DFI Has Exceeded the Scope of Its Authority by Regulating Short Sales.
DFI Has Exceeded the Scope of Its Authority by Regulating Short Sales.
The Department of Financial Institutions has come to regulate short sale negotiations without any regulatory authority. Prior to December, 2010 those conducting short sale negotiations were not regulated by DFI. DFI came to define short sale negotiations as a “residential mortgage loan modification” under its regulatory authority.That interpretation of the July, 2010 revisions to the MBPA was not immediately apparent, however, as neither the MBPA, Consumer Loan Act (hereinafter “CLA”), or the Washington Administrative Code (hereinafter “WAC”) specifically referenced short sales as transactions requiring Department regulation and licensure. See RCW § 19.146.010 (2010); RCW 31.04.015; WAC § 208-660-006 (2010). “Residential mortgage loan modification” meant “a change in one or more of a residential mortgage loan’s terms or conditions. Changes to a residential mortgage loan’s terms or conditions include but are not limited to forbearances; repayment plans; changes in interest rates, loan terms or loan types; capitalization of arrearages; or principal reductions.” RCW § 19.146.010(20); RCW 31.04.015 ( (2010). No mention is made of short sales.Further, the WAC’s list of “examples of transactions” that fell under the Department’s authority made no mention of short sales, but rather “loan applications.” WAC § 208-660-005(8) (2010). It was not until December, 2010 that the Department and DOL issued a “Guidance for Licensees” in which it was stated that short sales were to be regulated by the Department. The Department has asserted that it may regulate short sales, but no clear legislative language exists which supports that assertion. The Department thus has no authority over short sale processes prior to December, 2010.Further, a Federal Trade Commission ruling holds that modification companies need not be mortgage brokers. As you may recall, the FTC assumed jurisdiction to regulate loan modification companies under the Dodd-Frank Legislation. That ruling clearly challenges DFI’s ability to regulate short sales because short sales are even more removed from loans than modifications are. As the change in the interpretation of the MBPA by DFI was after the FTC ruling, the Washington state legislature needed to pass a law to overcome the FTC finding. In other words, DFI should have gone to the legislature to gain authority over short sales. They did not.Seth Rosenberg is managing member of The Rosenberg Law Group, PLLC. Mr. Rosenberg and his team has defended numerous licensed individuals against charges from regulatory agencies, ranging from mortgage brokers, loan originators, tow truck drivers, massage therapists, to nurses and CNA’s. If you face charges from a state regulatory agency and need assistance managing the administrative hearing process, you can contact the Rosenberg Law Group seven days a week at info@rosenberglawgroup.net or (206) 407-3300.
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