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
MSB Programs
Reporting Material Changes
The Uniform Money Services Act, chapter 19.230 RCW and accompanying rules, WAC 208-690, require licensees to report business changes to the director through NMLS within 30 days of the occurrence. See RCW 19.230.150(1) and WAC 208-690-110. A business change includes, but is not limited to, a change in the business plan submitted at application and other similar activities or events affecting the business or executive officers or other people in control.
To comply with material change reporting requirements, a licensee, at a minimum, should maintain the most recent copy of the documents listed below via the NMLS Document Upload section.
Documents to be maintained and reported to the Director via the NMLS Document Upload include:
- Business plans / product and service offerings
- Flow of funds structure
- List of executive directors and officers
- Management / organizational chart
- Anti-money laundering program
Mortgage Originations – Mortgage Broker
In addition to the common findings mentioned in previous newsletters: 1) Failure to File Accurate Mortgage Call Reports, 2) Failure to Include Required Information in Advertisements (name, license number, and NMLS Consumer Access Link), 3) Using Disallowed Language in Advertisements (best rates, lowest rates, “free”), and 4) Failure to Implement the AML Program (testing and training), the most recent quarter saw an increase in tolerance violations for appraisal fees.
The Department recognizes there are many variables involved in the appraisal fee that an MLO does not control. However, CFPB’s TILA-RESPA Integrated Disclosure Rule – Small Entity Compliance Guide (version 5.2, May 2018, p. 50) says: “Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate, it is not in good faith, regardless of whether the creditor later discovers a technical error, miscalculation, or underestimation of a charge.”
Appraisal fees were included in the zero-tolerance category when the Integrated Disclosure Rule was adopted. Per the quote above, Regulation Z interprets underestimated fees in favor of the consumer (with an allowance for a “valid” change of circumstance if disclosed to the consumer within three business days). The Department recommends MLOs consider all variables that apply to a property (rural, acreage, high value, waterfront, construction, etc.) and pricing data from commonly used Appraisal Management Companies when making the initial quote. If the fee increases due to a valid change in circumstance, thoroughly document the change and re-disclose the increase within three business days.
The Small Entity Compliance Guide (p. 64) clarifies that a “changed circumstance” is limited to:
- An extraordinary event beyond the control of any interested party,
- Information specific to the consumer or transaction that the creditor relied upon was inaccurate or changed, and
- New information specific to the consumer or transaction that the creditor did not rely on.
Mortgage Originations – Consumer Loans
Failed to Include Required Information on Advertisements
Licensees are required to include the company’s main license name, license number, and a link to the NMLS Consumer Access website on the primary landing page of electronic advertisements including social media. See WAC 208-620-622.
Failed to Timely and Accurately File Mortgage Call Reports
Licensees are required to file accurate and complete call reports on the dates and in a format prescribed by the NMLS. Examiners routinely identify late and deficient filings. Call reports should be submitted timely and utilizing the definitions in the NMLS Mortgage Call Report Field Definitions & Instructions document. See WAC 208 620-431 and RCW 31.04.277.
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.
Mortgage Loan Servicing
Recent mortgage servicing findings are not concentrated in any specific area besides the most common finding as discussed in previous newsletters – failure to file an accurate Consolidated Annual Report. Common causes noted previously include reporting year-end servicing totals rather than all loans serviced during the year and reporting loans subserviced by a bank as loans subserviced by an entity licensed with the Department.
Recently examiners are also citing reporting the MSR servicing portfolio as loans “in portfolio.” These are not the same as a company’s balance sheet makes clear. A company that owns MSRs generally does not own the underlying loans. MSRs are a separate line item on the balance sheet as are loans held for sale and loans held for investment. The Department’s online instructions say loans “in portfolio” are “loans that you made or purchased and have not transferred off warehouse line(s) or out of your portfolio on December 31st of each year…. Other examples include: Washington loans held for investment with or without servicing rights, loans repurchased, loans securitized for investment and not yet sold, and the unpaid principal balance at the time of foreclosure of foreclosed loans that have been written off but retained as an asset.” All the above portfolio loans should appear as assets on the balance sheet separate from any MSR asset, with the reminder that the Department asks only for your Washington State loans in portfolio, not for your nationwide totals.
The Department has provided temporary fee waivers on loans in portfolio for several years. The waivers are temporary. Reporting your company’s MSRs as “in portfolio” is incorrect and may result in the company paying a higher assessment when the temporary fee waiver ends.
Escrow Agent
Information Security Program
WAC 208-680-532 requires the escrow agent design and implement safeguards based on the agent’s risk assessment. Given the substantial rise in wire fraud associated with social engineering, the escrow agent’s information security program should detail the measures put in place to reduce the risk of wire fraud.