25 Oct Washington Regulatory Update
The Washington Department of Financial Institutions (the “Department”) has amended its rules governing mortgage loan originators and mortgage loan servicers under the Consumer Loan Act (the “Act”), effective November 1, 2012.
WASHINGTON ADMINISTRATIVE CODE 208-620-010 TO 900
“Advertise, advertising, and advertising material” means any form of sales or promotional materials used in connection with the business. Advertising material includes, but is not limited to, newspapers, magazines, leaflets, flyers, direct mail, indoor or outdoor signs or displays, point-of-sale literature or educational materials, or other printed materials; radio, television, public address system, or other audio broadcasts; or internet pages.
“Commercial context” or “commercial purpose” means actions taken for the purpose of obtaining anything of value for oneself, or for an entity or individual for which the individual acts, rather than exclusively for public, charitable, or family purposes.
The definition for nontraditional mortgage product has been deleted.
“Referring a delinquent loan to foreclosure” means taking any step in furtherance of foreclosure. Examples include, but are not limited to:
- Sending a referral to a foreclosure trustee or attorney inside or outside of the servicing entity requesting they begin the foreclosure process;
- Making a record in written or electronic form that flags, comments, blocks, suspends or in any way indicates in the electronic record of a mortgage loan that foreclosure has begun; and
- Any such marking of an electronic record that impairs the record in a way in which payments will not be applied or will be routed into a suspense account.
“Residential mortgage loan modification services” means activities conducted by individuals or entities not engaged in servicing the borrower’s existing residential mortgage loan. The activities may include negotiating, attempting to negotiate, arranging, attempting to arrange, or otherwise offering to perform residential mortgage loan modification services. The activities may also include the collection of data for submission to another entity performing mortgage loan modification services or to a residential mortgage loan servicer.
“Service or servicing a residential loan” means:
- Collecting or attempting to collect payments on existing obligations due and owing to the lender or investor, including payments of principal, interest, escrow amounts, and other amounts due;
- Collecting fees due to the servicer for the servicing activities;
- Working with the borrower to collect data and make decisions necessary to modify certain terms of those obligations either temporarily or permanently;
- Otherwise finalizing collection through the foreclosure process; or
- Servicing a reverse mortgage loan.
Under the simple interest method, for residential mortgage loans, each payment must be applied as directed in the loan documents.
A nonprofit housing organization seeking exemption from licensing as a consumer loan company must:
- Be tax-exempt as a charitable organization;
- Promote affordable housing or provide home ownership education, or similar services;
- Conduct its activities in a manner that serves public or charitable purposes, rather than commercial purposes;
- Receive funding and revenue and charge fees in a manner that does not incentivize it or its employees to act other than in the best interests of its clients;
- Compensate its employees in a manner that does not incentivize employees to act other than in the best interests of its clients;
- Provide or identify for the borrower residential mortgage loans with terms favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs; and
- Meet other standards as prescribed by the Director of the Department or his or her designated representative (the “Director”).
In addition to the prior exemptions, the following are exempt from licensing as a mortgage loan originator:
- An individual who does not take residential mortgage loan applications or negotiate the terms of residential mortgage loans for compensation or gain or in the expectation of compensation or gain; and
- An employee of a bona fide nonprofit organization who acts as a loan originator only with respect to his or her work duties to the bona fide nonprofit organization, and who acts as a loan originator only with respect to residential mortgage loans with terms that are favorable to the borrower. Terms favorable to the borrower are terms consistent with loan origination in a public or charitable context, rather than a commercial context.
Persons providing third-party loan modification services for compensation or gain must be licensed to assist a borrower with a residential mortgage loan modification.
For residential mortgage loan origination, the bond amount is based on the annual dollar amount of residential mortgage loans originated. If residential mortgage loans are both originated and serviced, the bond amount will be based on origination activity volumes. The bond amount is $30,000 for third-party residential loan modification services.
A consumer loan licensee must file two annual reports on forms prescribed by the Department. The annual reports (the annual assessment report and consolidated annual report) and the assessment fee required from a consumer loan licensee must be provided to the Department on March 1st of each year or within 30 days of ceasing Washington operations. The late penalty for failing to submit the required annual reports and assessment fee is $450 (previously $300). If the items are filed with the Department more than 30 days after ceasing Washington operations, the late penalty will accrue at the same rate. More penalties may be assessed if the Department must make a bond claim to collect the amounts due.
Within three business days, including Saturdays, of receipt of a residential mortgage loan application, a licensee must provide the borrower with the following disclosure about the interest rate:
- If a rate lock agreement has not been entered into, the licensee must disclose to the borrower that the disclosed interest rate and terms are subject to change. Compliance with the RESPA good faith estimate is considered compliance; or
- If a rate lock agreement has been entered into, the licensee must disclose to the borrower whether the rate lock agreement is guaranteed, whether and under what conditions any rate lock fees are refundable to the borrower, and:
- The number of days in the rate lock period;
- The expiration date of the rate lock;
- The rate of interest locked;
- If applicable, the index and a brief explanation of the type of index used, the margin, the maximum interest rate, and the date of the first interest rate adjustment; and
- Any other terms of the rate lock agreement.
Receiving compensation for making and brokering a loan in the same transaction constitutes an unfair or deceptive act or practice.
Residential mortgage loan servicers are prohibited from:
- Purchasing insurance on a property secured by a loan it services without providing two prior written notices to the borrower’s last known address seeking verification of existing insurance coverage;
- The two written notices must state:
- How the borrower provides proof there is insurance coverage in place;
- That without proof of insurance the servicer may obtain coverage at the borrower’s expense, that the coverage may only protect the mortgage holder, and that the cost of the coverage may be higher than that the borrower may be able to obtain privately;
- That the borrower may request the servicer to set up an escrow account to advance insurance payments and that upon establishment of an escrow account the servicer may charge the borrower the amount of the insurance payments advanced on the borrower’s behalf respecting the mortgaged property including a cushion amount; and
- That the second written notice must be sent 30 days after the first written notice;
- The two written notices must state:
- Failing to advance payments to a property insurer regardless of the borrower making a payment to the servicer when the borrower has an escrow account for the payment of insurance;
- Purchasing force placed insurance at a price that is not commercially reasonable;
- Collecting private mortgage insurance beyond the date for which private mortgage insurance is no longer required. A residential mortgage loan servicer must terminate force placed insurance within 30 days of receiving evidence from the borrower of the existence of coverage. A residential mortgage loan servicer must refund to the borrower all premiums for force placed insurance collected during any period of time for which the borrower’s private insurance was in place;
- Referring a delinquent mortgage to foreclosure if it has received the borrower’s loan modification application and has not evaluated the borrower for all available loan modifications;
- Using any funds in a suspense account to pay its own servicing fees; and
- Pursuing any collection activities while a complete loan modification application is being reviewed or while the borrower is making payments according to a trial or permanent modification. This prohibition includes activities conducted by others or on its own behalf.
A third-party residential loan modification service provider must not:
- Collect an advance fee (previously of more than $750 and without a written fee agreement);
- Charge total fees in excess of usual and customary charges, or total fees that are not reasonable in light of the service provided when providing residential mortgage loan modification services; or
- Fail to provide a written fee agreement as prescribed by the Director when providing residential mortgage modification services.
The Director may suspend or revoke a license if a violation resulted in substantial license limitations or significant fines, restitution, or both.
The Director may enforce all laws and rules relating to the licensing and regulation of licensees and persons subject to the Act. The Director may impose fines of up to $100 per day upon the licensee, its employees, or loan originators, or other persons subject to the Act for any violation of the Act or for failure to comply with any order or subpoena issued by the Director. Each day’s continuance of the violation is a separate offense.
If a company uses a DBA on a web page, the web page must also contain the main office license number. If a loan originator maintains a separate home or main page, the loan originator’s name and license number must also appear on the web page.
A determination that an individual has shown disregard in the management of his or her financial condition may include an assessment of a credit report.
A person is not eligible to receive a loan originator license if he or she has $100,000 or more of tax liens against him or her at the time of application.
An existing loan originator license can be renewed on or before the last day of February each year.
A loan originator operating on the internet must display his or her license name on his or her website.
A licensed mortgage loan originator must notify the Director through amendment to the Nationwide Mortgage Licensing System and Registry (“NMLSR”) within 10 business days to a change of:
- Answers to the NMLSR generated disclosure questions;
- Sponsorship status;
- Residence address; or
- Any change in the information supplied to the Director in the original application.
After failing the loan originator test three (previously four) consecutive times, a person must wait at least six months before taking the test again.
A copy of audited financial statements and an unaudited balance sheet and income statement for the most recent end quarter for the last two years of audited financial statements must be submitted to the Director for approval before offering or making proprietary reverse mortgages. If a parent company’s capital is relied on to satisfy the requirements for offering or making proprietary reverse mortgages to Washington residents, the parent company’s last two years of audited financial statements and the most recent quarter end unaudited balance sheet and income statement must be included.
A residential mortgage loan servicer must:
- Comply with the federal Servicemembers Civil Relief Act;
- Continue processing loan modification requests and honoring trial and permanent modifications;
- Designate the borrower as a third-party intended beneficiary in any subsequent contract for transfer or sale, unless doing so would violate another state law or federal HAMP or GSE modification programs requirements; and
- Apply borrower’s payments as specified in the loan documents.
As to transferring or selling the servicing of loans with pending modification requests or trial or permanent modifications, a residential mortgage loan servicer must:
- Inform the successor servicer if a loan modification is pending; and
- Obligate the successor servicer to accept and continue processing loan modification requests and to honor trial and permanent loan modification agreements.
A violation of applicable Washington or federal law, a regulation, or a program is a violation of the Act.
When a suspense account contains enough money to make a full payment, a residential mortgage loan servicer must apply that payment to the mortgage as of the date the full amount became available in the suspense account. Any incurred fees must be assessed to a borrower’s account within 45 days of the date on which the fee was incurred. The fee must be clearly and conspicuously explained in a statement mailed to the borrower at the borrower’s last known address no more than 30 days after assessing the fee. If a residential mortgage loan servicer provides monthly or more frequent statements that include this information, he or she is not required to provide the information in a notice in addition to the monthly or more frequent statement.
At least annually, or upon the borrower’s request, the borrower must be informed in writing of the amount of reserve required in an escrow account. The notice must also advise the borrower of any fees the borrower will incur for not maintaining the reserve amount or fees the borrower will incur if escrow amounts are advanced on the borrower’s behalf and then the amounts are collected from the borrower.
A residential mortgage loan servicer must make a reasonable attempt to comply with a borrower’s request for information about the residential loan account, including a request for information about loss mitigation.
An individual servicer representative, who is to act as a single point of contact for the borrower, must have the authority and ability to perform the following duties:
- Explain loss mitigation options and requirements;
- Track documents submitted by the borrower and documents provided to the borrower;
- Inform the borrower of the status of his or her loss mitigation process;
- Ensure the borrower is considered for all loss mitigation options; and
- Access individuals with the authority to delay or stop foreclosure proceedings.
A residential mortgage loan servicer must comply with all timelines and requirements for the federal HAMP or GSE modification programs if applicable, including denials and dual tracking prohibitions. If not using a HAMP or GSE loan modification program, a residential mortgage loan servicer must:
- By April 1, 2013, develop an electronic system, or add to an existing electronic system, the ability for borrowers to check the status of their loan modification, at no cost. The system must also allow communication from housing counselors, and it must be updated every 10 days;
- Review and make a determination on a borrower’s completed loan modification application within 30 days of receipt;
- Provide in the loan modification denial notice the reasons for denial and an opportunity for the borrower to rebut the denial within 30 days. If the denial is due to the terms of an agreement between the servicer and an investor, the servicer must provide the name of the investor and a summary of the reason for the denial. If the denial is based on a net present value (“NPV”) model, the servicer must provide the data inputs used to determine the NPV. Any loan modification denials must be reviewed internally by an independent evaluation process within 30 days of the denial determination or the mailing of the notice of denial to the borrower, whichever occurs earlier;
- Review and consider any complete loan modification application before referring a delinquent loan to foreclosure;
- Give a borrower ten business days from the notice to him or her to correct any deficiencies in their loan modification application;
- Stop the foreclosure from proceeding further if a complete loan modification application is received;
- If the borrower accepts a loan modification verbally, in writing, or by making the first trial payment, the foreclosure proceeding must be suspended until the borrower fails to perform the terms of the loan modification;
- Review and consider a complete loan modification application if received prior to 37 days before a scheduled foreclosure sale. If a servicer offers the borrower a loan modification, he or she must delay a pending foreclosure sale to provide the borrower with 14 days in which to accept or deny the loan modification offer. If the borrower accepts a loan modification, the servicer must suspend the foreclosure proceeding until the borrower fails to perform the terms of the loan modification; and
- Perform an expedited review of any complete loan modification application submitted between 37 and 15 days before the scheduled foreclosure sale.
As to a borrower appeal of a loan modification denial, a residential mortgage loan servicer must:
- Give the borrower 30 days from the written notice of denial to request an appeal unless the denial is due to:
- An ineligible mortgage;
- An ineligible property;
- The borrower did not accept the offer; or
- The loan was previously modified;
- Give the borrower the opportunity to obtain a full appraisal for purposes of contesting appraisal data used in a denial based on NPV;
- Respond to the borrower’s appeal within 30 days of receipt; and
- Provide the borrower with a description of any other loss mitigation option available if the denial is upheld.
When a loan modification is granted, the mortgage loan servicer must provide the borrower with a copy of the fully executed loan modification agreement within 30 days of receipt of the signed agreement from the borrower. A loan modification granted orally must be reduced to a written document with a summary of all of the terms and must be provided to the borrower within 30 days of approval of the loan modification.
Adequate staffing levels and systems must be maintained, including staffing and systems to track and maintain loan modification documents submitted by borrowers.
All necessary information to inform borrowers about short sale requirements and allow borrowers to apply for proprietary first and second lien modifications must be made public. A borrower must be allowed to apply for and receive a short sale determination before the borrower puts a house on the market.
Before referring a loan to foreclosure, a residential mortgage loan servicer must document in the loan file evidence to substantiate the borrower’s default and the right to foreclose. The file must also contain loan ownership information. If a borrower’s property goes into foreclosure and the foreclosure sale occurs, the borrower must be notified within three business days of sale of the completion of the sale. The notification must be mailed to the borrower’s last known address.
A residential mortgage loan servicer must adopt written policies and procedures for the oversight of third-party providers including, but not limited to, foreclosure trustees, foreclosure firms, subservicers, agents, subsidiaries, and affiliates. The policies and procedures must be maintained as part of the books and records and must be provided to the Department upon direction to do so.
The following provisions have been deleted:
Fees must be assessed to a borrower’s account within 45 days of the date on which the fee was incurred. The fee must be clearly and conspicuously explained in a statement mailed to the borrower at the borrower’s last known address no more than 30 days after assessing the fee.
If the notification of the foreclosure sale is returned because the address is deficient in some manner, the notification must be posted on the property itself within three days of the notification being returned.
The main office and branch office license must be conspicuously displayed at the licensed location.