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Financial Services Law Insights and Observations

Virginia Implements SAFE Act Requirements, Tightens Restrictions on Mortgage Lenders and Brokers

State Issues

On March 27, Virginia Governor Timothy M. Kaine signed a series of bills to carry out the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) and to tighten restrictions on mortgage lenders and mortgage brokers. To implement the SAFE Act, Virginia’s legislature enacted HB 2031, which requires mortgage loan originators to obtain a license from the State Corporation Commission through the Nationwide Mortgage Licensing System and Registry. The bill also establishes licensing procedures and criteria, including requirements for bonding, background checks, education, testing, continuing education, investigations, examinations, reporting, payment of annual fees, license suspension and revocation, and fines. Governor Kaine also signed three bills pertaining to mortgage lenders and mortgage brokers. HB 2030 repeals sections of the Code of Virginia that required mortgage lenders and brokers (i) to conduct background checks on certain employees and (ii) to ensure that their employees are properly trained in applicable state and federal mortgage lending laws and regulations. HB 1776 requires mortgage brokers to use “reasonable skill, care, and diligence” when securing a mortgage loan that will be in the best interests of the applicant, and creates a private right of action by borrowers for violations of this provision. Finally, HB 2262 prohibits mortgage brokers, lenders and originators from using any “deception, fraud, false pretense, false promise, or misrepresentation” in connection with a mortgage loan transaction. The bill also authorizes the Attorney General to enforce this provision by imposing civil penalties (up to $2,500 per violation) and restitution damages. Additionally, the bill removes the exemption for mortgage lenders from the Virginia Consumer Protection Act. All four bills are effective July 1, 2009; HB 2031’s loan originator licensing requirements do not take effect until July 1, 2010.