10VAC5-160 Rules Governing Mortgage Lenders and Brokers

REGULATIONS

Vol. 27 Iss. 13 - February 28, 2011

TITLE 10. FINANCE AND FINANCIAL INSTITUTIONS

STATE CORPORATION COMMISSION

Chapter 160

Final Regulation

REGISTRAR'S NOTICE: The State Corporation Commission is exempt from the Administrative Process Act in accordance with § 2.2-4002 A 2 of the Code of Virginia, which exempts courts, any agency of the Supreme Court, and any agency that by the Constitution is expressly granted any of the powers of a court of record.

Title of Regulation: 10VAC5-160. Rules Governing Mortgage Lenders and Brokers (amending 10VAC5-160-10, 10VAC5-160-20, 10VAC5-160-40, 10VAC5-160-50; adding 10VAC5-160-90, 10VAC5-160-100).

Statutory Authority: §§ 6.2-1613 and 12.1-13 of the Code of Virginia.

Effective Date: February 15, 2011.

Agency Contact: E.J. Face, Jr., Commissioner, Bureau of Financial Institutions, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone [phone], FAX [phone], or email [e-mail].

Summary:

The amendments to this regulation governing mortgage lenders and brokers accomplish three basic goals: (i) address the transition of mortgage lender and broker licensees and new applicants to the electronic National Mortgage Licensing System and Registry (NMLS); (ii) provide basic codes of conduct for licensees in maintaining records with NMLS and supervising mortgage loan originators (already licensed through NMLS); and (iii) make technical changes and corrections to conform to NMLS, as well as to the recodification of Title 6.1 of the Code of Virginia into Title 6.2. All applications for mortgage lender or broker licenses under Chapter 16 (§ 6.2-1600 et seq.) of Title 6.2 of the Code of Virginia must be sent through NMLS beginning January 3, 2011. Mortgage lenders and brokers licensed prior to January 1, 2011, are required to transition to NMLS no later than April 1, 2011. Licensees may not employ persons who are not licensed as mortgage loan originators under Chapter 17 (§ 6.2-1700 et seq.) of Title 6.2 of the Code of Virginia to take applications for, or offer or negotiate the terms of, residential mortgage loans. Licensees must disclose on all documents provided to a borrower the licensee's NMLS unique identifier, as well as the unique identifier of any mortgage loan originator associated with the loan. Licensees are required to keep their information current in NMLS. The commission may enforce these regulations or Chapter 16 by fines or suspension or revocation of licenses.

In response to comments received, the final regulations differ from the proposed regulations in that the licensee's unique identifier and the unique identifier of the mortgage loan originator must be included on the loan application only, rather than on all documents provided to the borrower as originally proposed. Licensees are required to keep their information current in NMLS. The State Corporation Commission may enforce these regulations or Chapter 16 (§ 6.2-1600 et seq.) of Title 6.2 of the Code of Virginia by civil penalties or by suspension or revocation of licenses.

AT RICHMOND, FEBRUARY 15, 2010

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. BFI-2010-00255

Ex Parte: In re: Mortgage Lenders and Brokers

ORDER ADOPTING REGULATIONS

The Bureau of Financial Institutions ("Bureau") submitted to the Commission proposed amendments to 10 VAC 5-160 ("Chapter 160") of the Virginia Administrative Code, which governs the conduct of licensed mortgage lenders and brokers ("Licensees"). The impetus for the proposed amendments is Chapter 831 of the 2010 Virginia Acts of Assembly ("Chapter 831"), which became effective on July 1, 2010, and required all Licensees to register with the Nationwide Mortgage Licensing System and Registry ("NMLS"). The proposed regulation set forth the requirements for Licensees to transition to NMLS and maintain current and accurate records in NMLS, as well as the requirements for new mortgage lenders and brokers to apply for licensure through NMLS. The proposed regulation also clarified certain operating rules for Licensees through their participation in NMLS and supervision of mortgage loan originators, also licensed through NMLS.

On November 16, 2010, the State Corporation Commission ("Commission") entered an Order to Take Notice of a proposal by the Commission to amend 10 VAC 5-160, regulations governing mortgage lenders and brokers. The Order and proposed regulations were published in the Virginia Register of Regulations on December 6, 2010, published on the Commission's web site, and mailed to all licensed mortgage lenders and brokers and other interested parties. Interested parties were afforded the opportunity to provide written comments or request a hearing on or before December 20, 2010.

Comments on the proposed regulations were filed by Professional Mortgage Corp., the Virginia Association of Mortgage Brokers, Nfm, Inc., and First Savings Mortgage Corporation. Each party's comments were confined to expressing concern over the proposed requirement that a licensee disclose its NMLS-assigned unique identifier and that of the applicable mortgage loan originator on all documents provided to a borrower. No party requested a hearing in this matter.

NOW THE COMMISSION, upon consideration of the proposed regulations, the written comments filed, the recommendations of staff, and applicable law, concludes that the proposed regulations should be modified to (i) require a licensee to disclose its NMLS-assigned unique identifier and that of the applicable mortgage loan originator only on an application for a mortgage loan; and (ii) accommodate and reflect recodification of Title 6.1 of the Code of Virginia as Title 6.2 of the Code of Virginia.¹

Accordingly, IT IS ORDERED THAT:

(1) The proposed regulations, 10 VAC 5-160, as modified herein and attached hereto, are adopted effective as of the date of this Order.

(2) This Order and the attached regulations shall be posted on the Commission's website at: http://www.scc.virginia.gov/case.

(3) The Commission's Division of Information Resources shall send a copy of this Order, including a copy of the attached regulations, to the Virginia Registrar of Regulations for publication in the Virginia Register of Regulations.

(4) This case is dismissed from the Commission's docket of active cases.

AN ATTESTED COPY hereof shall be sent to the Commissioner of Financial Institutions, who shall forthwith mail a copy of this Order, including a copy of the attached regulations, to all licensed mortgage lenders and brokers, as well as other interested parties as he may designate.

10VAC5-160-10. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Advertisement" means a commercial message in any medium that promotes, directly or indirectly, a mortgage loan. The term includes a communication sent to a consumer as part of a solicitation of business, but excludes messages on promotional items such as pens, pencils, notepads, hats, calendars, etc., as well as rate sheets or other information distributed or made available solely to other businesses.

"Affiliate" for purposes of subdivision 3 of § 6.1-411 6.2-1602 of the Code of Virginia means an entity of which 25% or more of the voting shares or ownership interest is held, directly or indirectly, by a company that also owns a bank, savings institution, or credit union.

"Chapter 16" means Chapter 16 (§ 6.2-1600 et seq.) of Title 6.2 of the Code of Virginia.

"Commission" and "commissioner" shall have the meanings ascribed to them in § 6.1-409 [ 6.2-1600 6.2-100 ] of the Code of Virginia.

"Commitment" means a written offer to make a mortgage loan signed by a person authorized to sign such offers on behalf of a mortgage lender.

"Commitment agreement" means a commitment accepted by an applicant for a mortgage loan, as evidenced by the applicant's signature thereon.

"Commitment fee" means any fee or charge accepted by a mortgage lender, or by a mortgage broker for transmittal to a mortgage lender, as consideration for binding the mortgage lender to make a mortgage loan in accordance with the terms of a commitment or as a requirement for acceptance by the applicant of a commitment, but the term does not include fees paid to third persons or interest.

"Dwelling" means one- to four-family residential property located in the Commonwealth.

"Fees paid to third persons" means the bona fide fees or charges paid by the applicant for a mortgage loan to third persons other than the mortgage lender or mortgage broker, or paid by the applicant to, or retained by, the mortgage lender or mortgage broker for transmittal to such third persons in connection with the mortgage loan, including, but not limited to, recording taxes and fees, reconveyance or releasing fees, appraisal fees, credit report fees, attorney fees, fees for title reports and title searches, title insurance premiums, surveys and similar charges.

"Licensee" means a person licensed under Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia.

"Lock-in agreement" means a written agreement between a mortgage lender, or a mortgage broker acting on behalf of a mortgage lender, and an applicant for a mortgage loan that establishes and sets an interest rate and the points to be charged in connection with a mortgage loan that is closed within the time period specified in the agreement. A lock-in agreement can be entered into before mortgage loan approval, subject to the mortgage loan being approved and closed, or after such approval. A commitment agreement that establishes and sets an interest rate and the points to be charged in connection with a mortgage loan that is closed within the time period specified in the agreement is also a lock-in agreement. The interest rate that is established and set by the agreement may be either a fixed rate or an adjustable rate.

"Lock-in fee" means any fee or charge accepted by a mortgage lender, or by a mortgage broker for transmittal to a mortgage lender, as consideration for making a lock-in agreement, but the term does not include fees paid to third persons or interest.

"Mortgage lender," "mortgage broker," and "mortgage loan" shall have the meanings ascribed to them in § 6.1-409 6.2-1600 of the Code of Virginia.

"Mortgage loan originator," "Nationwide Mortgage Licensing System and Registry," and "Registry" shall have the meanings ascribed to them in § 6.2-1700 of the Code of Virginia.

"Personal, family or household purposes" for purposes of § 6.1-409 6.2-1600 of the Code of Virginia means that the individual obtaining the loan intends to use the proceeds to build or purchase a dwelling that will be occupied by such individual or another individual as their temporary or permanent residence. The term includes a loan used to build or purchase a dwelling that will be (i) improved or rehabilitated by or on behalf of the purchaser for subsequent sale to one or more other individuals who will reside in the dwelling on a temporary or permanent basis, or (ii) leased by the purchaser to one or more other individuals who will reside in the dwelling on a temporary or permanent basis.

"Points" means any fee or charge retained or received by a mortgage lender or mortgage broker stated or calculated as a percentage or fraction of the principal amount of the loan, other than or in addition to fees paid to third persons or interest.

"Reasonable period of time" means that period of time, determined by a mortgage lender in good faith on the basis of its most recent relevant experience and other facts and circumstances known to it, within which the mortgage loan will be closed.

"Senior officer" for purposes of §§ 6.1-414 6.2-1605, 6.1-415 6.2-1606, 6.1-416 6.2-1607, and 6.1-416.1 6.2-1608 of the Code of Virginia means an individual who has significant management responsibility within an organization or otherwise has the authority to influence or control the conduct of the organization's affairs, including but not limited to its compliance with applicable laws and regulations.

"Subsidiary" for purposes of subdivision 3 of § 6.1-411 6.2-1602 of the Code of Virginia means an entity of which 25% or more of the voting shares or ownership interest is held, directly or indirectly, by a bank, savings institution, or credit union.

10VAC5-160-20. Operating rules.

A licensee shall conduct its business in accordance with the following rules:

1. No licensee shall misrepresent the qualification requirements for a mortgage loan or any material loan terms or make false or misleading statements to induce an applicant to apply for a mortgage loan or to induce an applicant to enter into any commitment agreement or lock-in agreement or to induce an applicant to pay any commitment fee or lock-in fee in connection therewith. A "material loan term" means the loan terms required to be disclosed to a consumer pursuant to (i) the Truth in Lending Act (15 USC § 1601 et seq.), and regulations and official commentary issued thereunder, as amended from time to time, (ii) § 6.1-2.9:5 6.2-406 of the Code of Virginia, and (iii) 10VAC5-160-30. A misrepresentation or false or misleading statement resulting directly from incorrect information furnished to a licensee by a third party, or a good-faith misunderstanding of information furnished by a third party, shall not be considered a violation of this section if the licensee has supporting documentation thereof and the licensee's reliance thereon was reasonable.

2. No licensee shall retain any portion of any fees or charges imposed upon consumers for goods or services provided by third parties. All moneys received by a licensee from an applicant for fees paid to third persons shall be accounted for separately, and all disbursements for fees paid to third persons shall be supported by adequate documentation of the services for which such fees were or are to be paid. All such moneys shall be deposited in an escrow account in a bank, savings institution, or credit union segregated from other funds of the licensee.

3. The mortgagor who obtains a mortgage loan shall be entitled to continue to make payments to the transferor of the servicing rights under a mortgage loan until the mortgagor is given written notice of the transfer of the servicing rights by the transferor. The notice shall specify the name and address to which future payments are to be made and shall be mailed or delivered to the mortgagor at least 10 calendar days before the first payment affected by the notice.

4. If a person has been or is engaged in business as a mortgage lender or mortgage broker and has filed a bond with the commissioner, as required by § 6.1-413 6.2-1604 of the Code of Virginia, such bond shall be retained by the commissioner notwithstanding the occurrence of any of the following events:

a. The person's application for a license is withdrawn or denied;

b. The person's license is surrendered, suspended, or revoked; or

c. The person ceases engaging in business as a mortgage lender or mortgage broker.

5. Within 15 days of becoming aware of the occurrence of any of the following events, a licensed mortgage lender or mortgage broker shall file a written report with the commissioner describing such event and its expected impact, if any, on the activities of the licensee in the Commonwealth:

a. The licensee files for bankruptcy or reorganization.

b. Any governmental authority institutes revocation or suspension proceedings against the licensee, or revokes or suspends a mortgage-related license held or formerly held by the licensee.

c. Any governmental authority takes (i) formal regulatory or enforcement action against the licensee relating to its mortgage business or (ii) any other action against the licensee relating to its mortgage business where the total amount of restitution or other payment from the licensee exceeds $20,000. A licensee shall not be required to provide the commissioner with information about such event to the extent that such disclosure is prohibited by the laws of another state.

d. Based on allegations by any governmental authority that the licensee violated any law or regulation applicable to the conduct of its licensed mortgage business, the licensee enters into, or otherwise agrees to the entry of, a settlement or consent order, decree, or agreement with or by such governmental authority.

e. The licensee surrenders its license to engage in any mortgage-related business in another state in lieu of threatened or pending license revocation, license suspension, or other regulatory or enforcement action.

f. The licensee is denied a license to engage in any mortgage-related business in another state.

g. The licensee or any of its employees, officers, directors, or principals is indicted for a felony.

h. The licensee or any of its employees, officers, directors, or principals is convicted of a felony.

6. No licensee shall inform a consumer that such consumer has been or will be "preapproved" or "pre-approved" for a mortgage loan unless the licensee contemporaneously provides the consumer with a separate written disclosure (in at least 10-point type) that (i) explains what preapproved means; (ii) informs the consumer that the consumer's loan application has not yet been approved; (iii) states that a written commitment to make a mortgage loan has not yet been issued; and (iv) advises the consumer what needs to occur before the consumer's loan application can be approved. This provision shall not apply to advertisements subject to 10VAC5-160-60. In the case of a preapproval initially communicated to a consumer by telephone, the licensee shall provide the written disclosure to the consumer within three business days.

7. No licensee shall permit any individual who is not licensed as a mortgage loan originator pursuant to Chapter 17 (§ 6.2-1700 et seq.) of Title 6.2 of the Code of Virginia to, on behalf of the licensee, take an application for or offer or negotiate the terms of a residential mortgage loan as defined in [ § 6.2-1700 of the Code of Virginia. § 1503(8) of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (P.L. 110-289), that is secured by real property located in the Commonwealth. ]

8. Beginning April 1, 2011, every licensee shall disclose on [ all documents any application ] provided to the borrower associated with a Virginia residential mortgage loan: (i) the licensee's unique identifier assigned by the Registry; and (ii) the unique identifier assigned by the Registry to any mortgage loan originator who took the application [ or negotiated the terms of for ] the loan.

10VAC5-160-40. Schedule of annual fees for the examination, supervision, and regulation of mortgage lenders and mortgage brokers.

Pursuant to § 6.1-420 6.2-1612 of the Code of Virginia, the Commission sets the following schedule of annual fees to be paid by mortgage lenders and mortgage brokers required to be licensed under Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia. Such fees are to defray the costs of examination, supervision and regulation of such lenders and brokers by the Bureau of Financial Institutions. The fees are related to the actual costs of the Bureau, to the volume of business of the lenders and brokers, and to other factors relating to supervision and regulation.

SCHEDULE

LENDER LICENSEE: Minimum fee -- $800, plus $6.60 per loan

BROKER LICENSEE: Minimum fee -- $400, plus $6.60 per loan

DUAL AUTHORITY (LENDER/BROKER): Minimum fee -- $1,200, plus $6.60 per loan

The annual fee for each mortgage lender shall be computed on the basis of the number of mortgage loans, as defined in § 6.1-409 6.2-1600 of the Code of Virginia, made or originated during the calendar year preceding the year of assessment. The annual fee for each mortgage broker shall be based on the number of such loans brokered. The annual fee for each mortgage lender/broker shall be based on the total number of mortgage loans made or originated and mortgage loans brokered. The annual fee computed using the above schedule shall be rounded down to the nearest whole dollar.

Fees shall be assessed on or before April 25 for the current calendar year. By law the fee must be paid on or before May 25.

The annual report of each licensee shall be due March 1 of each year and shall provide the basis for licensee assessment, i.e., the number of loans made or brokered. If the annual report of a licensee has not been filed by the assessment date, a provisional fee, subject to adjustment when the report is filed, shall be assessed. In cases where a license or additional authority has been granted between January 1 and March 31, one of the following fees or additional fee shall be assessed: lender -- $400; broker -- $200; lender/broker -- $600.

Fees prescribed and assessed by this schedule are apart from, and do not include, the reimbursement for expenses permitted by subsection [ B C ] of § 6.1-420 6.2-1612 of the Code of Virginia.

10VAC5-160-50. Responding to requests from Bureau of Financial Institutions.

A. When the Bureau of Financial Institutions (bureau) requests a written response, books, records, documentation, or other information from a mortgage lender or mortgage broker (licensee) in connection with the bureau's investigation, enforcement, or examination of compliance with applicable laws, the licensee shall deliver a written response as well as any requested books, records, documentation, or information within the time period specified in the bureau's request. If no time period is specified, a written response as well as any requested books, records, documentation, or information shall be delivered by the licensee to the bureau not later than 30 days from the date of such request. In determining the specified time period for responding to the bureau and when considering a request for an extension of time to respond, the bureau shall take into consideration the volume and complexity of the requested written response, books, records, documentation or information and such other factors as the bureau determines to be relevant under the circumstances.

B. Requests made by the bureau pursuant to subsection A are deemed to be in furtherance of the bureau's investigation and examination authority provided for in § 6.1-419 6.2-1611 of the Code of Virginia. Failure to comply with subsection A may result in [ fines civil penalties ], license suspension, or license revocation.

10VAC5-160-90. National Mortgage Licensing System and Registry.

A. Beginning January 3, 2011, applications for a mortgage lender or mortgage broker license shall be made through the Registry in accordance with instructions provided by the Commissioner. The Commissioner may provide these instructions through the Registry, on the Commission's Internet web site, or by any other means the Commissioner deems appropriate.

B. The Commissioner shall notify all licensees no later than January 1 of each calendar year of the information required to be included in the annual report to be submitted by each licensee pursuant to § 6.2-1610 of the Code of Virginia.

C. Entities exempt from the requirement for licensure under Chapter 16 that supervise mortgage loan originators licensed pursuant to Chapter 17 (§ 6.2-1700 et seq.) of Title 6.2 of the Code of Virginia may obtain a unique identifier through the Registry.

D. All licensees holding a license under Chapter 16 prior to January 1, 2011, shall obtain such unique identifier and provide all required information to the Registry no later than April 1, 2011.

E. Every licensee shall maintain current information in its records with the Registry. Any changes to the licensee's address, principal officers, or any other information in the Registry shall be updated by the licensee as soon as is practicable, but in no event later than five business days from when the change takes effect.

10VAC5-160-100. Enforcement.

A. Failure to comply with any provision of Chapter 16 or this chapter may result in [ fines civil penalties ], license suspension, or license revocation.

B. Pursuant to § 6.2-1624 of the Code of Virginia, a licensee shall be subject to a [ fine civil penalty ] of up to $2,500 for every violation of Chapter 16, this chapter, or other law or regulation applicable to the conduct of the licensee's business. Furthermore, if a licensee violates any provision of Chapter 16, this chapter, or other law or regulation applicable to the conduct of the licensee's business in connection with multiple borrowers, loans, or prospective loans, the licensee shall be subject to a separate [ fine civil penalty ] for each borrower, loan, or prospective loan. For example, if a licensee makes five loans and the licensee violates two provisions of this chapter in connection with each of the five loans, there would be a total of 10 violations and the licensee would be subject to a maximum [ fine civil penalty ] of $25,000.

VA.R. Doc. No. R11-2653; Filed February 15, 2011, 2:47 p.m.