Washington DFI Issues Consent Order over LO Comp Violations in Downpayment Assistance Loans

The Washington State Department of Financial Institutions (DFI) recently entered into a consent order with a non-bank mortgage lender to resolve multiple alleged violations of the state’s Consumer Loan Act, including over loan originator compensation.  In the underlying statement of charges, DFI alleged that the lender’s practice of processing substantially all down payment assistance loans in a particular branch through a “Product Specialist program” that had a different compensation scheme, constituted an example of paying its mortgage loan originators (MLOs) in an amount based on the terms or proxies for the terms of transactions.

The regulator also charged that the lender:  (i) failed to provide required advertisement disclosures in at least 22 advertisements, such as by failing to include the lender’s and its MLOs’ license numbers closely following their names; (ii) failed to date or accurately date at least one mortgage application; (iii) failed to timely provide a rate lock agreement on at least one occasion; (iv) failed to provide a complete rate lock agreement on at least one occasion by failing to disclose whether a rate was guaranteed; (v) inappropriately cancelled loans on at least 14 occasions because of its failure to timely provide disclosures; (vi) failed to provide a complete loan estimate on at least one occasion by indicating that “other” taxes, insurance, and assessments were applicable without further explanation; and (vii) failed to provide complete closing disclosures on at least two occasions by failing to indicate whether the loan had a demand feature and whether state law may protect a borrower from liability for unpaid loan balances after foreclosure.

The consent order provides for a fine of $75,000, part of which is stayed, in addition to payment of an investigation fee.