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
Reports About Permissible Investments
In accordance with RCW 19.230.200, a money transmitter must maintain, at all times, permissible investments (PI) that have a market value computed in accordance with generally accepted accounting principles of not less than the amount of the licensee's average daily transmission liability. Money transmitters must prepare and maintain monthly reports about PI, including the monthly calculation of the average daily transmission liability (ADTL) as required under WAC 208-690-085. The ADTL means the sum of the daily amounts of a licensee's outstanding money transmissions, as computed each day of the month divided by the number of days in the month.
Unless approved by the director otherwise, reports about PI must not include foreign held cash. Receivables that are payable to a licensee from its authorized delegates, in the ordinary course of business, pursuant to contracts which are not past due or doubtful of collection, cannot exceed thirty percent of the total permissible investments of a licensee and receivables in any one person, must not aggregate more than ten percent of the licensee's total permissible investments. Furthermore, the aggregate of credit/debit card receivables must not exceed fifty percent of the licensee’s total PI.
Licensees transmitting virtual currencies must hold virtual currencies of the same kind and volume (like-kind) as that held by the licensee, but which is obligated to consumers. For example: A licensee transmitting 100 Bitcoins and 50 Ether on behalf of consumers must be able to demonstrate it possesses at least 100 Bitcoins and 50 Ether.
Failure to accurately calculate PI may result in over/under-stating PI coverage.
Maintain of permissible investments – RCW 19.230.200 and WAC 208-690-085
Types of permissible investments – RCW 19.230.210
Mortgage Originations – Mortgage Broker
Examiners continue to cite the following common findings: 1) Failure to File Accurate Mortgage Call Reports, 2) Failure to Include Required Information in Advertisements (company and MLO names, license numbers, and the 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).
A rare finding worthy of discussion is any “person” paying or receiving any “thing of value” for the referral of business “incident to or part of a settlement service involving a federally related mortgage loan,” which is prohibited by the Real Estate Settlement and Procedures Act (RESPA). RESPA also prohibits unearned fees, such as paying someone an excessive amount for little or no services. A common variation of the finding is MLOs paying real estate agents, by various means, to refer homebuyers for mortgage services.
The Department of Housing and Urban Development and the Consumer Financial Protection Bureau (CFPB) recognize there are multiple “sham” arrangements used to mask an agreement or understanding for the referral of business. The agencies stress that whether a particular referral fee arrangement is legal depends on the specific facts and circumstances.
There are too many sham arrangements to fully detail here, and the Department fields multiple calls from licensees seeking to pay “legal” referral fees to real estate agents, which is impossible. The CFPB updated its RESPA FAQs on October 7, 2020. Licensees should consult the FAQs for more specific guidance.
Mortgage Originations – Consumer Loans
Failure to Maintain Loan Pricing Records and Policies
Under WAC 208-620-555(e)(ii) licensees are required to show a definitive mathematical relationship between discount points paid and the interest rate obtained via a rate sheet or pricing engine that was in effect when the interest rate was locked. To demonstrate the mathematical relationship between the discount points paid and the rate obtained, licensees must maintain records of the rate sheet and pricing in effect when the rate was locked. Licensees should also maintain comprehensive loan pricing policies to document pricing, concession, and exception processes.
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, reporting loans subserviced by a bank as loans subserviced by an entity licensed with the Department, and reporting the MSR servicing portfolio as loans “in portfolio,” which are separate assets on a company’s balance sheet distinct from the MSR asset (usually loans held for investment).
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.