The Compliance Connection

As most of you by now know, effective July 1, 1997 I became Commissioner of Financial Institutions. I thank all of you for your letters, cards and calls of congratulations. It is indeed an honor and privilege to succeed Mr. Bailey. I look forward to upholding the high standard established by Mr. Bailey, and to tackling the many challenges ahead.

My goal as Commissioner is to serve and protect the public via flexible and responsive regulation and supervision of state-chartered financial institutions. Over the years, I have developed a regulatory approach based on accessibility, fairness and common sense. With respect to the Bureau, there will be no significant changes to Bureau staff, other than the addition of new employees through attrition. My initial focus will be on technology and examiner training. I intend to provide our examiners with the support and tools necessary so they may perform at their highest and most efficient level.

In addition, I am contemplating holding "regional" meetings, with Bureau staff, at various locations around the Commonwealth to discuss issues of concern in banking and other financial services with you and your senior staff. You will be receiving more information on this later.

I should also note, effective August 1, 1997, Susan Hancock was appointed Deputy Commissioner of Financial Institutions in charge of regulation and supervision of all non-depository institutions. Most of you are familiar with Ms. Hancock from her work as a Principal Examiner in charge of reviewing examination reports. Ms. Hancock has been with the Bureau ten years and has a strong base of regulatory experience and knowledge.

Law Book Update:

By now, all licensees should have received the 1997 Supplement to the 1996 Edition of the Laws of Virginia Related to Non-Depository Financial Services. The supplement should be inserted inside the back cover of the 1996 Edition (the red cover booklet) and should be consulted before referring to any law in the 1996 Edition to determine whether there are updates or changes.

FYI: Law books are reprinted in even numbered years and supplements are printed during odd numbered years.

Orientation Program to Begin for Mortgage Licensees:

At the direction of Commissioner Face, on November 7, 1997, the Bureau will hold its first "orientation" for newly licensed mortgage lenders and/or brokers. This one day orientation will be held at SCC headquarters in Richmond, and will include (1) an introduction of key Bureau staff, (2) a review of various application procedures and requirements, (3) a review of the Bureau's examination process, and (4) a review of pertinent statutes and regulations.

This first meeting is open to any lender or broker licensed during the third quarter of 1997 (July - August - September). For entities receiving initial licenses in October, November, or December, 1997, an orientation meeting will be held in February, 1998, and so on thereafter. Although the meeting is designed to inform and educate new licensees as to the various regulatory requirements and procedures they will be facing, the meeting is also open to any existing licensee who may wish to attend, as long as space is available. Orientation will be held four times a year (February, May, August, November), so if space is not available, you will have other opportunities to attend.

Orientation meetings should help new licensees understand the sometimes mysterious and apparent overwhelming regulatory and compliance issues each licensee is required to know and adhere to. "Rather than wait for that initial examination or that first branch application to learn and ask questions about the regulatory process, this orientation will allow new licensees an opportunity to learn what is required and expected," says Mr. Face. "We also hope this orientation will provide a solid foundation with which new licensees may start operations and also prevent many of the similar problems we see with new start-up mortgage licensees unfamiliar with the Bureau or Virginia's laws and regulations," Face adds.

Companies who were licensed during the third quarter will receive specific information regarding the first orientation session around the first of October. Other companies who are interested in attending should call the Bureau at (804) 371-9701 after October 1, 1997.

Employee or Independent Contractor???

Many of you have called with questions regarding whether loan officers are employees or independent contractors. The Bureau has elected to follow well established rules set forth by the Internal Revenue Service for distinguishing "employee" and "independent contractor" accountability.

Employers control and are directly accountable for the actions of employees, while employers do not control and are not accountable for the actions of independent contractors. Accordingly, the Bureau does not require "employees" to be separately licensed under the Virginia Mortgage Lender and Broker Act; however, "independent contractors" must be separately licensed under the Act.

The IRS uses many factors to determine the employment status, including training, hiring, supervision, work hours, job location, reports, payment, expenses, tools and materials, etc. These factors clearly indicate bona fide employment is not totally at the discretion of the parties to the relationship, but is based on standards established by the IRS.

Evidence of the method used for compensating loan officers must be provided to the Examiners to prove compliance in this area. The Bureau will hold companies or individuals responsible for illegal actions accountable for those actions. Please also refer to Administrative Ruling 1605 for additional information on this issue.

Charges on Subordinate Loans - Administrative Ruling 0702:

In response to many of your questions, we are including a copy of Administrative Ruling 0702 which provides additional guidance regarding the collection of points on subordinate loans. Also review Virginia Code §§6.1-330.71 and 6.1-330.72, along with the June 1997 and December 1996 issues of this newsletter for more information. NOTE: A 1996 amendment to §6.1-330.71 of the Code of Virginia changed "2% loan fee" and "3% additional charge" to "5% of the principal amount of the loan".

CHARGES ON SUBORDINATE MORTGAGE LOANS BY CERTAIN LENDERS Virginia Code §6.1-330.71 allows certain lenders making subordinate mortgage loans on which interest is charged on the basis of a simple annual rate to also charge a 2% "loan fee" and a 3% "additional charge" (referred to, collectively, as "points"). Such lenders may charge interest on a loan amount which includes points only if points charged are financed. Points charged on such loans may not exceed 5% of a loan amount which does not include points. Overcharges resulting from violation of this Ruling must be reimbursed to the borrower. Issued by the Commissioner of Financial Institutions April 6, 1990, as Consumer Finance Circular 90-1.

License Update

The following is a list of companies who have surrendered their license, had their license revoked, application denied or been fined by the Commission since June 1, 1997. We hope this will be helpful in keeping track of companies with whom you do business. Please remember that these lists are accurate as of September 1, 1997, so call the Bureau if you have a question concerning a recent denial, surrender or regulatory action taken by the Commission. NOTE: Doing business with an unlicensed mortgage company is a violation of Administrative Rulings 1603 and 1605, which can result in regulatory action.

MORTGAGE LICENSES SURRENDERED SINCE JUNE 1, 1997

MB - 412 U S MORTGAGE CORPORATION - 6/4/97

MB - 1009 FIRST REPUBLIC FUNDING CORPORATION - 6/10/97

MB - 887 LOAN MART - 6/23/97

MLB - 418 ALTERNATIVE LENDING MORTGAGE CORPORATION - 7/7/97

MB - 622 METROPOLITAN MORTGAGE BANKERS INC. - 7/14/97

ML - 243 APOLLO MORTGAGE AND FINANCIAL SERVICES, INC. - 7/14/97

MB - 739 JANE E. BROWN D/B/A OPTIMUM FINANCIAL SERVICES - 7/15/97

MB - 786 MONARCH MORTGAGE, INC. - 7/18/97

MB - 905 REGENCY MORTGAGE, L. L. C. - 7/21/97

ML - 144 INDUSTRY MORTGAGE COMPANY, L P - 8/20/97

MORTGAGE APPLICATIONS DENIED SINCE JUNE 1,1997

ML - 289 NEWPORT SHORES FINANCIAL, INC. - 6/5/97

MLB - 467 VALLEY PINE MORTGAGE, INC. - 6/13/97

MB - 1093 RICHARD HENRY REESE - 6/23/97

MB - 1089 CALEB MORTGAGE CORPORATION - 7/10/97

MB - 1123 EDWARDS & BENJAMIN FINANCIAL SERVICES, INC. - 8/8/97

MORTGAGE LICENSE REVOCATIONS SINCE JUNE 1, 1997

MLB - 362 MAJESTIC MORTGAGE CORPORATION - 6/20/97 - FAILURE TO FILE ANNUAL REPORT

MLB - 423 U S MORTGAGE CAPITAL, INC. - 6/20/97 - FAILURE TO FILE ANNUAL REPORT

MB - 654 TREASURY MORTGAGE GROUP, INC. - 6/20/97 - FAILURE TO FILE ANNUAL REPORT

MB - 583 CONTINENTAL GENERAL MORTGAGE COMPANY, INC. - 6/20/97 - FAILURE TO FILE ANNUAL REPORT

MB - 866 EXCEL FUNDING CORPORATION - 6/20/97 FAILURE TO FILE ANNUAL REPORT

MLB - 334 FEDERAL FUNDING GROUP, INC. T/A FEDERAL MORTGAGE COMPANY - 6/20/97 - FAILURE TO FILE ANNUAL REPORT

PENALTIES PAID BY MORTGAGE LICENSEES SINCE JUNE 1, 1997

MLB - 410 JOSEPH E. DUNN C/O SUPERIOR MORTGAGE CORPORATION - 7/10/97 - PAID $500 FOR FAILURE TO OBTAIN APPROVAL PRIOR TO ACQUIRING 25% OR MORE OF SUPERIOR'S STOCK

MLB - 385 CHRIS KIRCHNER, ALAN B. SHOEMAKER, AND MICHAEL JOSEPH C/O COLONIAL MORTGAGE GROUP, L.L.C. - 7/10/97 - PAID $1,000 EACH FOR FAILURE TO OBTAIN APPROVAL PRIOR TO ACQUIRING 25% OR MORE OF COLONIAL MORTGAGE

MB - 577 MORGAN HOME FUNDING CORPORATION - 7/23/97 - PAID $2,500 FOR VARIOUS VIOLATIONS OF THE MORTGAGE LENDER AND BROKER ACT

MB - 491 RBO FUNDING, INCORPORATED - 8/11/97 PAID $1,000 FOR FAILURE TO PROVIDE INFORMATION RELATING TO ONE OF ITS OFFICERS

ML - 160 UNIVERSAL AMERICAN MORTGAGE COMPANY - 8/12/97 - PAID $300 FOR FAILURE TO OBTAIN APPROVAL PRIOR TO RELOCATION

$200,000 Lender Requirement:

Mortgage lender licensees must provide Examiners with proof they have continuously maintained deposits and/or a line of credit with a depository institution (i.e.: bank, savings institution, credit union) for the $200,000 required by Virginia Code §6.1-415 and Administrative Ruling 1604. Licensees using cash on deposit for compliance must provide monthly statements for the examination period being examined. If using a line of credit, a copy of the entire executed agreement is required. Commitment letters are not acceptable as evidence of an established line of credit. Be sure a copy of these items is available for the Examiner's review during their visit in you office.

SCC's Web Page:

Have you visited the State Corporation Commission's web page??? Visitors can view SCC news releases, selected SCC orders of general public interest, and the bi-weekly Calendar of Cases, as well as information about the SCC and its Commissioners, how to contact or visit the SCC, and links to SCC division pages.

New RESPA Booklet:

The revised HUD booklet, Buying Your Home, Settlement Costs and Helpful Information must be used after September 9, 1997. This booklet is required to be provided to all applicants within 3 days of application for loans to purchase residential real estate.

A copy of the revised booklet may be obtained by contacting: Director, Office of Consumer and Regulatory Affairs, Attn.: RESPA/Special Information Booklet, Room 9146, U S Department of Housing & Urban Development, 451 Seventh Street, SW, Washington, DC 20410. The booklet may also be obtained by contacting HUD's website at : "http://www.hud.gov/fha/res/respa_hm.html".

Does your company have an E-mail address???

Please send us your address for our records.

Clarification of Branch Licensing Q & A (refer to the June 1997 issue)

In our previous issue, we posed questions and provided answers to some of the questions we receive regarding when an additional branch license is required. The following questions are being reprinted to clarify that the term "loan officer" should have read "employee of a licensed mortgage company". We apologize for any confusion this may have caused.

Question: If an employee of a licensed mortgage company works from their home, keeps no files there, but advertises using their home address and phone number, is a branch license required? Answer: Yes.

Question: If an employee of a licensed mortgage company works out of their home, keeps no files there and does not advertise this location, is a branch license required? Answer: No.

Important Commission Telephone Numbers:

Consumer Finance and Mortgage Section (examinations) (804) 371-9701

Corporate Structure and Research Section (licensing) (804) 371-9690

Consumer Complaints (804) 371-9705

Bureau of Financial Institutions FAX NUMBER (804) 371-9416

Bank and Thrift Supervision Section (804) 371-9704

SCC Office of the Clerk (corporate information) (804) 371-9733

Bureau of Insurance (804) 371-9741

Bureau of Financial Institutions
State Corporation Commission
P.O. Box 640
Richmond, Virginia 23218-0640

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For Additional information, contact kschrad@scc.virginia.gov Last Updated: October 03, 1997 State Corporation Commission webmaster@scc.virginia.gov