Title of Regulation: 10VAC5-161. Mortgage Loan Originators (amending 10VAC5-161-10, 10VAC5-161-20, 10VAC5-161-30, 10VAC5-161-40, 10VAC5-161-60; adding 10VAC5-161-45, 10VAC5-161-70, 10VAC5-161-80).

Statutory Authority: §§ 6.2-1720 and 12.1-13 of the Code of Virginia.

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

Public Comment Deadline: June 20, 2012.

Agency Contact: Nicholas C. Kyrus, Bureau of Financial Institutions Deputy Commissioner, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone (804) 371-9191, FAX (804) 371-9416, or email nick.kyrus@scc.virginia.gov.

Summary:

The State Corporation Commission is proposing changes to 10VAC5-161, which governs mortgage loan originators under Chapter 17 (§ 6.2-1700 et seq.) of Title 6.2 of the Code of Virginia. The proposed regulations set forth the criteria used for determining whether an applicant for a mortgage loan originator license has the financial responsibility, character, and general fitness required for licensure under § 6.2-1706 of the Code of Virginia. The proposal also includes various conforming and clarifying amendments based on regulations adopted in 2011 by the U.S. Department of Housing and Urban Development and the Consumer Financial Protection Bureau pursuant to the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008. In addition, the proposed regulations reflect certain amendments to Chapter 17 made by Chapters 52 and 187 of the 2012 Virginia Acts of Assembly, which will become effective on July 1, 2012. The proposed regulations also (i) require records containing consumers' personal financial information to be disposed of in a secure manner, (ii) clarify the commission's enforcement authority under Chapter 17, and (iii) require mortgage loan originators to provide the Bureau of Financial Institutions with a written response, books, records, documentation, or information requested by the bureau within the time period specified in the bureau's request. Various other technical and clarifying amendments, including changes resulting from the recodification of Title 6.1 of the Code of Virginia, have also been proposed.

AT RICHMOND, MAY 15, 2012

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. BFI-2012-00022

Ex Parte: In re: Mortgage Loan Originators

ORDER TO TAKE NOTICE

Section 6.2-1720 of the Code of Virginia provides that the State Corporation Commission ("Commission") shall adopt such regulations as it deems appropriate to effect the purposes of Chapter 17 (§ 6.2-1700 et seq.) of Title 6.2 of the Code of Virginia ("Chapter 17"). The Commission's regulations governing licensed mortgage loan originators ("licensees") are set forth in Chapter 161 of Title 10 of the Virginia Administrative Code ("Chapter 161").

The Bureau of Financial Institutions ("Bureau") has submitted to the Commission proposed amendments to Chapter 161. The proposed regulations set forth the criteria used for determining whether an applicant for a mortgage loan originator license has the financial responsibility, character, and general fitness required for licensure under § 6.2-1706 of the Code of Virginia. The proposed changes to Chapter 161 also include various conforming and clarifying amendments based on federal regulations adopted in 2011 pursuant to the Federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ("S.A.F.E. Act").¹ In addition, the proposed regulations reflect certain statutory amendments to Chapter 17 that will become effective on July 1, 2012.² The proposed regulations also (i) require records containing consumers' personal financial information to be disposed of in a secure manner, (ii) clarify the Commission's enforcement authority under Chapter 17, and (iii) require licensees to provide the Bureau with a written response, books, records, documentation, or information requested by the Bureau within the time period specified in the Bureau's request. Various other technical and clarifying amendments, including changes resulting from the recodification of Title 6.1 of the Code of Virginia,³ also have been proposed.

NOW THE COMMISSION, based on the information supplied by the Bureau, is of the opinion and finds that the proposed regulations should be considered for adoption with a proposed effective date of July 1, 2012.

Accordingly, IT IS ORDERED THAT:

(1) The proposed regulations are appended hereto and made a part of the record herein.

(2) Comments or requests for a hearing on the proposed regulations must be submitted in writing to Joel H. Peck, Clerk, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia 23218, on or before June 20, 2012. Requests for a hearing shall state why a hearing is necessary and why the issues cannot be adequately addressed in written comments. All correspondence shall contain a reference to Case No. BFI-2012-00022. Interested persons desiring to submit comments or request a hearing electronically may do so by following the instructions available at the Commission's website: http://www.scc.virginia.gov/case.

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

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

AN ATTESTED COPY hereof, together with a copy of the proposed regulations, shall be sent by the Clerk of the Commission to the Commission's Office of General Counsel and the Commissioner of Financial Institutions, who shall forthwith send by e-mail or U.S. mail a copy of this Order, together with a copy of the proposed regulations, to all licensed mortgage loan originators, licensed mortgage lenders, licensed mortgage brokers, and such other interested parties as he may designate.

_______________________________

¹The S.A.F.E. Act authorized the U.S. Department of Housing and Urban Development ("HUD") to monitor and enforce states' compliance with the S.A.F.E. Act's requirements for state licensing and registration, and HUD issued rules setting minimum standards for state licensing and registration. 76 Fed. Reg. 38464 (June 30, 2011). Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act transferred rulemaking authority under the S.A.F.E. Act from HUD to the Consumer Financial Protection Bureau ("CFPB") effective July 21, 2011. The CFPB thereafter published Regulation H, S.A.F.E. Mortgage Licensing Act - State Compliance and Bureau Registration System, 12 C.F.R. Part 1008, based on HUD's regulations. 76 Fed. Reg. 78483 (Dec. 19, 2011).

²Chapters 52 and 187 of the 2012 Virginia Acts of Assembly.

³Chapter 794 of the 2010 Virginia Acts of Assembly recodified Title 6.1 of the Code of Virginia as Title 6.2 of the Code of Virginia effective October 1, 2010. Chapter 16.1 of Title 6.1 has been replaced by Chapter 17 of Title 6.2.

10VAC5-161-10. Definitions.

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

"Bureau," means the State Corporation Commission's Bureau of Financial Institutions "commission," "commissioner," and "person" shall have the meanings ascribed to them in § 6.2-100 of the Code of Virginia.

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

"Chapter 17" means Chapter 17 (§ 6.2-1700 et seq.) of Title 6.2 of the Code of Virginia.

"License application" means a written request for a mortgage loan originator license pursuant to Chapter 17 and this chapter.

"Licensee," "mortgage loan originator," "person," "registered mortgage loan originator," "registry," "residential mortgage loan," and "unique identifier" shall have the meanings ascribed to them in § 6.1-431.1 6.2-1700 of the Code of Virginia.

10VAC5-161-20. Individuals subject to licensure.

A. On or after July 1, 2010, the following individuals must obtain a license Unless exempt from licensure pursuant to subsection B of § 6.2-1701 of the Code of Virginia, the following individuals who engage in the business of taking applications for residential mortgage loans, or offering or negotiating the terms of residential mortgage loans, shall obtain and maintain annually a license pursuant to Chapter 17 and this chapter:

1. Individuals acting as mortgage loan originators who are employees or exclusive agents of persons a person licensed under Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia;. This includes individuals who are employees of professional employment organizations or staffing services, who shall become and remain exclusive agents of a person licensed under Chapter 16.

2. Individuals, other than registered mortgage loan originators, acting as mortgage loan originators who are employees or exclusive agents of persons a person exempt from licensure under Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia; and.

3. Individuals acting as mortgage loan originators who are not employees or exclusive agents of either persons a person licensed under Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia or a person exempt from such licensure.

B. Individuals who are coemployees of professional employer organizations or staffing services shall be deemed to be employees of the client company. For purposes of Chapter 17 and this chapter:

1. An individual takes an application for a residential mortgage loan if the individual receives a residential mortgage loan application for the purpose of facilitating a decision whether to extend an offer of residential mortgage loan terms to a borrower or prospective borrower, or to accept the terms offered by a borrower or prospective borrower in response to a solicitation.

2. An individual offers or negotiates the terms of a residential mortgage loan if the individual:

a. Presents for consideration by a borrower or prospective borrower particular residential mortgage loan terms;

b. Communicates directly or indirectly with a borrower or prospective borrower for the purpose of reaching a mutual understanding about prospective residential mortgage loan terms; or

c. Recommends, refers, or steers a borrower or prospective borrower to a particular lender or set of residential mortgage loan terms, in accordance with a duty to or incentive from any person other than the borrower or prospective borrower.

10VAC5-161-30. License application procedure.

A. Applications for a mortgage loan originator license License applications shall be made submitted through the registry in accordance with instructions from the registry and the bureau. In connection with such license applications, the individual seeking a license applicant shall furnish the registry with all required information concerning his identity, personal history and experience, and fingerprints, and shall pay or cause to be paid through the registry required registry fees and an a license application fee of $150.

B. Within five days after submitting an a license application for a mortgage loan originator license with through the registry, a bond with corporate surety on a commission-approved form and in an amount conforming to 10VAC5-161-50 shall be filed with the bureau, together with such further information as the bureau may require concerning the applicant's qualifications for licensure. In the case of individuals described in 10VAC5-161-20 A 1 and 2, the bond shall be filed (or documentation shall be filed indicating that the applicant is covered by a bond previously filed) by the person for whom the applicant will perform mortgage loan origination services engage in the business of a mortgage loan originator. Filing of a bond under this subsection by a person licensed under Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia shall constitute compliance with § 6.1-413 6.2-1604 of the Code of Virginia if the bond is in the amount required under § 6.1-413 6.2-1604 of the Code of Virginia. In the case of individuals described in 10VAC5-161-20 A 3, the bond shall be filed by the individual applicant. In either case the person filing the bond shall, unless such information is contained in a prior filing under Chapter 16 of Title 6.1 of the Code of Virginia, simultaneously provide information to the bureau concerning his or its the dollar volume of residential mortgage loans originated by such person during the immediately preceding calendar year.

C. If the bureau requests information to complete a deficient license application and the information is not received within 60 days of the bureau's request, the license application shall be deemed abandoned unless a request for an extension of time is received and approved by the bureau prior to the expiration of the 60-day period. However, this provision shall not be construed to prohibit the commission from denying a license application that does not meet the requirements of Chapter 17 or this chapter.

10VAC5-161-40. Conditions of licensure and renewals.

A. A mortgage loan originator license will be granted only if the an individual meets the following conditions:

1. Application is made The individual has submitted a license application in accordance with 10VAC5-161-30;

2. The individual has obtained a unique identifier from the registry;

3. The individual has never had a mortgage loan originator license revoked by any governmental authority;

4. The individual's criminal history record contains no disqualifying convictions under § 6.1-431.8 6.2-1707 of the Code of Virginia;

5. The individual has completed the prelicensing education prescribed by § 6.1-431.9 6.2-1708 of the Code of Virginia;

6. The individual has achieved an acceptable score on the qualified written test prescribed by § 6.1-431.10 6.2-1709 of the Code of Virginia; and

7. The commission finds that the individual possesses the financial responsibility, character, and general fitness required for licensure by § 6.1-431.7 6.2-1706 of the Code of Virginia and 10VAC5-161-45.

B. Licenses shall be subject to renewal expire at the end of each calendar year unless granted within 90 days before the end renewed by the commission on or after November 1 of the preceding same calendar year. In order to renew a To request license renewal, a licensee must renew shall (i) submit a license renewal application through the registry on or before the end of the current license year in accordance with instructions from the registry and the bureau. The licensee shall; (ii) furnish the registry and the bureau with all required information and documentation and shall; (iii) pay or cause to be paid through the registry all required registry fees and a license renewal fee of $100; (iv) obtain the continuing education prescribed in § 6.2-1710 of the Code of Virginia; and (v) comply with any other renewal requirements imposed by the registry.

C. A mortgage loan originator license will be renewed only if the licensee meets commission finds that the following conditions have been met:

1. License renewal application is made in accordance with The licensee has satisfied the requirements of subsection B of this section; and

2. The licensee has complied with Chapter 17 and this chapter, and continues to meet the conditions for initial licensure; and.

3. The licensee has obtained the continuing education prescribed in § 6.1-431.11 of the Code of Virginia.

D. If (i) a licensee fails to timely meet the conditions requirements specified in subsection C B of this section, but meets such conditions requirements and pays a reinstatement fee of $30 before March 1 of a renewal year and pays a reinstatement fee of $30 the following calendar year, and (ii) the commission makes the findings specified in subsection C of this section, his license will shall be reinstated and renewed.

10VAC5-161-45. Financial responsibility, character, and general fitness.

A. Except as otherwise provided in this subsection, an applicant shall be found to have the financial responsibility required by § 6.2-1706 of the Code of Virginia.

1. An applicant shall not be found to have the financial responsibility required by § 6.2-1706 if the commission finds that the applicant has one or more of the following:

a. One or more outstanding judgments or collection accounts that in the aggregate exceed $2,000;

b. One or more outstanding tax liens or other governmental liens that in the aggregate exceed $1,000;

c. One or more delinquent accounts, including any charged-off accounts but excluding any items in subdivision A 1 a or b of this section, that in the aggregate exceed $3,000;

d. One or more foreclosures within the past seven years; or

e. Such other debts as the commission deems relevant.

2. Notwithstanding subdivision A 1 of this section, an applicant shall be found to have the financial responsibility required by § 6.2-1706 if the commission determines that (i) the applicant has demonstrated good faith efforts to satisfy all of the outstanding debts enumerated in subdivision A 1 of this section and (ii) one or more of the following substantially impeded the applicant's ability to satisfy his outstanding debts:

a. Loss of income;

b. Divorce;

c. Medical expenses;

d. Natural disaster; or

e. Such other unanticipated events or circumstances that the commission deems relevant.

B. An applicant shall be found to have the character and general fitness required by § 6.2-1706 of the Code of Virginia unless one or more of the following are applicable:

1. The applicant has been convicted of, or pled guilty or nolo contendere to, a crime involving: (i) financial services or a financial services-related business, (ii) fraud, (iii) a false statement or omission, (iv) felony theft or wrongful taking of property, (v) bribery, (vi) perjury, (vii) forgery, (viii) counterfeiting, (ix) extortion, (x) breach of trust, (xi) money laundering, or (xii) dishonesty. However, in evaluating any of these crimes, the commission may take into account, among other things, the length of time elapsed since the offense was committed, the age of the applicant at the time of the offense, and the nature of the offense.

2. The commission finds that (i) the applicant made a material misrepresentation or omission in either his license application or any other information furnished by the applicant in conjunction with such license application or (ii) a third party made a material misrepresentation or omission in support of the applicant's request for a mortgage loan originator license and the applicant failed to promptly notify the bureau after becoming aware of the misrepresentation or omission. However, in evaluating a misrepresentation or omission, the commission may take into account, among other things, any explanation given for the misrepresentation or omission. For purposes of this subdivision, a misrepresentation or omission shall be considered material if the commission would consider the stated or omitted information to be important in the investigation of an applicant's request for a mortgage loan originator license.

3. The commission possesses other information that demonstrates that the applicant lacks the character or general fitness required by § 6.2-1706 of the Code of Virginia.

C. Pursuant to § 6.2-1716 of the Code of Virginia, the commission may suspend or revoke any license issued under Chapter 17 at any time following the issuance of such license if the commission finds, based on the criteria set forth in this section, that a licensee no longer possesses the financial responsibility, character, or general fitness to warrant belief that such person will act as a mortgage loan originator efficiently and fairly, in the public interest, and in accordance with law.

10VAC5-161-60. Required reports and notices.

A. On or before March 1 of each year, each Each person for whom an individual described in 10VAC5-161-20 A 1 or 2 performs services engages in the business of a mortgage loan originator shall file, on or before March 1 of each year, an annual report with the bureau stating the amount of residential mortgage loans made or brokered during the preceding calendar year, identifying all licensees performing services for that person, and providing such additional information as the bureau may require. Timely filing of the annual report required by Chapter 16 (§ 6.1-408 et seq.) of Title 6.1 of the Code of Virginia by a person licensed under that chapter shall constitute compliance with this subsection by that person if the annual report contains the information specified in this subsection.

B. On or before March 1 of each year, each Each licensee who is an individual described in 10VAC5-161-20 A 3 shall file, on or before March 1 of each year, an annual report with the bureau stating the amount of residential mortgage loans originated during the preceding calendar year and providing such additional information as the bureau may require.

C. Each licensee shall give notice to the bureau, either directly for a notice under subdivision 1 of this subsection or through the registry for other notices required by this section, within 15 days one business day after the occurrence of any either of the following events:

1. Cessation of activities for which a license is required, upon receipt of which notice the individual's license will be placed in inactive status and the individual shall not engage in activities requiring licensure under this chapter until such time as the individual meets the description in 10VAC5-161-20 A 1, 2, or 3 and other provisions of this chapter;

2. 1. Termination of, or separation from, employment or exclusive agency as a mortgage loan originator for a person licensed or exempt from licensing under Chapter 16 of Title 6.1 of the Code of Virginia, upon receipt of which notice the individual's license will be placed in inactive status and the individual. A licensee who is no longer an employee or exclusive agent of a person licensed or exempt from licensing under Chapter 16 shall not engage in activities requiring licensure under this chapter Chapter 16 until such time as the individual meets the description in 10VAC5-161-20 A 1, 2, or 3 and other provisions of this chapter; (i) the individual obtains a mortgage broker license under Chapter 16 or (ii) the individual becomes a bona fide employee or exclusive agent of a person who is licensed or exempt from licensing under Chapter 16 and the requirements set forth in (i) and (ii) of subdivision 2 of this section have been satisfied.

3. 2. Commencement of employment or exclusive agency as a mortgage loan originator for a new person licensed or exempt from licensing under Chapter 16 of Title 6.1 of the Code of Virginia, in which event the new person shall comply. A licensee who becomes an employee or exclusive agent of a person licensed or exempt from licensing under Chapter 16 shall not engage in activities requiring licensure under Chapter 16 until (i) the person licensed or exempt from licensing under Chapter 16 has complied with the surety bond filing requirements of § 6.2-1703 of the Code of Virginia, 10VAC5-161-30 B, and 10VAC5-161-50; or and (ii) the bureau has received a sponsorship request through the registry.

4. Surrender of a license, in which case the licensee shall mail his license to the bureau immediately upon giving notice of surrender of the license.

D. Pursuant to subsection B of § 6.2-1711 of the Code of Virginia, each licensee shall notify the commissioner through the registry within 10 days of any change of residential or business address. A licensee described in 10VAC5-161-20 A 1 or 2 shall be deemed to have complied with this requirement if a person licensed or exempt from licensing under Chapter 16 timely submits such notice on behalf of its employee or exclusive agent.

10VAC5-161-70. Responding to requests from the Bureau of Financial Institutions; disposal of records.

A. When the bureau requests a written response, books, records, documentation, or other information from a licensee, 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. Requests made by the bureau pursuant to this subsection are deemed to be in furtherance of the investigation and examination authority provided for in § 6.2-1713 of the Code of Virginia.

B. If a licensee disposes of records containing a consumer's personal financial information following the expiration of any applicable record retention periods, such records shall be shredded, incinerated, or otherwise disposed of in a secure manner.

10VAC5-161-80. Enforcement; civil penalties.

A. Failure to comply with any provision of Chapter 17 or this chapter may result in civil penalties, license suspension, license revocation, the entry of a cease and desist order, or other appropriate enforcement action.

B. Pursuant to § 6.2-1719 of the Code of Virginia, an individual required to be licensed under Chapter 17 shall be subject to a separate civil penalty of up to $2,500 for every violation of Chapter 17, this chapter, or other law or regulation applicable to the conduct of the individual's business. Furthermore, if an individual violates any provision of Chapter 17, this chapter, or other law or regulation applicable to the conduct of the individual's business in connection with multiple borrowers, loans, or prospective loans, the individual shall be subject to a separate civil penalty for each borrower, loan, or prospective loan. For example, if an individual originates five loans and the individual violates two applicable laws in connection with each of the five loans, the individual shall be subject to a maximum civil penalty of $25,000.