Changes in Virginia Lending Laws
by: Emily Ross, Esq.
The Virginia Corporation Commission (“Commission”) has adopted proposed changes to Chapter 160 of Title 10 of the Virginia Administrative Code that were proposed by the Bureau of Financial Institutions (“Bureau”). These changes went into effect on January 28, 2013.
The Commission modified and added to the established definitions of mortgage lending to further define the role of loan brokers and lenders versus underwriters and processors. They did this by adding a definition of “loan processor or underwriter” that includes a clear description of what their job can entail and what it cannot. The tasks that processors and underwriters cannot do include communicating with a consumer regarding a residential mortgage prior to a borrower completing an application, taking an application or negotiating the terms of a mortgage and counseling consumers about the terms of mortgages. It also adds explicit language that the term “mortgage broker” does not include someone engaged in loan processing or loan underwriting as long as that person is not also engaged in activity that would fall under the definition of “mortgage broker.”
Significant changes were added to the law governing the operations of mortgage lenders and brokers (“licensees”). A licensee shall not provide any information to a borrower or someone looking to be a borrower that is “false, misleading or deceptive.” Chapter 160 already required a licensee to file a report with the commission if one of many specified actions occurred. This list of actions was added to and modified. Previously, the licensee had to report if anyone working for them are indicted or convicted of a felony. Now, they must also report if an individual falling into the listed categories is convicted of a misdemeanor “involving fraud, misrepresentation, or deceit.” Additionally, the term “exclusive agent” was added to the list of covered individuals already including employees, officers, directors and principals.
The section dealing with acceptable actions by originators was modified to state that a licensee cannot permit an individual to take an application or negotiate the terms of a loan on their behalf unless four criteria are met. These criteria are: a) the individual is a licensed loan originator under Chapter 17; b) the individual is covered by the licensee’s surety bond; c) a sponsorship request has been submitted by the licensee on the individual’s behalf; and d) the individual is either a bonafide employee of the licensee or an exclusive agent of the licensee. The exclusive agent relationship must be defined in a written agreement between the agent and licensee and the licensee must agree to conditions relating to the use of exclusive agents by the bureau.
The Commission also added a section stating that loan processing and underwriting can be outsourced by a licensee so long as it is pursuant to a written agreement and prior to that agreement the licensee must complete a due diligence review on the processor or underwriter. The written agreement must include a requirement that the loan processor or underwriter comply with applicable laws and allow the commission to investigate or examine its business. It also forbids the underwriter or processor from subcontracting out any of its services to anyone that is not their bonafide employee.
In addition to operation changes a significant change was also made to the commissions ability to enforce this and other laws applying to mortgage lenders. Applicable language in the enforcement section of this act was changed from “licensee” to “person required to be licensed” which will most likely open enforcement options to those who should have a license and not just those who do. Each violation of the applicable statute can result in a civil penalty up to $2500. This amount is for each violation and when compounded can result in a much higher fine.
About the Author:
Emily is Associate Counsel and Compliance Specialist at Bankers Advisory, Inc. She is a graduate of Auburn University and earned her J.D. at Case Western Reserve School of Law. She is admitted to the Bar in Massachusetts and Vermont. Emily can be reached at emily.ross@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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