By Tyler Lewis,2014-06-28 20:46
7 views 0


    State of Washington


    Division of Consumer Services

    P.O. Box 41200 ? Olympia, Washington 98504-1200

    Telephone (360) 902-8700 ? TDD (360) 664-8126 ? FAX (360) 586-5068 ?

    Revised July 22, 2008




    A. Administrative Set-up for Examination

    B. Contacting the Licensee

    C. Examiner Set-up for Examination

    D. Washington State Agency Verifications

    E. DFI Mortgage Broker Licensing File

    F. Licensee Standing with Other States

    G. Surety Bond

    H. Complaint Review

    I. Annual Assessment Review

    J. Mortgage Broker Annual Report Verification

    K. Loan List and Sample Selection

    L. Travel Arrangements

    M. Scope of the Examination


    A. Onsite Introductions

    B. Setting up Accommodations

    C. Onsite Examiner Meeting

    D. EIC Review of the Designated Broker’s Questionnaire

    E. Expectations of the Examiner, Professional or Specialist

    F. Business Practices

    1. Credit Report

    2. Loan Application (Fannie Mae Form 1003 and Freddie Mac Form 65)

    3. Initial Disclosures Covered Under the Act

    a. Initial Truth In Lending Act (TILA) Disclosure

    b. Itemized Cost or a Good Faith Estimate (GFE) of Settlement Costs

    c. Redisclosure Requirements

    d. Lock-In Agreement

    e. Model Disclosure Form

    f. Adjustable Rate Mortgage (ARM) Disclosure

    g. Additional Federal Disclosures

    (i) Required Pamphlets

    (ii) Real Estate Settlement Procedures Act (RESPA) Servicing Disclosure Statement

    (iii) Affiliated Business Arrangement (AFBA) Disclosure

    (iv) National Credit Score Disclosure and Notice to Home Loan Applicant

    (v) Privacy Policy Disclosure

    (vi) USA PATRIOT Act Information Form

    (vii) Notification of Adverse Action 4. Mortgage Broker Working Papers

    a. Preliminary Commitment for Title Insurance

    b. Appraisal

    c. Credit Insurance Products

    d. Hazard Insurance

    e. Flood Certification

    5. Funding Documents

    a. Broker Demand

    b. Final Settlement Statement

    c. Loan Fee Test for Re-Disclosure

    d. Note and Riders

    e. Notice of Right to Cancel

    G. Business Practices

    1. Standards for Safeguarding Customer Information

    2. Home Mortgage Disclosure Act (HMDA)

    3. Telemarketing

    4. Advertising

    5. Business Name Use

    6. Trust Account Examination

    a. Reconciliation of Trust Account Check Register(s) to Bank Statements

    b. Review of Trust Account Bank Statements

    c. Borrower Sub Account Reconciliation

    d. Trust Account Check Register Review

    e. General Account Check Register Review

    7. Non Trust Account Holders H. Guidance on Nontraditional Mortgage Products I. Detecting Predatory Lending

    1. Equity Stripping

    2. Excessive Fees

    3. Abusive Prepayment Penalties

    4. Yield Spread Premiums

    5. Loan Flipping

    6. Unnecessary Products or Packing

    7. Bait-and-Switch Schemes J. Instructions for Net Tangible Benefit Examinations K. Detecting Fraud

    1. No Documentation Loans

    2. NINA or No Income No Asset Loans

    3. Stated Income Loans

    4. ARM’s

    L. Provide EIC with Worksheets and Supporting Documents M. Shipping Files to the Office

    N. Exit Meeting and Report


    A. Examiners Provide Travel Cost Information to EIC (Out of State Examinations Only)

    B. Write Report of Examination

    C. Determine Examination Rating

    D. Finalize Hours Recapitulation and Travel Costs Recapitulation for Invoicing E. Final Review

    F. Final Report and Invoice Mailed to the Licensee G. Response from the Licensee

    H. Special Situations

    I. Reports by a Professional or Specialist

    J. Referral to Enforcement


    This draft examination manual is a guide to assist the Department of Financial Institutions Examiners, and

    provide standards for Independent Certified Professionals and Specialists, (Examiners) for examinations of

    Mortgage Brokers (MB). The manual is subject to change based on changes in examination techniques,

    mortgage broker statutes and rules, and applicable changes to federal regulations. This manual can also be used

    by the mortgage broker industry as a guideline for compliance.


    The Department of Financial Institutions (the Department) assigns an Examiner in Charge (EIC), or designee, to

    conduct various discovery activities as part of the pre-examination phase. The EIC identifies possible licensing

    concerns, bonding requirements, annual assessment payments, complaint history, tips, licensed loan originators

    and registered independent contractors, and other related activities. The EIC uses this information to focus the

    examination scope on those areas that present the greatest degree of risk. If applicable, the EIC also reviews

    previous examination reports to reveal prior deficiencies and corrective actions that should have been resolved.

    The pre-examination setup and various discovery activities conducted include, but are not limited to the


    A. Administrative Set-Up for Examination

    Administrative Staff:

    ? 1) Work with examination scheduler to determine when a licensee is due for an examination.

    ? 2) Deliver entry letter with Designated Broker Questionnaire (DBQ) and Loan List Request at least

    thirty days prior to the examination entry date.

    ? 3) If the Designated Broker (DB) informs the Department that an examination by a Professional or

    Specialist has already been performed, the DB requests that the Professional or Specialist provide a

    copy of the report with supporting documentation of violations, if applicable, directly to the

    Department from the Professional or Specialist.

    ? 4) Gather informational documents* and place electronic copies on secure media.

    ? 5) Inform EIC of examination.

    Designated Broker Loan ListQuestionnaire

    *The informational documents are various items that are available in the office that may not necessarily be

    available to the EIC in the field. These documents include bond and any applicable riders; important

    information from the Department’s licensing file, complaint history, and financial statements.

    B. Contacting the Licensee


    ? 1) Make contact with licensee to ensure receipt of the Entry Letter and DBQ.

    ? 2) Answer any questions the DB may have.

    ? 3) Verify location of examination and business hours of that location.

    ? 4) Inform the DB that a trust account examination will take place.

    o Request adequate assistance if the trust records are maintained electronically.


? 5) Request necessary accommodations including workstations, printer and Internet access, copier

    access, and other items deemed necessary.

    C. Examiner Set-Up for Examination


    ? 1) Obtain electronic templates for the Report of Examination (ROE), Examination Hours

    Recapitulation, Travel Billing Spreadsheet, (for out-of-state examinations) and the Examination


    ? 2) Ensure materials are stored on secure media.

    D. Washington State Agency Verifications


    ? 1) Obtain the licensee’s Uniform Business Identifier (UBI) from the licensing file or the Department of

    Licensing (DOL) website.

    ? 2) Conduct research at DOL to assure that the company’s legal and trade names adhere to Washington

    State licensing requirements and that the licenses are current and active.

    ? 3) Review the licensee’s registration with the Secretary of State and Department of Revenue (DOR).

    ? 4) Record any variations between the information provided in the licensing file and information

    contained at DOL, Secretary of State, and DOR in the ROE.

    E. DFI Mortgage Broker Licensing File


    ? 1) Review the licensing file to gain familiarity with the company.

    ? 2) Check for missing information that may need to be obtained onsite.

    ? 3) Review any office closures or address changes.

    ? 4) Review any regulatory enforcement actions against the company.

    ? 5) Check ownership and verify that it has been updated if changes have occurred.

    ? 6) Review information contained in the STAR database*.

    ? 7) Review the list of Loan Originators, and registered Independent Contractors and verify that it

    matches what was reported in the DBQ.

    ? 8) Note the bank account numbers on record for the general and trust account. These will be verified


    ? 9) Re-verify the background information on the officers and designated broker

*STAR is the internal database that DFI maintains which includes much of the licensing information on the

    licensee. It should match any information contained in the paper licensing file, as well as provide additional


    F. Licensee Standing with Other States


     1) Verify that the licensee is in good standing with other states in which it maintains a license.

     2) Assure there have been no license suspensions, revocations, or restrictions by other states.


G. Surety Bond


    ? 1) Verify the bond amount is adequate*.

    ? 2) Verify the name and address of the licensee.

    ? 3) Assure the surety company is authorized to conduct activity in Washington, by checking with the

    Insurance Commissioner at

*The bond amount is verified by checking the monthly average number of loan originators. The required

    amounts can be found in WAC 208-660-175.

    How to Calculate Bond Worksheet

    (Double-Click to Open) H. Complaint Review


    ? 1) Review any files in the STAR Enforcement database to discover new complaints and tips not yet


    ? 2) Request full loan files from the licensee for each open complaint found.

    ? 3) Collect all documentation necessary from Enforcement*.

    ? 4) Complete the Complaint Analysis Form and submit a copy to the Enforcement Unit Complaints


*Once onsite, the examiners review the complaint(s) by performing a full loan file review for compliance

    with all statutes. If review of complaints reveals violations of statute the scope of the examination may need

    to be expanded to identify other instances of similar violations. If open complaints related to the non-

    payment of third-party providers exist, a review of the trust account and associated sub ledgers is to be


    Complaint Analysis - Complaint AnalysisInstructions

    (Double-Click to Open) I. Annual Assessment Review


    ? 1) Verify that the MB annual license assessment fee has been paid*.

    ? 2) Verify that any loan originator annual license assessments are also paid.

*Requirements for licensing fees and annual assessment payments are found in RCW 19.146.210, RCW

    19.146.310 and WAC 208-660-550(C)(2)(3).

    J. Mortgage Broker Annual Report Verification EIC:

    ? 1) Verify the annual report* filed by the MB includes:


    o The total number of all residential mortgage loans secured by Washington real estate the MB

    originated and brokered to another entity in the 2007 calendar year, including table funded loans.

    o The total principal loan amount of originated or brokered loans to another entity.

    o The total number of all residential mortgage loans secured by Washington real estate the MB

    made (funded with the use of a warehouse line or the MB’s capital) in the 2007 calendar year.

    o The total principal loan amount of all funded loans made.

    MB Annual Assessment Form ? 2) Reconcile the annual report to the information contained in schedule “O” of the DBQ.

     st*A licensed MB is required to file an annual report in a form prescribed by the Director by March 31 of steach year, beginning in 2008. The annual report must cover the prior calendar year from January 1 to stDecember 31.

    K. Loan List and Sample Selection


    ? 1) Request a sample of brokered loans by using either judgmental or statistical sampling.

    Judgmental Loan Statistical Loan SamplingSampling

     (Double-Click to Open)

? 2) Request a small sample of declined files (if applicable).

Using Schedule O (from the DBQ) the EIC selects the sample of loans to review from the entire population

    of loans from the examination period. The loan sample is selected by using a “statistical” or a combination

    of “statistical” and “judgmental” sampling techniques. Once received, Schedule O is sorted at the EIC’s

    discretion to reveal trends and possible high risk lending factors that may bring cause for a judgmental


If Schedule O is not available, the EIC requests a loan list that covers the period of review. At a minimum,

    the licensee provides the loan list in a Microsoft Excel spreadsheet format with the following separate

    column headings:

    ? Loan number or ID

    ? Last name

    ? First name

    ? Property address

    ? City

    ? State

    ? Zip Code

    ? Program (Conventional, Non-Conventional, VA, FHA, Reverse, Commercial)

    ? Loan purpose (Refinance, Purchase, HELOC, Fixed 2nd)

    ? Type (e.g. 2 yr Arm, fixed)

    ? LTV


? Mortgage Broker fees

    ? Other Mortgage Broker fees

    ? Yield spread premium income

    ? Rate

    ? Term

    ? Settlement date

    ? Loan Originator last name

    ? Loan Originator license number

    ? Status (funded, withdrawn, denied)

    ? Occupancy

    ? Lien position

    ? Loan amount

    Loan List

    (Double-Click to Open) L. Travel Arrangements


    ? 1) Make travel arrangements and hotel accommodations for all members of the examination team

    ? 2) Obtain travel directions related to the location of the airport, licensee, hotel, and rental car company.

Refer to DFI’s internal policies regarding travel before making arrangements.

Regulatory Authority 1) RCW 19.146.235(8) and WAC 208-660-550(6)

    M. Scope of the Examination EIC:

    ? 1) Identifies the examination scope.

    ? 2) Discusses the scope with supervisor.

    ? 3) Communicates the examination scope and any special instructions to the assisting examiners.

The EIC establishes the examination scope based upon their findings discovered in the pre-examination

    phase. The scope should include but not be limited to:

    ? A review of trust accounting records to ensure compliance with the Washington State Mortgage Broker

    Practices Act, RCW 19.146 (the Act).

    ? Loan file review to determine compliance with the Act and applicable federal regulations covering the

    business of mortgage brokering and lending.

    ? Interviews for the purpose of understanding the mortgage broker’s business and solicitation practices,

    transactional events, disclosure compliance, complaint resolution, or determining specific compliance

    with the Act and the attendant rules;

    ? Review of general business books and records, including employee records to determine compliance

    with the Act.


If during the examination the EIC determines that the findings clearly identify a need to expand the scope*

    of the examination, the Department will provide you with five business days' written notice. The expanded

    examination may include a different location and may go beyond the initial five year time limit.

    *Reasons for expanding the scope include:

    ? When the Department finds a violation of trust accounting

    ? When violations of the prohibited practices section of the Act are discovered. See RCW 19.146.0201

    for prohibited practices.

    ? When there are clear systemic violations requiring greater review than is possible in a routine


    Regulatory Authority 1) RCW 19.146.235(5)


    A. Onsite Introductions Upon arrival the EIC makes introductions of the examiners to the onsite point of contact which is typically

    the DB for the organization. The EIC schedules a time with the DB to discuss the business operation and

    records so that the EIC understands the MB business operation.

    B. Setting up Accommodations The EIC ensures that the examiners have the resources available to perform the examination which may

    include internet connectivity, office supplies, copy machine, printer, telephone, and other accommodations

    within the facility.

    C. Onsite Examiner Meeting Once the examiner(s) are setup and prepared to proceed with the examination, the EIC provides instructions

    to the examiner(s). The instructions may include, but are not limited to:

    ? Discuss the scope of the examination.

    ? Review potential areas of concern found during examination preparation.

    ? Verify the loan files requested are present.

    ? Verify the requested denied files are present. stnd? Arrange all of the simultaneous 1 and 2 mortgage loan files together by borrower last name.

    ? Discuss complaints and tips received by the enforcement section.

    D. EIC Review of the Designated Broker’s Questionnaire

    The EIC reviews the DBQ or may assign parts of the questionnaire to be reviewed by another examiner.

    The EIC reviews the DBQ for elements that give insight to the operations and safety and soundness of the

    company. The DBQ can reveal potential risk factors; violations of state or federal statutes; and practices

    that may be harmful to consumers.


Report this document

For any questions or suggestions please email