10VAC5-160 Rules Governing Mortgage Lenders and Brokers

REGULATIONS

Vol. 25 Iss. 19 - May 25, 2009

TITLE 10. FINANCE AND FINANCIAL INSTITUTIONS

STATE CORPORATION COMMISSION

Chapter 160

Proposed Regulation

Title of Regulation: 10VAC5-160. Rules Governing Mortgage Lenders and Brokers (amending 10VAC5-160-10; repealing 10VAC5-160-70, 10VAC5-160-80).

Statutory Authority: §§ 6.1-421 and 12.1-13 of the Code of Virginia.

Public Hearing Information: A public hearing will be scheduled upon request.

Public Comments: Public comments may be submitted until 5 p.m. on June 15, 2009.

Agency Contact: Susan Hancock, Deputy Commissioner, Bureau of Financial Institutions, P.O. Box 1197, Richmond, VA 23218, telephone [phone], FAX [phone], or email [e-mail].

Summary:

The proposed amendments repeal regulations requiring initial and continuing education of certain employees of licensees under Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia and eliminate a prohibition of employment by such licensees of certain individuals having criminal convictions, both in accordance with Chapter 452 of the 2009 Acts of Assembly.

AT RICHMOND, MAY 5, 2009

Ex Parte: In re: Proposed Amendments to
Rules Governing Mortgage Lenders and Brokers

CASE NO. BFI-2009-00085

ORDER TO TAKE NOTICE

On July 30, 2008, in Case No. BFI-2008-00289, the Commission promulgated regulations which, among other things, implemented the provisions of §§ 6.1-423.1 and 6.1-423.2 of the Code of Virginia requiring licensees under Chapter 16 of Title 6.1 of the Code of Virginia to (1) obtain criminal history record checks for certain of their prospective employees and (2) provide initial and continuing education relating to laws governing mortgage lending to certain of their employees.

In the 2009 session of the Virginia General Assembly, Chapter 452 was enacted repealing §§ 6.1-423.1 and 6.1-423.2 of the Code of Virginia effective July 1, 2009.

Accordingly, the Commission proposes to amend its regulations to reflect this change of law;

IT IS THEREFORE ORDERED THAT:

(1) The proposed amendments, to become generally effective July 1, 2009, are appended hereto and made part of the record herein.

(2) On or before June 15, 2009, any person desiring to comment or request a hearing on the proposed amendments shall file such written comments or hearing requests containing a reference to Case No. BFI-2009-00085 with the Clerk, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia 23218. Requests for hearing shall state why a hearing is necessary and why the issues cannot be adequately addressed in written comments. Interested persons desiring to submit comments or hearing requests electronically may do so by following the instructions at the Commission's website: http://www.scc.virginia.gov/case.

(3) The proposed amendments shall be posted on the Commission's website at http://www.scc.virginia.gov/case.

(4) AN ATTESTED COPY hereof, together with a copy of the proposed amendments, shall be sent to the Registrar of Regulations for publication in the Virginia Register.

AN ATTESTED COPY hereof shall be sent by the Clerk of the Commission to the Commissioner of Financial Institutions, who shall forthwith mail a copy of this Order and the proposed amendments to all mortgage lender and broker licensees and such other interested persons 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 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.

"Commission" and "commissioner" shall have the meanings ascribed to them in § 6.1-409 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.

"Covered employee" means an employee involved in originating, marketing, underwriting, closing, or performing compliance or quality control functions in connection with Virginia mortgage loan transactions.

"Customer" means an individual seeking a mortgage loan from, or with the assistance of, a licensee.

"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 of the Code of Virginia.

"Personal, family or household purposes" for purposes of § 6.1-409 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.

"Personal identifying or financial information" means the name, social security number, driver license number, home address, telephone number, date of birth, place of birth, race or ethnic origin of a customer together with any information about the customer's account numbers, assets, liabilities, sources of income or credit worthiness.

"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, 6.1-415, 6.1-416 and 6.1-416.1 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 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.

10VAC5-160-70. Employee criminal record investigations; exemption. (Repealed.)

A. A licensee shall not, on or after July 1, 2008, hire any individual for a position of employment who may have access to personal identifying or financial information relating to any customer, without first obtaining a criminal history record from the Central Criminal Records Exchange that shows that the prospective employee has not been convicted in any court of any felony, or any misdemeanor involving fraud, misrepresentation or deceit, under the laws of any state or the United States. If the criminal history record reveals that an individual has been convicted as described, a licensee shall not hire the individual without obtaining prior approval from the commission, as specified in subsection C of this section. A licensee shall be subject to a separate penalty under § 6.1-428 of the Code of Virginia for each individual hired without obtaining the criminal history record required by this section.

B. Licensees shall make criminal history records obtained under subsection A of this section and employment history information available for review by commission staff.

C. If a licensee wishes to hire an individual notwithstanding the prohibition in subsection A of this section, the licensee shall file a petition seeking an exemption in accordance with 5VAC5-20-100 C of the commission's Rules of Practice and Procedure. The petition shall be accompanied by a copy of the individual's criminal history record, which shall be kept under seal in the Office of the Clerk.

D. When deciding whether or not to grant a petition filed in accordance with subsection C of this section, the commission shall consider the following factors:

1. The number and classification of offenses committed by the individual;

2. The potential and actual penalties imposed for the offenses committed;

3. The dates of the offenses or convictions;

4. The extent to which the nature of the offenses committed relate to the prospective employee's job duties; and

5. Such other factors and evidence as the commission deems pertinent.

E. The petitioning licensee shall bear the burden of proof that an exemption from the employment prohibition under subsection A of this section should be granted.

10VAC5-160-80. Required employee training; exemption; penalty. (Repealed.)

A. Licensees shall be responsible for providing initial education, and continuing education on at least an annual basis, for all their covered employees with respect to all laws and regulations applicable to the licensees' business. Applicable laws and regulations include, but are not limited to, the Real Estate Settlement Procedures Act (12 USC § 2601 et seq.), Truth in Lending Act (15 USC § 1601 et seq.), Equal Credit Opportunity Act (15 USC § 1691 et seq.) and Fair Credit Reporting Act (15 USC § 1681 et seq.), federal and Virginia privacy protection laws, federal and Virginia laws relating to mortgage fraud, the Virginia Mortgage Lender and Broker Act (§ 6.1-408 et seq. of the Code of Virginia) and all other Virginia laws applicable to the licensees' business, and all regulations adopted under the foregoing laws.

B. Initial education shall consist of at least 12 hours relating to applicable federal laws and regulations, at least four hours relating to applicable Virginia laws and regulations, and additionally at least two hours relating to mortgage fraud prevention, including penalties for participating in mortgage fraud. Initial education shall be provided to individuals who are covered employees as of July 1, 2008, on or before May 1, 2009, and to individuals who become covered employees after July 1, 2008, within 90 days of their hire date. Continuing education shall be conducted on an annual basis and shall consist of at least four hours related to applicable federal laws and regulations, at least two hours related to applicable Virginia laws and regulations, and additionally at least one hour relating to mortgage fraud prevention, including penalties for participating in mortgage fraud.

C. A licensee that hires a covered employee who has received the initial education required under subsection B of this section while previously employed by another licensee shall not be required to provide the covered employee with initial education if the receipt of such education is adequately documented. Required annual education, if completed and so documented, likewise shall be credited with respect to the covered employee.

D. If prior to July 1, 2008, a covered employee has successfully obtained a mortgage certificate, designation or accreditation, the licensee may seek from the Commissioner of Financial Institutions an exemption, in whole or in part, from the initial education requirements for such covered employee. An exemption request shall be made in writing and shall include documentation of the certification, designation or accreditation and a description, including the name and number of hours for each course taken to fulfill the requirements of the certification, designation or accreditation.

E. Licensees shall maintain a training manual and documentation available for commission staff's review demonstrating successful completion of the education required under this section, including names of education providers, names and descriptions of educational courses, and dates of attendance and numbers of hours completed by each covered employee, and shall provide any additional information relating to such education that the commissioner may require. Mere training in the sale or marketing of mortgage loans shall not count towards required education. Education relating to applicable federal laws and regulations, as identified in subsection A of this section, received pursuant to like educational requirements imposed by other states may be used to fulfill educational requirements imposed under this section relating to applicable federal laws and regulations.

F. A licensee shall be subject to a separate penalty under § 6.1-428 of the Code of Virginia for each covered employee not provided with the education required by this section.

VA.R. Doc. No. R09-1880; Filed May 6, 2009, 11:24 a.m.