Q1 State Agency Enforcement Summary for Mortgage Companies

May 12

With the recent reduction in federal agency oversight of the mortgage industry, state regulators and enforcement agencies have increased their enforcement of laws and regulations applicable to mortgage lenders, brokers, and other industry players.

In the first quarter of 2026, several state agencies brought noteworthy enforcement actions alleging, among other things, RESPA Section 8 violations, unlicensed activity, prohibited offshore processing/underwriting activities, advertising violations, remote work violations, deficient AML programs, LO Compensation Rule violations, and violations of reporting and surety bond requirements. These enforcement actions signal that state agencies are enforcing both federal and state laws and regulations applicable to mortgage companies, diluting the impact of decreased enforcement activity at the federal agency level.

RESPA Section 8 Violations

The Maryland Attorney General brought a RESPA Section 8 enforcement action against several title insurance joint ventures that were owned in part by real estate agents. The Maryland Attorney General alleged that the title insurance joint ventures unlawfully paid compensation to real estate agents in exchange for referrals of consumers to the title joint ventures. The action settled for $1,050,000.

This action comes on the heels of several other recent anti-kickback enforcement actions brought by state attorneys general. State regulators and enforcement agencies are closely scrutinizing joint ventures, including whether ownership interests are sold at a discounted rate to referral sources in exchange for referrals from those sources. Accordingly, mortgage companies should closely review their arrangements with referral sources to ensure compliance with applicable anti-kickback laws, including RESPA.

Unlicensed Activity

There have been several state enforcement actions alleging that unlicensed individuals were performing activities requiring a mortgage loan originator license. The California DFPI brought the largest of those actions, settling with a mortgage company for $160,000. Other states, including Florida and Illinois, have also brought enforcement actions alleging unlicensed activity, with Illinois settling its action by fining a company $100,000 and revoking the company’s license.

Unlicensed activity continues to be an area of focus for state regulators. Companies should be mindful of the tasks performed by unlicensed individuals and how those tasks are reflected in policies and procedures.

Prohibited Offshore Activities‍ ‍

North Carolina brought an enforcement action relating to the use of offshore individuals to process and underwrite mortgage loans. North Carolina law generally prohibits mortgage companies from using offshore companies or individuals to perform mortgage services.

With companies increasingly looking offshore to fulfill certain functions at a lower cost, it is important to be aware of the state restrictions on offshore activities. Some states, like North Carolina, prohibit offshore mortgage activities. Accordingly, companies should understand the state law framework when moving certain mortgage-related activities offshore.

Advertising Violations

Indiana brought enforcement actions based in part on a mortgage broker’s failure to include its NMLS ID and the Equal Housing Opportunity logo/statement on social media advertisements. Additionally, Washington brought an enforcement action based in part on the use of advertising phrases prohibited by Washington requirements.

State regulators continue to focus on advertising compliance, with repeated violations drawing the most criticism from regulators. Marketing compliance checklists and pre-publication compliance reviews can help mitigate the risk of advertising violations.

Remote Work Violations

States have been aggressively enforcing remote work requirements, with Kentucky leading the charge by bringing tens of enforcement actions over the last year. Kentucky’s remote work requirements differ slightly from other states’ requirements, and Kentucky takes those requirements very seriously. While a violation of Kentucky’s remote work laws typically results in a small fine (usually $1,000), the relief is sought through a public enforcement action that attaches to a company’s NMLS record.

Companies should review Kentucky’s alternate work location provisions to ensure technical compliance with those provisions, including the performance of an annual documented review of alternate work locations.

Deficient AML Programs

Both North Carolina and Washington brought enforcement actions based in part on AML compliance program deficiencies, including the lack of an independent audit of the AML compliance program and inadequate training.

AML compliance has always been a focus of state regulators during exams. AML-related exam findings can often be corrected outside of the enforcement context. However, these recent enforcement actions suggest that some state regulators are taking a more aggressive approach when confronted with a deficient AML compliance program. Mortgage companies should ensure that their AML compliance programs satisfy applicable regulations, including incorporation of an independent audit, companywide training, designation of an AML compliance officer, and development of policies, procedures, and internal controls.

LO Compensation Rule Violations

Washington has alleged violations of the LO Compensation Rule in several recent enforcement actions, as states in general have increased their attention on LO Compensation structure in connection with exams.

States continue to scrutinize LO Compensation plans, even with the CFPB recently hinting that it may seek to relax the requirements of the rule. Accordingly, companies should continue to review their LO Compensation plans for compliance given the increase in state agency enforcement of the LO Compensation Rule.

Reporting and Surety Bond Violations

Several companies have been fined or had their licenses revoked for failure to file timely Mortgage Call Reports and financial reports and failure to maintain the state-required surety bond. California, Florida, and Kentucky have been the most aggressive in enforcing these requirements through public enforcement actions.

While the submission of required reports can be tedious, a late filing is low-hanging fruit for state examiners. Companies should develop multiple checks to ensure timely submission of MCRs and any other required reporting, including audited financial statements.

For any questions, please contact Matt Jones.

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About The Author

Matt Jones is a Partner at Mitchell Sandler with extensive experience advising mortgage lenders and other consumer finance companies in a variety of regulatory compliance, enforcement, and litigation matters.