The Washington Department of Financial Institutions (DFI) amended its regulations under the Consumer Loan Act, effective September 1, 2018. Changes are made to a variety of provisions, including licensing coverage and various substantive requirements. The amendments can be found here.
The definition for "service" or "servicing a loan" is amended. In addition to the existing definitions of licensable servicing activity, the regulation further defines certain "regulated persons," which include:
(1) A "servicer," which covers "[p]ersons directly engaged in servicing.
(2) A "master servicer," which includes [p]ersons responsible for ongoing servicing administration either by directly servicing or through servicing agreements with licensed or exempt subservicers." We note that the definition also permits the DFI to issue a license waiver to a master servicer that services or administers the servicing of fewer than 25 loans.
(3) A "subservicer," which covers "[p]ersons directly servicing pursuant to a servicing agreement with a master servicer.
Two exemptions from the licensing requirement are added, for an "investor" and "note buyer." Those terms are defined as follows:
(1) An "investor," defined as "[p]ersons holding securities or other types of instruments backed by pools of residential mortgage loans." The definition clarifies that "investors" are not servicers, master servicers, or subservicers.
(2) "Note buyers," which are defined as "[p]ersons who purchase mortgage loans without servicing rights and who are not servicers, master servicers, or subservicers."
The definition of "individual servicing a mortgage loan" is also revised. The definition now generally covers the collection of payments, instead of only covering the collection of payments when the borrower is in default or in reasonably foreseeable likelihood of default.
Various other provisions are also amended, including new reporting requirements, recordkeeping requirements, and substantive servicing requirements. Licensees must now report to the DFI if there is a change to the company’s recordkeeping location, if the company’s capital falls below those required by a GSE, or termination of an approval by a GSE.
Notably, the required content of records for mortgage servicers has been amended. Servicers must now maintain recorded telephone conversations with consumers for three years after the date of the call, or longer if required by other applicable law. Servicers also must maintain all notices from GSEs, and servicing agreements, as part of their loan servicing record. Regarding electronic records, the regulations now specify that if a licensee’s records are maintained on a cloud service, that the servers underlying that service must be located in the United States or its territories.
The regulations also are amended to reorganize and refine certain substantive mortgage servicing requirements. Certain minor changes appear to be intended for conformity with federal requirements. For example, the existing provisions for responding to a borrower’s request for information is moved to a new section, and is largely the same content. However, the timeframe for responding to a general written information request from a borrower is changed from 15 to 30 business days. While this is a helpful change, and reduces unnecessary variation, the regulation retains some inconsistent requirements. Regarding the information request provisions, separate from the general request for information requirements discussed above, the regulation retains a provision which states that "a borrower may request more detailed information from the servicer, and the servicer must provide the information within 15 business days of receipt of a written request from the borrower." It is not clear what distinguishes these two types of information requests and the differing applicable timeframes. It is our hope that states will further reduce such unnecessary variation from the substantive mortgage servicing requirements promulgated by the CFPB.
