The Minnesota Department of Commerce (“Department”) recently issued Residential Mortgage Originator and Servicer Supervisory Guidance to bring attention to the most common deficiencies the Department has identified in examinations and investigations.

The common deficiencies are as follows:

• Interest Rate Lock and Discount Point Agreements: Failure to properly disclose the five requirements of the agreement, complete the agreement in its entirety, or include a disclaimer that the statement of current terms is not an offer.
• Net Tangible Benefit: Failure to demonstrate the tangible net benefit to a consumer for refinance loans and engaging in “churning.”
• NMLS Unique Identifier: Failure to put the NMLS unique identifier on all application forms, solicitations, advertisements, including business cards or Web site.
• Record Retention – Complaint Policy: Failure to maintain a file for all materials relating to a complaint for a period of 60 months.
• Mortgage Call Report Filings and Surety Bond: Failure to file timely Mortgage Call Reports and failure to update surety bond amounts when the Mortgage Call Report is filed for the most recent quarter.
• Agency v. Non-Agency: Failure to properly disclose agency relationships, the non-agency relationships of lenders, and advance fee arrangements.
• Late fee disclosures: Failure to disclose correct late fees.
• Private Mortgage Insurance (PMI): Failure to cancel PMI upon written request when the current principal balance is 80% or less than the current fair market value of the property, providing all other requirements are met.
• Escrow Accounts: Failure to properly manage and remit funds in escrow accounts and failure to competently communicate with insurance companies and taxing authorities to ensure proper disbursements of escrow funds.
• Unlicensed Hard Money Lending: Creating loans that are primarily secured by a mortgage on residential real property requires a residential mortgage originator license. There is no exemption if the intended use of the property is to flip it, the buyer is a company, or the property will be an investment property.

Failure to remedy any of the above deficiencies may result in administrative disciplinary action, including civil penalties of up to $10,000 per violation.