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
Examiners continued to note the following common issues:
Annual assessment reporting - Licensees are required to submit a complete and accurate annual report based on the previous year’s dollar volume of (a) money transmissions; (b) payment instruments; (c) currency exchanges; and (d) prepaid access sales by no later than July 1, or the next business day if July 1 is not a business day as required under WAC 208-690-090 and RCW 19.230.110.
NMLS reporting requirements - Licensees must use NMLS as the primary reporting method to inform the department of all changes as required by the Act, including 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 as required by WAC 208-690-120, using NMLS.
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).
Mortgage Originations – Mortgage Broker
Inaccurate MCRs – 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, and not reporting broker fees collected while reporting closed loans. See RCW 19.146.390 and WAC 208-660-400.
Failure to Provide Rate Lock Agreements – We also continue to cite not providing a rate lock agreement within three business days of a lock or change in terms to the lock, or not including all required information in a rate lock agreement. See WAC 208-660-430(3)(c).
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.
Advertised Using Prohibited Terms – Companies are not allowed to describe rates, terms, or programs as “lowest,” “best,” or “free.” A company must be able to substantiate claims made to the public, and there is no way to substantiate a company’s rates, terms, and programs are “lowest,” or “best.” In addition, companies may not claim a cost is “free” even if it is paid by a lender or broker credit at closing. An item is not “free” when included with multiple other costs, and the overall effect is a profitable transaction for the broker and lender. The cost of the “free” item is recovered through negotiation. This aligns with Federal Trade Commission guidance on the use of the term “free” in advertising. See WAC 208-660-440.
Engaged in a Misleading and Deceptive Practice – Examiners cite this when a mortgage broker issues pre-approval letters without first obtaining a conditional approval from a lender or Automated Underwriting System (AUS). Mortgage brokers and/or mortgage loan originators do not have the authority to approve mortgage loans. Issuing mortgage “pre-approvals” without actually having a valid underwriting result is misleading, deceptive, and a violation of the fiduciary duty mortgage brokers have to their clients. See RCW 19.146.095 and RCW 19.146.0201(1), (2), and (7).
Mortgage Originations – Consumer Loans
Surety Bonds – As we head into the New Year, it’s important to review the surety bond requirements of the Consumer Loan Act. 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.
Advertising in Compliance with the Act - Licensees are prohibited from advertising using the term “free” or any other similar term that implies there is no cost to the borrower. This includes statements such as “No Cost Loan,” “No Closing Costs,” and “No Origination Fees.” WAC 208-620-630(8)
Residential Mortgage Loan Applications – Examiners continue to find residential mortgage loan applications that are not dated. The Act requires licensees to indicate the date the application was taken or revised. The Department recommends that licensees utilize their loan origination software to date applications when initially generated and revised. WAC 208-620-550(18).
Mortgage Loan Servicing
Once again, the most common violation mortgage servicing examinations cite is failure to file an accurate Consolidated Annual Report. With annual reporting underway, mortgage servicers should ensure they report subservicing by a licensed or unlicensed subservicer correctly; licensed subservicers have an approved Consumer Loan License with the Department of Financial Institutions, unlicensed subservicers do not (a bank, for instance). Servicers should also ensure all loans serviced during 2022 are reported, even if the loan was paid off or transferred out during the year. (Short term interim servicing prior to investor purchase of the loan is not reportable.) Call the Department if you have questions as you file your annual report.
Another common violation is inaccurate MCRs. Usually this is because 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.
Escrow Agent examinations revealed a few violations based on not performing duties expeditiously during the surge of mortgage business in 2020 and 2021. However, the most common citation is failure to maintain the Information Security Program (ISP). The Escrow Agent Act requires an ISP to have a named ISP Coordinator. Our examiner continues to see this element missing. ISPs also require yearly review, which must be documented. See WAC 208-680-532.