As of May 15, 2017, mortgage brokers and lenders in Virginia have been required to post a mortgage surety bond in order to get licensed. This requirement was introduced as part of an amendment of the Rules Governing Mortgage Lenders and Brokers (Chapter 160/161 of Title 10 of the Virginia Administrative Code) introduced by the State Corporation Commission.
In addition to the surety bond requirement, the Commission has also introduced further requirements for mortgage brokers and lenders in the state to help regulate the industry.
Read on for an overview of the new requirements and how, as a mortgage broker, you can comply with them.
Changes to the Rules Governing Mortgage Lenders and Brokers in Virginia
The main changes introduced by the Commission to the Code of Virginia to regulate the work of mortgage brokers in Virginia include the following:
►A requirement to post and maintain a mortgage broker bond
►A requirement to maintain books, accounts and records, and a mortgage loan transaction journal
►A requirement to file quarterly mortgage call reports through the Nationwide Mortgage Licensing System and Registry (NMLS)
Mortgage Bond Requirement
In particular, mortgage brokers in Virginia must post an initial surety bond of $25,000. Mortgage lenders are required to post a $50,000. The latter requirement also applies to mortgage companies with dual authority (mortgage lender and broker authority).
The $25,000 and $50,000 bond requirements are minimum bond requirements and will be adjusted by the Commission on a yearly basis depending on the amount of residential mortgage loans originated in the previous year. Bond amounts can range between $25,000 (for mortgage brokers) to $150,000 for loans over $100,000,000. Bond amounts in-between are $100,000, $75,000, and $50,000.
Maintenance of Records and Journal
According to 10VAC5-160-25 of the amended rules, the records that brokers and lenders need to maintain are defined as all those specified in Chapter 16 as well as by the amended Chapter. In terms of maintaining a loan transaction journal, licensees in the state need to include the following information in the journal for each application they receive:
►The name of the applicant
►The date of application
►The address of the property
►The amount of the loan requested
►The lien position
►The license name as well as the license or Registry number of the mortgage loan originator
►The address of the office that originates the loan
►The name of the lender
►The status of the application
►Further information that is relevant to the application and may be required by the commissioner
Once the retention period for such records expires, these need to be destroyed in a secure manner through incineration, shredding or other means.
Filing Quarterly Mortgage Call Reports
Mortgage brokers and lenders are required to post quarterly mortgage call reports through the NMLS. Such reports need to detail the amount of residential mortgage loans made, brokered or originated (depending on the licensee) during the preceding quarter. These reports need to be in the right format, and contain the information required by the Registry.
The dates to submit such reports are announced by the Registry. Brokers and lenders who fail to submit their reports by such dates may have to pay a provisional fee which will be determined at the time of submitting their report.
Finally, the amendment also specifies the duration of the licensing period. Licenses for mortgage brokers and lenders in Virginia will be valid for the duration of each calendar year, and expire at its end. Accordingly licenses will need to be renewed at the end of each year along with the mortgage broker bond.
Why is the Mortgage Broker Bond Necessary?
Surety bonds are agreements made between the bonded party or principal (the mortgage broker or lender), the state of Virginia (the obligee), and the surety company that issues the bond. These agreements are put in place to provide protection to the clients of brokers and lenders and, by extension, to the state. Their purpose is to protect against such principals who violate the state laws and regulations for mortgage brokers and lenders and, as a result, cause harm, losses and damages to their clients.
Surety bonds guarantee that if such a violation occurs, parties that have suffered losses can file a claim against the bond and receive compensation by the surety company. This compensation can be as high as the amount of the principal's mortgage broker bond - i.e. somewhere between $25,000 and $150,000. If compensation is extended by the surety, the bonded broker or lender must then repay the surety. Surety bonds guarantee that businesses comply with the law and stick to the best business practices.
If a claim does occur, bonded persons or businesses are typically advised to work closely with their surety to resolve the situation in the best possible way, and minimize the possible cost they will have to carry.
Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping business owners get bonded and stay compliant.