28 Nov Washington Regulatory Update
The Washington Department of Financial Institutions (“Department”), Division of Consumer Services, recently amended many of the rules under the Consumer Loan Act (“Act”), effective January 1, 2018.
Washington Rules 208-620-320
Surety bond amounts for a consumer loan license are based on loan origination volume from prior years. If there is no prior year volume, the surety bond amount required at application is $30,000. “Loan origination volume” means the volume of closed loans.
If the licensee only services residential mortgage loans, a bond requirement may only arise if licensee elects a surety bond in lieu of the required net worth as set forth below. If licensee originates and services residential mortgage loans, the surety bond amount will be based on the origination volumes.
If the licensee only brokers residential mortgage loans, the surety bond amount at application is $30,000. Thereafter subject to annual adjustment the surety bond amount will be based on the total annual principal amount of the loans brokered.
If the licensee originates both nonresidential and residential loans, the bond amount will be based on the combined origination volume.
An applicant or licensee operating as an approved servicer by one or more government sponsored or government corporation entities must maintain liquidity (to include operating reserves) and tangible net worth that meet the standards set by the entity. If approved by more than one entity, the applicant or licensee must meet the highest standard of the entities for which they are approved. Tangible net worth does not include money held in borrower escrow accounts. Examples of government sponsored entities (“GSE’s”) are Freddie Mac, Fannie Mae, the Federal Home Loan Bank System, and the Federal Agricultural Mortgage Corporation. Ginnie Mae is an example of a government corporation. Applicants or licensees with a combined portfolio must meet the capital requirements that are the highest standard of the GSE or government corporation.
An applicant or licensee servicing residential mortgage loans not including any GSE or government corporation loans must maintain a minimum tangible net worth dependent on the loan volume. Alternatively, the applicant or licensee may maintain a $1,000,000 surety bond in lieu of tangible net worth. In addition, the applicant or licensee must maintain liquidity (to include operating reserves) of .00035 times the unpaid principal balance of the portfolio. An applicant or licensee with twenty-five or fewer loans may apply to the Director of the Department (“Director”) to waive or adjust one or more of these capital requirements. In considering such a request the Director will consider whether the licensee has a positive net worth and adequate operating reserves. “Operating reserves” are funds set aside in anticipation of future payments or obligations and are included in liquidity.
Licensees must annually or more frequently report, as prescribed by the Director, on liquidity (including operating reserves) and tangible net worth. Any licensee that does not maintain these standards is subject to action by the Director.
“Tangible net worth” means total equity minus receivables due from affiliated entities, minus goodwill and other intangible assets, and minus the carrying value of pledged assets net of the associated liabilities of the pledged assets.
“Liquidity” means unrestricted cash and cash equivalents, investment grade securities that are available for sale or held for trade, and unused/available portion of committed servicing advance lines.