Essential Guide to Understanding State Mortgage Examinations

If you're newer to mortgage compliance, understanding the state examination process is one of the most important foundations you can build. In a recent Compliance & Coffee webinar, I sat down with Jeremy Windham of the Alabama Banking Department to break down exactly how exams work - from the types of examinations regulators conduct, to what they're reviewing before they ever walk through your door.

The Reality of a State Exam

Loan file review is still the foundation of every exam. It can take the majority of examiners’ time. Windham explains that “Loan file review still is the most time-consuming portion of our examination. It can take roughly 70–90% of our exam time to do loan file review.” But exams are not just about what is in the file; it’s about the story the contents tell. The compliance narrative for the organization. And while loan file compliance is a focal point in state examinations, it is only one component of the review process. Before an examiner even starts, they are reviewing:

• Prior exam findings

• Consumer complaints

• Marketing and advertising

• Activity across other state exams

They are not just reviewing documents. They are validating a pattern. If something has shown up before, it will most certainly get attention again as a beacon of potential consumer harm.

Understanding the 6 Types of State Mortgage Examinations

Not all state mortgage examinations are created equal. According to Windham, there are roughly six different examination types that state regulators may conduct depending on a licensee's volume, risk profile, and history. Understanding which type of exam an institution may be subject to — and why — is a critical part of exam readiness. From a quick desk review for low-volume companies to a broad scope examination for higher-risk or higher-volume licensees, each exam type serves a distinct purpose in the regulatory oversight process. These include:

• Initial Examination — Conducted when a company is newly licensed.

• Desk Review Exam — For companies with low or no loan volume (under 10 loans). A quick examination focused on ensuring everything is current in NMLS.

• Standard Loan File Review Examination — The baseline exam where the examiner requests the loan log, pulls a selection of loans, and reviews them.

• Loan File Review Plus — Includes the standard loan file review plus a look at additional areas such as marketing or financials.

• Broad Scope Examination — A more comprehensive exam covering a wider range of review areas, typically reserved for higher-volume or higher-risk licensees.

• Targeted/Focused Investigation — Triggered by specific risk indicators, consumer complaints, or flagged concerns, and may result in an off-cycle exam outside of the standard scheduling window.

From a quick desk review for low-volume companies to a broad scope examination for higher-risk or higher-volume licensees, each exam type serves a distinct purpose in the regulatory oversight process. Know which one applies to your institution — and prepare accordingly.

Listen to the Full Conversation

Want to hear directly from a state regulator? Watch the full Compliance & Coffee webinar with Jeremy Windham of the Alabama Banking Department on demand. It's a practical, candid conversation designed to help compliance professionals at every level understand what examiners are really looking for and how to be ready.

Watch the webinar on demand!