7.2 Compliance Examinations, Subpoenas, & Record Retention

SML's origination FAQ answers the first operational question a new shop asks: when is the exam? "You can generally expect a compliance examination within 1 year of licensure. You can also expect to be periodically examined for as long as your company maintains a license or registration in Texas. The company's examination score during its last examination will determine how often the company is examined." That is informal SML guidance, not a safe harbor, but it is the calendar the overlay tests. After the first-year exam, a strong score stretches the cycle; a weak score shortens it. The Mortgage Examination Resources page (sml.texas.gov/mortgage-origination/examination) publishes the compliance guide, examination overview, notice-letter and information-request samples, rating system, and common-violation list examiners actually use.

7 TAC § 55.300: how an originator examination runs

§ 55.300 (adopted Texas Register Vol. 49, No. 46, effective November 23, 2024) implements Finance Code § 157.021 for originators.

State Examination System. Examinations are conducted in SES (stateexaminationsystem.org). The sponsoring mortgage company or mortgage banker must use SES to facilitate the exam. An originator who treats SES as "the company's problem" still fails § 55.300 if the sponsor cannot produce the originator's files through that system.

Other states' exams. SML may participate in, leverage, or accept an examination conducted by another state agency or regulatory authority if that authority's mortgage regulation program is accredited by the Conference of State Bank Supervisors. That is not a free pass to skip Texas books; it is a CSBS-accredited sharing tool.

Notice. Except when SML determines that giving advance notice would impair the examination, SML will give the sponsor's NMLS primary contact (or a person that contact designates) advance notice of the start date, sent to the mailing or email address of record in NMLS, with a list of documents that must be produced. Failure to receive the notice is not grounds to delay or postpone the exam. Compare a complaint investigation under Finance Code § 157.021(b) / § 156.301(b): on a signed written complaint that supplies reasonable cause, the Commissioner shall notify the originator or company in writing of the complaint and the intent to investigate before commencing. Unannounced exam authority and pre-investigation complaint notice are different clocks.

What examiners test. § 55.300 directs examiners to determine compliance with Finance Code Chapters 156, 157, and 180 and Chapter 55, specifically whether (1) all persons are properly licensed and sponsored, (2) office locations are properly licensed or registered under § 56.206 / § 57.206, (3) required books are maintained under § 56.204 / § 57.204, (4) legal and regulatory requirements are followed, including the improper-dealings rule in § 55.202(b)(2), and (5) other matters examiners deem necessary. Examiners review a sample of files identified from the mortgage transaction log in § 56.204(c)(1) or (d)(1) or § 57.204(c)(1) or (d)(1), and may expand the sample. They may require the originator, at the originator's own cost, to copy files for the report. Failure to cooperate or to grant access to books, records, documents, operations, and facilities can support disciplinary action, including an administrative penalty.

Investigations, covert limits, and subpoenas

§ 55.301 investigations proceed if SML has reasonable cause, deemed to exist if SML receives or discovers information from a source it has no reason to believe is other than credible showing a violation more likely than not occurred that SML can address. Absence of reasonable cause at the start is not a defense that invalidates a violation found during the investigation. Methods include documentary review; interviews and sworn written statements; information from other state or federal agencies, regulators, or self-regulatory organizations; requiring explanatory or supplemental information; and other lawful methods SML deems appropriate.

Finance Code § 156.301(d) and § 157.021(d) allow a covert investigation only to prevent immediate harm and carry out the chapter. That is the opposite of a routine SES exam.

Subpoena mechanics. § 156.3011 (companies) and § 157.022 (originators) let the Commissioner, during an investigation, issue a subpoena for a deposition, documents, or both. Disobedience is not a dead end: the Commissioner petitions a Travis County district court for an order requiring the person to obey, testify, or produce. Serve-and-obey is the exam sequence; the Commissioner does not personally jail a witness.

7 TAC § 56.204 / § 57.204: three years, unless another law is longer

The recodified company rule—7 TAC § 56.204, adopted with the November 15, 2024 Texas Register publication and effective November 23, 2024—is the live retention text. § 56.204(b)(4) states: "All records required by this section must be maintained for 3 years or such longer period as may be required by other applicable law." The banker/RMLO parallel is § 57.204. Do not invent a five- or seven-year Texas baseline because TILA or IRS practice uses a different number. If another applicable law requires a longer hold, keep the longer hold. If the company terminates operations, it must, within 10 days, give SML written notice of where the records will be kept for the required period; a licensed transferee must notify SML within 10 days after receiving them.

Format and production. Records may be physical, electronic, digitally imaged, or a combination. They must be accurate, complete, current, legible, and readily accessible and sortable, maintained at or readily accessible from the main office or the MU1 "Books and Records Information" location. They must be produced to SML upon request. Failure after a reasonable time for compliance can support suspension or revocation. The recodified rule does not write a 48-hour copy clock; do not recite one. The sponsor must maintain records on behalf of the originators it sponsors for work performed for that shop (§ 56.204(b)(5)). 7 TAC § 55.204 tells the originator that compliance is fulfilled if the sponsor keeps the file—and that the originator must work diligently with the sponsor so the file actually exists.

Mortgage transaction log. § 56.204(c)(1) (companies) and § 57.204(c)(1) (bankers and RMLOs) require a log maintained on a current basis, meaning entries within 7 days after the events they relate to, updated as information changes, and readily sortable. Minimum fields include applicant name; company application/loan ID; lender loan ID if different; initial-application date; property address; interest rate; purpose (purchase, refinance, construction, home equity, wrap, and the like); product (conventional, FHA, VA, reverse, and the like); funding lender name and NMLS ID if applicable; originator name and NMLS ID; closing date; lien position; occupancy intent; and status (in-process, withdrawn, closed, or denied). Examiners pick the sample from this log. A log that lags two weeks is already a books violation before anyone opens a 1003.

Loan files, ads, policies, processor logs. Each transaction file under § 56.204(c)(2) is a specified packet: applications and LE/CD or GFE/HUD-1 equivalents, the § 56.200(b) oversight notice with proof of timely delivery, conditional letters if issued, correspondence and fee or rate-lock agreements, Chapter 343 false-statement notice when the loan is a "home loan," purchase contracts, credit reports and invoices, appraisals and invoices, third-party fee invoices, refunds, dual-capacity consent when the originator also acted as broker, salesperson, or attorney, privacy notices, E-Sign consent, compensation records, and the extra TILA, RESPA, ECOA, home-equity, wrap, home-improvement, and reverse exhibits the rule lists when those products are in the file. General business records include bank records, complaint files, third-party contracts, and—explicitly—all advertisements in the medium in which they were published or distributed (recorded audio, video, Internet or social-media posting, or print) (§ 56.204(f)(7)). SML's advertising FAQ repeats that duty and points to § 56.203 / § 57.203 for content and to § 56.204 / § 57.204 for copies. Written policies that must be captured include identity-theft (Red Flags), AML, information-security, ATR if any, QC if any, compliance manual if any, and personnel policies if any (§ 56.204(f)(8)). Third-party processing or underwriting shops must also keep the loan processing and underwriting log in § 56.204(d) / § 57.204(d) (SML announced mandatory compliance beginning January 1, 2025), with processor/underwriter name, NMLS ID, W-2 versus 1099 status, and whether the fee appeared on the Closing Disclosure.

Mortgage Call Reports: FAQ dates and § 56.205 / § 57.205

Finance Code § 156.213 requires each licensed company to file a mortgage call report—a statement of condition and operations, including financial statements and production volumes—as frequently as the Commissioner requires. Origination-volume and related trade information in the MCR is confidential. § 180.101 is the originator-side federal-SAFE-style report-of-condition duty. 7 TAC § 55.205 is the originator clarification: the originator should not attempt to file a personal MCR. Activity belongs in the sponsor's § 56.205 or § 57.205 filing. The originator still has to cooperate so the numbers are right.

SML's FAQ supplies the quarterly due dates the overlay uses:

The same FAQ states that an MCR must be filed each quarter, even if the company did not originate any loans. § 56.205 (companies) and § 57.205 (bankers) require filing in NMLS by NMLS deadlines, on the current NMLS form. The report has three components, all of which must be completed: Residential Mortgage Loan Activity (RMLA); the State-Specific Supplemental Form (SSSF); and the Statement of Financial Condition. Partial reporting periods and periods of inactivity still require a filing. The Commissioner may grant a written, approved extension. A report that is incomplete or inaccurate at the time it is filed is deemed a failure to file, even if the company planned to amend later. Failure to file can support denial, suspension, or revocation of the license, or an administrative penalty. Beginning Q1 2026, SML's announcement requires entities that have (or should have) NMLS business activities of third-party mortgage loan processing or third-party mortgage underwriting to complete the expanded SSSF processor/underwriter fields (SF600–SF660).

Confidentiality and corrective action

§ 55.302 (implementing Finance Code § 157.021 confidentiality and the Commission's determination under § 156.301) treats as confidential the documents, workpapers, notes, recordings, exam reports, findings, directives, and follow-up communications from an examination, investigation, or inspection. Confidentiality is lost to the extent the information becomes publicly available in a contested-case disciplinary action—the administrative record of a hearing open to the public. Do not email the exam report to a recruiter or post the rating on social media.

§ 55.303 is the confidential off-ramp. During an exam, investigation, or inspection, SML may find violations and, typically in lieu of a public disciplinary action, direct the originator to take corrective action. If a problem looks systemic, SML may direct an internal self-review, compilation of other violations, and a report back to SML. SML may direct refunds to affected consumers by certified funds with tracking and delivery confirmation, or by verified wire/ACH, with named recordkeeping. The Commissioner may waive or modify those refund mechanics for appropriate results. Corrective-action records themselves must be kept under § 56.204(i) (compliance with the company-level corrective-action rule).

Worked example

Harbor Brokerage, LLC received its SML company license on March 1. In February of the following year SES opens. The NMLS primary contact never opened the notice email. Examiners still start on the scheduled date, pull the transaction log, and find log lines entered 20 days after application. Several closed files have no ad archive because "the Facebook boost lived only on the intern's phone," and the Q4 MCR was skipped "because we closed zero loans in December." Each of those facts is independently testable: first-year exam timing (FAQ), notice failure is not a postponement (§ 55.300), 7-day log currency (§ 56.204(c)(1)), ads in the original medium (§ 56.204(f)(7)), and a zero-origination quarter still due February 14 (FAQ and § 56.205(d)). Confidential corrective action under § 55.303 may fix the refundable pieces; skipping the MCR is already a § 56.205(g) filing failure.