Introduction 

The Montana Division of Banking and Financial Institutions (Division) promotes compliance with state and federal regulations by performing routine examinations of mortgage companies conducting business in the State. The purposes of examinations are to:  

• Review compliance with relevant laws and regulations.  
• Assess the quality of the compliance management system for implementing state and federal consumer protection statutes and regulations; and  
• Initiate effective supervisory action when elements of the compliance management system are deficient or when significant violations of law are found. 

The Division utilizes the State Examination System (SES) to conduct examinations. SES was developed by the Conference of State Bank Supervisors (CSBS), the same organization behind the Nationwide Multistate Licensing System & Registry (NMLS). Just as NMLS supports the licensing process of state regulators and their licensed companies, SES supports the examination and supervision processes. 

This guide provides a general overview of the Division’s examination process. Licensees should develop internal procedures concerning state examinations to ensure staff can assist regulators with the examination process and comply with examination requests.  

Examination Types 

There are three types of examinations that the Division may perform:  

1. Limited Scope Examinations are typically done within 18 months of licensure if the licensee has conducted business in Montana. Licensees are generally required to provide a small sample of loan level documentation and select policies and procedures. 
2. Full Scope Examinations are typically done every three years if the licensee has conducted business in Montana. A full scope examination generally includes loan level documentation, policies, procedures, and interviews with personnel. 
3. Joint/Multistate Examinations may be operated with other state agencies. The Division may participate in multistate examinations in coordination with the Conference of State Bank Supervisors/American Association of Residential Mortgage Regulators (“CSBS/AARMR”) Nationwide Cooperative Agreement for Mortgage Supervision. In that event, the Division examiner will coordinate all aspects of the examination with the assigned Examiner-In-Charge of the multistate examination. The Division will accept the joint Report of Examination (ROE) and will not issue a separate ROE. 

Examination Process 

Licensees receive an email notification from the SES when an examination has been scheduled. If the company is new to SES, the email will also contain onboarding instructions.  

• Company Enrollment in SES – How it Works  
• SES Quick Start Guide for Companies  

Examinations may be conducted on-site or digitally off-site. The examination notification email will inform the licensee if the examination is on-site or off-site.  

Prior to an on-site examination, the examiner will send information requests to the licensee in SES to allow the licensee time to prepare.  Upon arrival at the institution, most if not all information and records requested should be ready and available for review by the examiner.  In most cases, the examiner will do the following during an on-site examination: 

• Request access to the tools necessary to conduct the exam. These tools include the following: 
  • An adequate workspace. The workspace needs enough table room for the examiner to spread out the documents being reviewed.
  • An electrical outlet. The outlet will preferably be located at the examiner’s workspace because the examiner needs the power for a laptop. 
  • A photocopier. The photocopier access is needed in the event that the examiner needs to make photocopies of any of the documents being reviewed. 
  • A place to secure items. The secure place needs to accommodate the examiner’s belongings as well as the institution’s files. 
• Hold a meeting with the institution’s management to get an understanding of its operations. 
• Request the names of, and access to, the people who can provide the required materials and information. 
• Request a loan sample.  The loan sample size will depend on the unique requirements of each examination based on complexity of the company, number of complaints, targeted investigations, and other factors.  There is no limit as to how many contracts the examiner may request.
• Hold an exit meeting with the institution’s management to summarize and review any issues and answer any questions that arose during the examination.  

The examiner’s goal is to determine if any violation or issue exists, to conclude whether that violation or issue was singular or systemic and to accomplish all corrective action during the examination when possible. 

The process for off-site examinations is very similar to those for on-site examinations. The primary difference is that all information must be provided through the SES and communications will take place through SES, email, and/or telephone, mainly with the primary examination contact.  

3. Topics Addressed in the Examination  

• General Compliance with the SAFE Act and Licensing Review.  
• Statement of Policy Review.  
• Targeted Mortgage Originator Review.  
• Determination of Responsible Management. 
• Financial Analysis.  
• Real Estate Settlement Procedures Act (RESPA).  
• Equal Credit Opportunity Act (ECOA).  
• Regulation Z: Truth In Lending Act (TILA).  
• Fair Credit Reporting Act (FCRA).  
• Gramm-Leach-Bliley Act (GLBA).  
• Home Mortgage Disclosure Act (HMDA).  
• Homeowners Protection Act (HPA).  
• Applicable Flood Insurance Laws and Rules.  
• Fact Act-Red Flag Rules.  
• Annual Percentage Rate Calculations.  
• Affiliate Company review.  
• Montana Mortgage Act (MMA) 
• Administrative Rules of Montana (ARM) 

The examiner will send the Licensee Information Requests (IRs) through SES. The IRs will be tailored to the Licensee’s size, business activities, and examination type. The Licensee will typically have around twenty-two business days to provide most requested information and documents.  

The examiner will also send IRs for lists of the Licensee’s closed loans and cancelled/withdraw/abandoned loans. Please see the pipeline report sample on the Division’s website. The Licensee will have five business days to provide the loan lists. The examiner will select the loans they want to review and send Loan Requests through SES. The Loan Requests will typically be due within twelve business days. Each loan file should be uploaded to SES in PDF format. For lists of what must be included in a loan file, please see the following Administrative Rules of Montana: 

• ARM 2.59.1710 Records to be Maintained by Mortgage Brokers 
• ARM 2.59.1724 Records to be Maintained by Mortgage Lenders 
• ARM 2.59.1744 Records to be Maintained by Mortgage Servicers 

The licensee will receive a Report of Examination upon completion of the Division's review. A response may be required from the licensee.  

Helpful Examination Information 

• Common Violations 
• Records Retention 
• Loan List/Pipeline Report Sample 
• Sample Origination Pipeline Report 
• Sample Servicing Pipeline Report 
• State and Federal Regulations 
• The Montana Mortgage Act 
• Administrative Rules of Montana
• Regulation B: Equal Credit Opportunity Act (ECOA) 
• Regulation V: Fair Credit Reporting Act (FCRA) 
• Regulation P: Privacy of Consumer Financial Information 
• Regulation X: Real Estate Settlement Procedures Act (RESPA) 
• Regulation Z: Truth In Lending Act (TILA)  
• Gramm-Leach-Bliley Act (GLBA)  
• Home Mortgage Disclosure Act (HMDA) 
• Homeowners Protection Act (HPA) 

Helpful Guides 

• SES Quick Start Guide for Companies  
• FTC: “Credit Discrimination"  
• FinCEN: AML/SAR Filing Requirements  
• FTC: “Fighting Identity Theft with the Red Flags Rule” 
• “FTC Safeguards Rule: What Your Business Needs to Know” 
• CFPB: “Loan Origination Rule” (Small Entity Compliance Guide) 
• CFPB: “Ability-to-Repay and Qualified Mortgage Rule” (Small Entity Compliance Guide) 
• CFPB: Reverse Mortgage Examination Guide (Word download)