State of Washington Issues Guidance Regarding Trust Accounts under MBPA
The Washington Department of Financial Institutions (DFI) has recently issued interim guidance on the use of a trust account when receiving reimbursement for payments to third-party service providers. The DFI plans to implement this guidance through rulemaking in 2019.
Through this new guidance, the DFI seeks to clarify the Washington Mortgage Broker Practices Act as it applies to the use of trust accounts. The DFI provides an interpretation for, but does not amend, the Act.
The current statutory requirements for trust accounts (19.146 RCW) in Washington provide that all moneys received by a mortgage broker from a borrower for payment of third-party provider services shall be deemed as held in trust immediately upon receipt by the mortgage broker. A mortgage broker must deposit, prior to the end of the third business day following receipt of such trust funds, all such trust funds in a trust account of a federally insured financial institution located in the state. All trust account funds collected under this chapter must remain on deposit in a trust account in the state of Washington until disbursement. In addition, withdrawals from the trust account may only be for the payment of bona fide services rendered by a third-party provider or for refunds to borrowers.
As industry practices have changed over time, the DFI has determined that consumers can be protected, and the regulatory burden lessened, by providing a simplified interpretation. The DFI’s new guidance states that: 1) funds received by a broker from or on behalf of a borrower for payment to third-party providers prior to closing are considered trust funds; and 2) funds received by a broker from a settlement agent or lender, on or after closing, for reimbursement to the broker solely for payment to third-party service providers, are not trust funds.
Zachary Pearlstein, JD, is a Regulatory Compliance Director with CLA's Mortgage Advisory Division. He joined CLA on January 1, 2014, as part of its acquisition of Bankers Advisory, Inc. Zachary oversees Mortgage Advisory's regulatory compliance team, which focuses on federal and state compliance, fair lending, and the Home Mortgage Disclosure Act (HMDA). He is a graduate of Brandeis University and earned his juris doctor at Suffolk University Law School. He is admitted to the Massachusetts Bar.
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