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Virginia Administrative Code
Title 10. Finance and Financial Institutions
Agency 5. State Corporation Commission
Chapter 160. Rules Governing Mortgage Lenders and Brokers
1/18/2019

10VAC5-160-20. Operating Requirements.

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

1. No licensee shall (i) misrepresent the qualification requirements for a mortgage loan or any material loan terms; (ii) make false or misleading statements to induce an applicant to apply for a mortgage loan, enter into any commitment agreement or lock-in agreement, or pay any commitment fee or lock-in fee in connection therewith; or (iii) provide any other information to a borrower or prospective borrower that is false, misleading, or deceptive. 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 the Real Estate Settlement Procedures Act of 1974 (12 USC § 2601 et seq.), and regulations and official commentary issued thereunder, as amended from time to time, (ii) § 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 pursuant to the requirements set forth in the Real Estate Settlement Procedures Act of 1974 (12 USC § 2601 et seq.).

4. Pursuant to § 6.2-1621 of the Code of Virginia, within 15 days of becoming aware of the occurrence of any of the events enumerated in this subdivision, 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. If the Registry enables licensees to submit the information required by this subdivision, then submission of this information through the Registry shall satisfy the requirement for a written report:

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, principals, or exclusive agents is indicted for a felony.

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

i. The licensee or any of its employees, officers, directors, principals, or exclusive agents is convicted of a misdemeanor involving fraud, misrepresentation, or deceit.

5. 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 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.

6. A licensee shall not permit any individual to take an application for or offer or negotiate the terms of a residential mortgage loan on behalf of the licensee unless (i) the individual is licensed as a mortgage loan originator pursuant to Chapter 17; (ii) the individual is covered by the licensee's surety bond; (iii) the licensee has submitted a sponsorship request for such individual through the Registry; and (iv) the individual is either (a) a bona fide employee of the licensee, or (b) an exclusive agent of the licensee pursuant to a written agreement with the licensee and the licensee has agreed to such conditions relating to its use of exclusive agents as may be prescribed by the bureau. The phrase "take an application for or offer or negotiate the terms of a residential mortgage loan" shall be construed in accordance with subdivisions B 1 and B 2 of 10VAC5-161-20.

7. Every licensee shall disclose on any application provided to the borrower associated with a Virginia residential mortgage loan (i) the unique identifier assigned by the Registry to the licensed mortgage lender or mortgage broker that took the initial mortgage loan application; and (ii) the unique identifier assigned by the Registry to the licensed mortgage loan originator who took the initial mortgage loan application.

8. A licensee may outsource its loan processing or underwriting activities to a third party loan processor or underwriter pursuant to a written agreement with the loan processor or underwriter. Prior to entering into an agreement, the licensee shall conduct a due diligence review of the third party loan processor or underwriter. The agreement shall (i) require the loan processor or underwriter to comply with all applicable state and federal laws and regulations; (ii) require the loan processor or underwriter to permit the commission to investigate or examine its business pursuant to § 6.2-1611 of the Code of Virginia; and (iii) prohibit the loan processor or underwriter from subcontracting to another person, other than its bona fide employees, any of the services specified in the agreement to be performed on behalf of the licensee. A copy of the written agreement shall be retained by the licensee for at least three years after the agreement has been terminated by either party. The licensee shall be responsible for implementing and maintaining a reasonable program to monitor any third party loan processor or underwriter performing services on its behalf.

9. Every licensee shall comply with Chapter 16, this chapter, and all other state and federal laws and regulations applicable to the conduct of its business.

10. A licensee shall continuously (i) maintain the requirements and standards for licensure prescribed in § 6.2-1606 of the Code of Virginia and (ii) remain authorized to transact business in the Commonwealth pursuant to Title 13.1 of the Code of Virginia.

Statutory Authority

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

Historical Notes

Derived from VR225-01-1601 § 2, eff. February 1, 1989; amended, Volume 11, Issue 19, eff. June 1, 1995; Volume 22, Issue 18, eff. September 1, 2006; Volume 27, Issue 13, eff. February 15, 2011; Volume 29, Issue 12, eff. January 28, 2013; Volume 33, Issue 18, eff. May 15, 2017.

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