Washington Revises Rules Implementing Consumer Loan and Mortgage Broker Practices Acts

The Washington Department of Financial Institutions (DFI) recently adopted final rules amending the regulations implementing the Washington Consumer Loan Act (WCLA) and the Washington Mortgage Broker Practices Act (WMBPA), effective November 24, 2019.  The primary purpose of the revisions was to implement amendments to the federal SAFE Act authorizing temporary authority, though additional changes were made to the regulations in these final rules.  The Washington DFI originally released the proposed rule amendments in August 2019.

Certain key changes under the amended WCLA rules include:

• Adding a new section to address temporary authority to originate mortgage loans;
• Adding a new section to address the circumstances in which a loan processor or underwriter can work on files from an unlicensed location;
• Changing reporting responsibilities when a significant business event occurs (e.g., at least 10 day prior notification for the addition of a control person, written notice to the DFI within 30 days (changed from 45 days) after the occurrence of a data breach, and additions to the list of events prompting notification);
• Changes related to certain types of loan fees and timing of collection;
• Updates regarding name, DBA, license number, and other content requirements for advertising purposes; and
• Revisions related to student education loan servicing and disclosure requirements.

Certain key changes under the amended WMBPA rules include:

• Adding a new section to address temporary authority to originate mortgage loans;
• Revising requirements related to licensed loan originator activity when their licensed company becomes a branch of another mortgage broker;
• Changing requirements regarding reporting and notices to the DFI when a significant business event occurs (e.g., prior notification for the addition of a control person, written notice to the DFI within 30 days (changed from 45 days) of a data breach, and additions to the list of events prompting notification);
• Updated provisions regarding treatment of trust funds;
• Updates regarding name, license number, and other content requirements for advertising purposes; and
• Updated disclosure requirements regarding rate lock agreements.

Other changes under both the WCLA and WMBPA amended rules include, for example, reordering or moving of sections or specific language, the addition of citations, and various changes made for clarification purposes.

In addition to implementing temporary authority under the WCLA and WMBPA amended rules, the Washington DFI also announced the addition of several new statuses to be added to NMLS to support the new temporary authority, clarifying that, as of November 24, 2019, Mortgage Loan Originator (MLO) applications from certain individuals may qualify for Temporary Authority to Operate (TA) while the individual is meeting state application requirements.  These statuses include:

• Pending-Deficient (TA Eligible), pending CBC results or sponsorship
• Pending-Deficient (TA), pending testing, education, or license item completion
• Pending-Review (TA), testing and education complete, no license items
• Pre-Approved (TA), pending testing and education

The Washington DFI also provided some related guidance, including, among other things, that: (i) the evaluation of TA eligibility happens on any MLO application submitted on or after November 24; (ii) an individual must have a relationship with a company before the individual is TA eligible; and (iii) the company employing an MLO with TA is subject to both the federal SAFE Act as well as Washington state law to the same extent as if the MLO was licensed.