Title of Regulation: 10VAC5-161. Mortgage Loan Originators (amending 10VAC5-161-10, 10VAC5-161-20, 10VAC5-161-60; adding 10VAC5-161-75, 10VAC5-161-90).

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

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

Public Comment Deadline: August 16, 2013.

Agency Contact: E.J. Face, Jr., Commissioner of Financial Institutions, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone (804) 371-9659, FAX (804) 371-9416, or email joe.face@scc.virginia.gov.

Summary:

The proposed regulations (i) set forth the procedures and criteria for designating bona fide nonprofit organizations under § 6.2-1701.1 of the Code of Virginia; (ii) define the terms "employee" and "exclusive agent"; (iii) clarify the licensing requirements for individuals whose wages or other compensation is paid by either professional employer organizations or organizations that provide staffing services; (iv) require a licensed mortgage loan originator (licensee) to ensure that all residential mortgage loans that close as a result of the licensee engaging in the business of a mortgage loan originator are included in reports of condition submitted to the Nationwide Mortgage Licensing System and Registry; and (v) require the Commissioner of Financial Institutions to establish a process whereby mortgage loan originators may challenge information entered into the registry by the bureau.

AT RICHMOND, JULY 3, 2013

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. BFI-2013-00067

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. The Commission's regulations governing mortgage loan originators 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 (i) set forth the procedures and criteria for designating bona fide nonprofit organizations under § 6.2-1701.1 of the Code of Virginia; (ii) define the terms "employee" and "exclusive agent"; (iii) clarify the licensing requirements for individuals whose wages or other compensation is paid by either professional employer organizations or organizations that provide staffing services; (iv) require a licensed mortgage loan originator ("licensee") to ensure that all residential mortgage loans that close as a result of the licensee engaging in the business of a mortgage loan originator are included in reports of condition submitted to the Nationwide Mortgage Licensing System and Registry ("Registry"); and (v) require the Commissioner of Financial Institutions to establish a process whereby mortgage loan originators may challenge information entered into the Registry by the Bureau.

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 September 15, 2013.

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 August 16, 2013. 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-2013-00067. 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.

10VAC5-161-10. Definitions.

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

"Bureau," "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" Employee," "licensee," "mortgage loan originator," "registered mortgage loan originator," "registry," "residential mortgage loan," and "unique identifier" shall have the meanings ascribed to them in § 6.2-1700 of the Code of Virginia.

"Exclusive agent" for purposes of Chapter 17 and this chapter means an individual who engages in the business of a mortgage loan originator solely on behalf of a particular mortgage broker or mortgage lender, and not on his own behalf or on behalf of any other person. The term does not include an employee of a mortgage broker or a mortgage lender.

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

B. Any term or phrase not defined in Chapter 17 or this chapter shall be construed in accordance with 12 CFR Parts 1007 and 1008.

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

A. 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, a mortgage loan originator shall obtain and maintain annually a license pursuant to Chapter 17 and this chapter:

1. Individuals who are employees or exclusive agents of a person licensed under Chapter 16. This includes individuals who are employees of Individuals whose wages or other compensation is paid by either professional employment employer organizations or organizations that provide staffing services, who shall become and remain exclusive agents of a person licensed under Chapter 16. In the case of individuals who are exclusive agents of a person licensed under Chapter 16, the individuals and person licensed under Chapter 16 shall comply with such conditions as the commissioner may prescribe pursuant to subsection A of § 6.2-1601 of the Code of Virginia.

2. Individuals, other than registered mortgage loan originators, who are employees or exclusive agents of a person exempt from licensure under Chapter 16.

3. Individuals who are not employees or exclusive agents of either a person licensed under Chapter 16 or a person exempt from such licensure.

B. 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.

10VAC5-161-60. Required reports and notices; information in registry.

A. Each person for whom an individual described in 10VAC5-161-20 A 1 or 2 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 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. 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 through the registry within five days after the occurrence of either of the following events:

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. 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 Chapter 16 until such time as (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 subsection have been satisfied.

2. Commencement of employment or exclusive agency as a mortgage loan originator for a person licensed or exempt from licensing under Chapter 16. 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 and (ii) the bureau has received a sponsorship request through the registry.

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.

E. Each licensee shall ensure that all residential mortgage loans that close as a result of the licensee engaging in the business of a mortgage loan originator are included in reports of condition submitted to the registry. Reports of condition shall be in such form, contain such information, and be submitted with such frequency and by such dates as the registry may require.

F. The commissioner shall establish a process whereby mortgage loan originators may challenge information entered into the registry by the bureau.

10VAC5-161-75. Bona fide nonprofit organizations.

A. An organization may request that the commission designate it as a bona fide nonprofit organization for purposes of Chapter 17 and this chapter by (i) submitting its request on a form prescribed by the commissioner, (ii) paying a nonrefundable fee of $200, and (iii) furnishing such information concerning the criteria in subsection B of this section as the commissioner may require. If the registry is capable of processing these requests, the organization shall submit its request through the registry and shall pay or cause to be paid any fees imposed by the registry in addition to the fee payable to the commission.

B. The commission shall designate an organization as a bona fide nonprofit organization only if (i) the organization has satisfied the requirements of subsection A of this section and (ii) the commission finds that the organization:

1. Has the status of a tax-exempt organization under § 501(c)(3) of the Internal Revenue Code of 1986.

2. Promotes affordable housing or provides homeownership education or similar services.

3. Conducts its activities in a manner that serves public or charitable purposes rather than commercial purposes.

4. Charges fees and receives funding and revenue in a manner that does not incentivize it or its employees to act other than in the best interests of its clients.

5. Compensates its employees in a manner that does not incentivize employees to act other than in the best interests of its clients.

6. Provides or identifies for a borrower residential mortgage loans with terms that are (i) favorable to the borrower and (ii) comparable to mortgage loans and housing assistance provided under government housing assistance programs. For purposes of this subdivision and subdivision B 10 of § 6.2-1701 of the Code of Virginia, loan terms shall be considered favorable to the borrower if the terms are consistent with loan origination in a public or charitable context rather than a commercial context.

7. Meets any other criteria that the commission deems relevant.

C. If the commission is unable to make all of the findings required by subsection B of this section, the commission shall notify the organization in writing and provide the basis for its determination.

D. A bona fide nonprofit organization shall give written notice to the bureau within five days of the following: (i) any change in, or revocation of, the organization's tax-exempt status under § 501(c)(3) of the Internal Revenue Code of 1986 or (ii) any change in the organization's mission, policies, or practices that is inconsistent with any of the criteria enumerated in subsection B of this section.

E. When the bureau requests a written response, books, records, documentation, or other information from a bona fide nonprofit organization, the organization 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 or, if no time period is specified, 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 § 6.2-1701.1 of the Code of Virginia.

10VAC5-161-90. Commission authority.

The commission may, at its discretion, waive or grant exceptions to any provision of this chapter for good cause shown.