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Washington Regulatory Update

Washington Rules 208-620-010   The Washington Department of Financial Institutions (“Department”) recently revised rules related to the Consumer Loan Act (“Act”).  The Act applies to each loan made to a resident of Washington by a licensee under the Act or persons subject to the Act, effective September 1, 2018.   “Individual servicing a residential mortgage […]

Washington Rules 208-620-010

 

The Washington Department of Financial Institutions (“Department”) recently revised rules related to the Consumer Loan Act (“Act”).  The Act applies to each loan made to a resident of Washington by a licensee under the Act or persons subject to the Act, effective September 1, 2018.

 

“Individual servicing a residential mortgage loan” means a person who on behalf of a lender or servicer licensed or exempt from licensing in Washington:

  • Collects or attempts to collect payments on existing obligations due and owing to the licensed or exempt lender or servicer, including payments of principal, interest, escrow amounts, and other amounts due;
  • Works with borrowers to collect data and make decisions necessary to modify either temporarily or permanently terms of the obligations; or
  • Otherwise finalizes collection through the foreclosure process.

 

“On behalf of a lender or servicer” means that the individual person is employed by the lender or servicer and does not receive any compensation or gain directly or indirectly from borrowers for performing the described activities.

 

“Service” or “servicing a loan” means, with respect to residential mortgage loans, the following regulated persons:

  • “Servicers” which are persons directly engaged in servicing;
  • “Master servicers” which are persons responsible for ongoing servicing administration either by directly servicing or through servicing agreements with licensed or exempt subservicers except that the Director of the Department (“Director”) may issue a license waiver to a master servicer servicing or administrating the servicing of fewer than 25 loans;
  • “Subservicers” which are persons directly servicing pursuant to a servicing agreement with a master servicer.

 

Persons not regulated include:

  • “Investors” which are persons holding securities or other types of instruments backed by pools of residential mortgage loans. Investors are not servicers, master servicers or subservicers.
  • “Note buyers” which are persons who purchase mortgage loans without servicing rights and who are not servicers, master servicers, or subservicers.

 

Investors and note buyers are exempt from the requirement to be licensed as a consumer loan company.

 

Licensee must keep their books and records location information in the Nationwide Multistate Licensing System and Registry (“NMLS”) and provide the Director with access to the books and records.

 

The annual assessment for loans made, brokered or purchased is based on the “adjusted total loan value” as defined below.  The amount of the annual assessment is determined by multiplying the adjusted total loan value of the loans in the year being assessed by .000180271.

 

Master servicers must report their mortgage servicing rights (“MSR”) volume but will not be assessed for residential mortgage loan servicing conducted by a licensed subservicer pursuant to a servicing agreement.  Each licensee will pay an amount based on the total annual volume of Washington residential mortgage loans serviced during the reporting year minus the adjusted total loan value of the loans in the year being assessed, multiplied by .00000746624.  The minimum amount assessed will be $500 and the maximum amount assessed to any licensee will not exceed $100,000.

 

The “adjusted total loan value” is the sum of:

  • The principal loan balance on Washington loans in the lender’s loan portfolio on December 31st of the prior year; plus
  • The total principal loan amount of all Washington loans the lender made, brokered, or purchased during the assessment year.

 

In addition to the previous requirements, lenders must also amend their NMLS record:

  • Within 10 days after the lender’s capital falls below the required government sponsored entity (“GSE”) minimum capital requirements, if applicable, or there is a change in the location of the lender’s books and records; and
  • Within 20 days of notification of termination from a GSE, if applicable;
  • After receiving notification from the GSE of a breach of contract, waiver, or nonperformance if the reason for the notification remains unresolved for more than 90 days.

 

A residential mortgage loan servicer that wants to close the company or surrender its license, must provide the Department with a description of the disposition of its servicing volume, including the name of the purchaser and the specific notice to consumers about the sale of their servicing.

 

Unless otherwise indicated, a servicer must maintain loan servicing documents for a minimum of three years after making the final entry, or the period of time required by federal law, whichever is longer.  This includes servicing agreements and all notices from GSE’s, if applicable.  A servicer must also maintain recorded telephone conversations with consumers for three years from the date of the call or longer if required by another law.

 

If a servicer uses a cloud service for records maintenance, the servers underlying that service must be located in the United States or its territories.

 

Failing to reconvey title to collateral within 60 (previously 30) business days when the loan is paid in full constitutes an unfair or deceptive act or practice.

Servicers are prohibited from knowingly or recklessly improperly onboarding a residential mortgage loan into the servicer’s loan servicing system.

Servicers are prohibited from conducting the following activities from any location outside the United States or its territories:

  • Receiving payments and maintaining the payment records;
  • Collection activities;
  • Any communications with consumers; or
  • Receipt of data from or disbursement of data to borrowers.

The following activities may be conducted from a location outside the United States or its territories:

  • Data entry;
  • Document review;
  • Recommendation for action;
  • Records searches;
  • Credit dispute analysis; or
  • Escrow account analysis.

A compliance management system (“CMS”) must contain, at a minimum, the following functionalities:

  • Board and management oversight; and
  • Compliance program, which includes:
    • Policies and procedures;
    • Training;
    • Monitoring and/or audit; and
    • Consumer complaint response.

For the details of each component of a CMS, see the Supervision and Examination Manual from the Consumer Financial Protection Bureau (“CFPB”) at the following link:  https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/.  The CMS-specific procedures can be used by an entity to self-assess the effectiveness of its CMS.  The CMS must be maintained as part of a servicer’s books and records.

 

A violation of an applicable state or federal law, regulation, or program is a violation of the Act.

 

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