hold a Consumer Loan License.

Escrow Agent

Information Security Program

WAC 208-680-532 - requires the escrow agent design and implement safeguards based on the agent’s risk assessment.  Due to the significant increase in wire fraud related to social engineering, the escrow agent’s information security program should state the controls implemented to mitigate the risk of wire fraud.  The escrow agent should also review its insurance policies for wire fraud coverage. 

Expeditious Performance

WAC 208-680-550 - requires the escrow agent perform all required duties as expeditiously as possible.  The expectation is the licensee fully disburse all funds held in trust within six-months of the transaction closing date.  If the escrow agent continues to hold funds past six-months. it should document the reason it is holding the funds and develop an action plan for clearing the balances.