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).

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, 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;”

One company paid MLOs an “override” percentage on transactions originated by MLOs recruited by the first MLO. The override was a percentage of net broker fees which is a term of multiple transactions and is not legal compensation.

Mortgage Originations – Consumer Loans

Maintain Records
WAC 208-620-520 requires licensees to maintain records for a minimum of three years after making the final entry, or the period of time required by federal law. Licensees should ensure that records are maintained as required and that those records can be produced during an examination.

Residential Mortgage Loan Applications
Licensees are required to indicate on all residential mortgage loan applications 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 when revised. WAC 208-620-550(18).

Supervisory Plans
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 publishes a model supervisory plan template that can be found at Consumer Loan Companies Forms.

Mortgage Loan Servicing

Failed to Report Accurate Information to Credit Bureaus
This finding occurred when servicers reversed payments and did not re-apply them until after monthly credit reporting. The servicers did not suppress credit reporting during the processes.

Failed to Conspicuously Display Fees
WAC 208-620-900(3)(e) requires servicers to “clearly and conspicuously explain” fees assessed to borrowers within 30 days of assessing the fee(s). Some fees are listed as “miscellaneous” instead of fully describing it, such as a property preservation fee.

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 is still a common violation but is becoming less common. The instances during the last quarter were due to not reporting loans paid off or transferred out during the reporting year. If a loan was serviced at any time during the year, it is reportable.

Escrow Agent

Inaccurate Closing Disclosure
WAC 208-680-174 states in part the designated escrow officer is responsible for the accuracy of all escrow records. The escrow agent should review the Closing Disclosure (CD) for accuracy. If the CD is a lender-prepared document, the escrow agent should notify the lender of the discrepancy and document the escrow file supporting the lender was notified.

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.

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