Injustice at Virginia SCC

COMMONWEALTH OF VIRGINIA, ex rel . vs.
SECURITY TRUST MORTGAGE, LLC

Proceedings on 09/11/2013
Page 59
Again,
I'm the Deputy Commissioner over
the Nondepository Section,
Mortgage Section of the Bureau of Financial
Institutions .
5
6
7
the Consumer Finance and
And what are your section's
responsibilities?
A
our primary responsibility is the
examination of the nondepository institutions .
we examine them, and we also monitor them to
And
10
determine compliance with the applicable laws and
11
regulations and to ensure that they still meet the
12
qualifications and requirements to -- for license .
13
14
Do you also carry out enforcement actions
for noncompliance with laws and regulations?
15
Yes .
16
And do these nondepository institutions
17
include mortgage brokers?
18
Yes .
19
And are you familiar with Security Trust
20
mortgage, LLC?
21
Yes,
22
Who is that entity?
23
It is one of our licensed mortgage
24
25
I am .
brokers .
Q
And how long has Security Trust been

Huseby, Inc.
4860 Cox Road, Suite 200, Glen Allen, VA 23060
www.huseby.com
(804) 755-4200
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COMMONWEALTH OF VIRGINIA, ex rel. vs. SECURITY TRUST MORTGAGE, LLC

Page 60
licensed in Virginia as a mortgage broker?
I think it's since 2006 .
And is Security Trust also licensed in
Maryland as a mortgage broker?
Yes, it is .
And who owns Security Trust?
Daniel McDonald is the owner .
Is he also an officer of the mortgage
broker?
10
11
A
owner,
12
13
Yes .
of ficer,
He's the president .
He's the sole
and member of the company .
And does Mr . McDonald originate
residenti al mortgage loans for Security Trust?

A
14
Mr . McDonald should not be originating
15
mortgage loans because he's not licensed in Virginia
16
to do so .
17
18
And is Security Trust currently brokering
loans on property located in Virginia?
19
The company has reported to the Bureau --
20
or according to reports filed with the Bureau,
21
has not o riginated any or brokered any loans in 2012
22
or the fi rst two quarters of 2013 .
23
he
And is the Bureau seeking revocation of
24
Security Trust's mortgage broker license at this
25
time?
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COMMONWEALTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC

Page 61
0
Yes,
And very briefly,
Well, because I think as you stated in
why?
your opening remarks,
owner,
Mortgage,
the mortgage loan originator license correlated
directly with the mortgage broker license for
Security Trust .
10
11
it is .
officer,
LLC,
since Mr . McDonald is the sole
and member of Security Trust

the case related to his appeal for
Does Security Trust meet the
qualifications for licensure?
12
No .
13
Okay .
Ms . Hancock,
I'd like you to turn
14
and discuss some background related to mortgage
15
brokers,
16
provide?
17
please .
Well,
What services do mortgage brokers
they're like an intermediary between
18
the consumer and the lender .
19
application and gather information and try to place
20
a -- find a mortgage loan for the consumer,
21
borrower .
22
They will take the
the
Does the code of Virginia require
23
applicants for mortgage broker licenses to meet
24
certain requirements in order to be issued a
2S
license?
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Yes,
it does .
And are some of those requirements called
qualifications that are found in 6 .2-1606 of the
code?
Yes .
And can you identify the qualifications
that a mortgage broker applicant must meet in order
to obtain a license from the Commission?
Well,
the Commission must make a finding
10
that a mortgage -- that an applicant for a mortgage
11
broker or mortgage lender license has the -- and its
12
members,
13
financial responsibility,
14
reputation, general fitness,
15
warrant belief that it will operate fairly,
16
efficiently,
17
public interest .
the applicant and its members has the

the character,
the
and experience to
in accordance with law and in the
18
In addition to members of mortgage broker
19
applicants,
20
principals also have to possess these
21
qualifications?
do senior officers, directors, and
22
Yes .
23
And if the Commission fails to make such
24
findings in regard to an applicant,
25
officers, directors,
principals,
its members,
it shall not issue
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is that correct?
Yes,
In addition to applicants,
that's correct .
are mortgage
broker licensees required to maintain the
qualifications found in 6 .2-1606 of the code?
Yes,
And does 6 .2-1619A of the code authorize
they are .
the Commission to suspend or revoke any mortgage
broker license upon certain grounds?
10
Yes .
11
Does one of those grounds relate to the
12
0
a license ;
qualifications for licensure?
13
Yes,
14
Can you tell us, do you recall what that
I think 1619A,
15
16
it does .
says?
I believe,
one,
provides
17
that the Commission may revoke a license for any
18
grounds for denial of a license .
19
And as we previously discussed,
grounds
20
for denial of a mortgage broker license include
21
failing to possess the financial responsibility,
22
character,
23
fitness such as to warrant belief that the business
24
will be operated efficiently and fairly in the
25
public interest and in accordance with law ;
reputation,
experience,
and general
is that
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correct?
Correct .
Ms . Hancock,
did you investigate whether
Security Trust as a mortgage broker licensee
maintained the qualifications for licensure?
Yes .
And I believe you have the notebook in
front of you that we prepared for your testimony
today .
10
Yes .
11
Can you turn to Tab 1,
12
Yes .
HEARING EXAMINER :
13
14
17
18
Mr . Baldwin,
you
have - MR . BALDWIN :
15
16
please?
I do, Your Honor,
thank you .
BY MR . BALDWIN :
Q
Could everyone please just turn to Tab 1?
Do you recognize that document, Ms . Hancock?
19
Yes,
I do .
20
What is it?
21
This is December 6th,
2012,
notice,
22
official notice that we sent via certified mail to
23
Mr . McDonald as president of Security Trust Mortgage
24
relating to our recommendation, our intent to
25
recommend revocation of the license for Security

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Trust mortgage .
MS . JOHNSTON :
2
3
Your Honor,
I move to enter
this letter into evidence at this time .
HEARING EXAMINER :
MR . BALDWIN :
under prior rulings,
admitted because --
No,
HEARING EXAMINER :
MR . BALDWIN :
Your Honor ; but I think
That's right .
-- because of default .
HEARING EXAMINER :
10
Any objection?
these are all deemed to be
11
Yeah,
exactly .
So,
Exhibit 2 marked and admitted .
12
0
13
114
(Exhibit 2 was marked and received into
evidence .)
15
16
17
18
19
BY MS . JOHNSTON :
Q
Ms . Hancock,
why did the Bureau send this
notice?
A
We're required by law to provide notice if
20
we intend to make a recommendation relating to
21
revocat ion .
22
reasons for the revocation or the recommendation .
23
24
25
0-h
W
And we are also requi red to provide the
And is that required by 6 .2-1623 of the
code of Virginia?
A
Yes .
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Page 66
Did the Bureau send this notice to
Security Trust's principal place of business?
Yes .
Did Security Trust request a hearing?
Yes,
Ms . Hancock,
it did .
in determining that Security
Trust no longer possessed the qualifications for
licensure as a mortgage broker,
Commission's final order in McDonald 1,
10
did you review the

the BFI
2012-0003?
11
Yes,
12
Can you please turn to the next tab in
I did .
13
your notebook, please?
14
document?
Do you recognize this
15
Yes,
16
Can you tell the Court what it is?
17
It's a final order in reference to Case
BFI 201-20-0003,
19
appeal regarding the denial of his mortgage loan
20
originator license .
22
23
I do .
18
21
which relates to Mr . McDonald's
MS . JOHNSTON :
Your Honor,
I move this
into evidence .
HEARING EXAMINER :
I can certainly take
24
judicial notice of the Commission orders .
25
you want it to be marked as an exhibit,
But if
I will mark
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and admit it as Exhibit 3 .
MS . JOHNSTON :
Yes, please, Your Honor .
3
4
5

evidence .)
6
7
BY MS . JOHNSTON :
order?
10
Ms . Hancock, why did you review this
Since it related to Mr . McDonald,
I felt
11
it was also directly related to the license for
12
Security Trust Mortgage, LLC, because,
13
the sole owner, officer, and director of the
14
license -- the license mortgage broker .
15
again,
he's
As you previously stated, your section's
16
responsibilities are -- include monitoring current
17
licensees ;
is that correct?
18
Right,
19
And are the qualifications for licensure
correct .
20
as an MLO the same qualifications as for a licensure
21
as a mortgage broker?
22
PA
W
They're pretty much the same, except for
23
the -- the qualifications for a mortgage broker
24
license also include the what,
25
experience requirement in addition to the financial
the reputation and
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Page 68
responsibility,
requirements .
character,
general fitness
In the Commission's final order dated July
the 6th, did it affirm the Commissioner's denial of
McDonald's application for a mortgage loan
originator license?
Yes .
And also in the order,
9
10
did the Commission
adopt the Hearing Officer's finding of fact and

recommendations?
11
Yes .
12
Please turn to the next tab in your
13
notebook .
14
3?
Do you recognize this that
is under Tab
15
Yes .
16
Can you tell the Court what it is, please?
17
It's the report from the Hearing Examiner
18
from that case ; and the report's dated April 27,
19
2012 .
20
21
22
23
24
25
10
And did you review this report as part of
your investigation into Security Trust?

A
Yes .
MS . JOHNSTON :
Your Honor,
I ask the Court
to take judicial notice and mark this as an exhibit .

HEARING EXAMINER :
I can certainly take

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Page 69
judicial notice of my examiner's reports and -- but
at your request,
marked and admitted as Exhibit 4 .
I will also mark it as an exhibit,
4
5
6
evidence .)
7
8
BY MS . JOHNSTON :
Ms . Hancock,
in this report,
did the
10
hearing examiner make findings about McDonald's
11
responsibility,
12
licensure in the mortgage business?
character,
and general fitness for
13
Yes,
it did .
14
Can you turn to Page 10 of this report?
15
Can you please identify the Hearing Examiner's
16
findings of fact in regard to McDonald's character
17
and general fitness on this particular page?
18
The Hearing Examiner found that there was
19
sufficient evidence for the Bureau to find that the
20
conduct,
21
Virginia and Federal law demonstrates the
22
petitioner's lack of character and general fitness .
23
failing to provide disclosures required by
Can you turn to Page 14 of this report?
24
Can you please identify the Hearing Officer's
25
findings of fact in regard to Mr . McDonald's
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financial responsibility, character, and general
fitness on this particular page?

I found that Mr . McDonald lied on his
application,
outstanding judgments in the Federal tax lien,
willfully failed to disclose his employment history
for the previous ten years,
misleading in his responses to the Bureau's
inquiries .
willfully failed to disclose two
was evasive or
And with the exception of the Federal
10
tax lien, petitioner had undertaken no affirmative
11
steps to satisfy his numerous outstanding debts .
12
Ms . Hancock,
how are the Hearing
13
Examiner's findings of fact and recommendations and
14
the subsequent adoption of those facts and
15
recommendations by the Commission in its final order
16
relevant in regard to Security Tr ust's
17
qualifications for licensure as a mortgage broker?
18
Because,
who is the sole owner, officer, and
McDonald,
20
director or member of Security Trust ; and it shows
21
that Security Trust no longer meets the
22
qualifications for a mortgage broker license .

Q
again, they -- it relates to Mr .
19
23
And does McDonald,
the sole owner, officer
24
of Security Trust possess the financial
25
responsibility,
character,
reputation,
experience,
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Page 71
10
and general fitness such as to warrant belief that
Security Trust will be operated efficiently and
fairly in the public interest in accordance with the
law as required by Section 6 .2-1606 of the code of
Virginia?
No .
And what is the Bureau's desired outcome
8
9
Revocation of the license .
10
MS . JOHNSTON :
11
HEARING EXAMINER :
12
0
of this proceeding?
That's all,
Okay .
Your Honor .
Mr . Baldwin,
cross-examination of Ms . Hancock?
13
MR . BALDWIN :
Thank you,
Your Honor .
14
15
CROSS-EXAMINATION
16
17
18
BY MR . BALDWIN :
Q
Ms . Hancock,
counsel's last question to
19
you was does Security possess the qualifications,
20
correct?
21
Correct .
22
Does is the present tense,
23
That's correct .
24
What is the -- now,
25
is it not?
taking that the --
what is the last time you looked into the status,
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COMMONWENLTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC

Page 72
you individually looked into the status of Mr .
McDonald's debts or his ability or his efforts to
deal with those in good faith?
4
5
6
I reviewed the final order, and then I'm
also aware of the denial of his current application .

So, with regard to the status, his status
in dealing with his debts as of today, you have no
knowledge?
10
today .
11
No, other than what's been referenced
You may have heard what I had to say, but

what I said, and looking to
12
putting the one aside,
13
what you yourself know as of today, you don't have
14
knowledge of the present situation of Security?
15
Not -- not of his present situation today .
16
You would agree, would you not, that if
17
the situation has improved with regard to the
18
principal of a mortgage broker,
19
improvement also should be looked at with respect as
20
one of the matters to consider with regard to the
21
licensure of that mortgage broker, would you not?
22
23
24
25
One of the matters .
that that
Again,
it relates to
several qualifications .
Q
Well,
if things were improving,
that would
be a good thing as opposed to things getting worse .

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Well --
It's not obvious, right, that that's a
Well, we do look at the
we look at the
I didn't ask you if you
I didn't ask if
you looked at the history .
agree that if the situation was getting better,
10
history as well as the present and
good thing as compared to things getting worse?
5
6
I said wouldn't you

that
that would be a good thing?
11
I agree it's a good thing .
12
And that would be a relevant thing, would
13
it not?
14
15
Would you agree with that?
2
4
I-A
With respect to the license of Security
Trust Mortgage?
16
Yes, yes .
17
I would -- yes,
18
Well,
I guess it would be .
if things were getting worse,
if
19
the -- if the financial situation of a licensee was
20
getting worse because the principal of that company
21
was suffering significant and severe financial
22
reversals, that would be a relevant factor, would it
23
not,
for the BFI to take a look at?
24
Yes .
25
And therefore, would you not agree that if

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things are getting better,
relevant factor to look at?
Yes .
And today,
that that also is a
you don't have any knowledge as
to whether things are getting better or not other
than what you may have heard me proffer by way of
opening statement or argument on some of the points
that we've had?
Correct .
10
You yourself do not have knowledge on that
11
point?
12
Correct .
13
And if you were given knowledge,
if the
14
facts today indicated that things were getting
is
better,
16
want to consider, would you not,
17
whether or not Security should continue to be
18
licensed?
19
in determining
Yes .
I have no further questions .
MR . BALDWIN :
21
HEARING EXAMINER :
Before you redirect,
if the Commission -- we have a
22
Ms . Hancock,
23
consolidated record going on, right?
.25
that would be one of the things you would
20
24
18
THE WITNESS :
Right .
HEARING EXAMINER :
And if at the end of

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the day or the end of this case, the Commission
ultimately decides that Mr . McDonald should be
licensed as a -- what would the Bureau's position be
with regard to Security Trust if Mr . McDonald was --
received a license?
THE WITNESS :
Well,
the recommendation was
based directly on the mortgage loan originator
denial and the Commission's upholding that denial .
So,
if there was a change and the Commission found
10
that he should now be licensed as a mortgage loan
11
originator and the application should be approved,
12
that would definitely change,
13
recommendation or have an impact on the
14
recommendation for revocation of the license for
15
Security Trust Mortgage, LLC .
16
17
HEARING EXAMINER :
I think,
the
Thank you .
Ms .
Johnston .
18
19
REDIRECT EXAMINATION
20
21
22
BY MS . JOHNSTON :
Q
Ms . Hancock,
in your section's duties for
23
monitoring current licensees,
do you regularly
24
investigate the financial responsibility,
25
reputation,
character,
experience, and general fitness of not
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Page 76
only licensees, but of every single one of their
members, senior officers,
3
4
MR . BALDWIN :
directors,
Your Honor,
and principals?
I object .
This
is beyond the scope of the direct evidence .
MS . JOHNSTON :
MR . BALDWIN :
re-cross .
ask if they went
counsel's going .
10
There wasn't
It's -It's beyond the scope of the

--
there wasn't
-- I didn't
into every employee, which is where

I simply said what I said .
MS . JOHNSTON :
Your Honor,
this
is exactly
11
what the statute says,
12
specifically addressed the financial responsibility,
13
which is one of the requirements of the owner and
14
the officer .
15
as to whether Ms . Hancock and her section looks at
16
that, how frequently they look at that .
17
perfectly relevant and probative .
18
exactly what I discussed .
He
I'm inquiring directly related to that
HEARING EXAMINER :
It's
It certainly is
And if you had asked that question on
19
relevant .
20
direct exam,
21
But cross-examination was very limited,
22
redirect needs to be focused on that or the inquiry
23
that I made .
24
25
I wouldn't have had an issue with it .
MS . JOHNSTON :
Okay .
and your
Thank you,
Your
Honor .
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1
2
BY MS . JOHNSTON :
Q
Ms . Hancock,
to your knowledge,
is the
final order of the Commission in the prior case,
McDonald 1,
2012, has that order been overturned?
February 6,
that was issued February 6,
No .
MS . JOHNSTON :
HEARING EXAMINER :
for your testimony .
Thank you,
that's all .
Ms . Hancock,
thank you
You may step down .
10
THE WITNESS :
11
MS . JOHNSTON :
Thank you .
Your Honor,
I'm actually
12
going to move on now to the application of Daniel
13
McDonald ; and I'd like to call Dustin Physioc,
14
please .
HEARING EXAMINER :
15
All right .
16
17
DUSTIN PHYSIOC,
18
called as a witness by and on behalf of the
19
Bureau,
20
after having been duly sworn,
examined and testified as
21
was
follows :
DIRECT EXAMINATION
1 22
23
BY MS . JOHNSTON :
24
Good morning .
25
Good morning .
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Could you please introduce yourself?
Yes .
And where are you employed?
Within the State Corporation Commission's
My name's Dustin Physioc .
Bureau of Financial Institutions .
the Bureau?
Just short of eight years .
Do you work in a particular section of the
110
11
12
And how long have you been employed with
Bureau?
Yes .
I work within the Corporate
Structure and Research Section .
13
And what is that section responsible for?
14
We're the primary licensing unit of the
15
Bureau .
16
Bureau publications .
Q
And what is your position in that section?
18
Senior financial analyst .
19
And what are your primary responsibilities
21
22
23
24
25
We also deal with corporate records and
17
20
as senior financial analyst?

A
I investigate applications for various
licenses and certificates of authority .

Q
Do you also make recommendations to the
Commissio ner based upon your investigation?

A
Yes,
I do .
is
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1
2
What did you do before you came to the
Q
Bureau?
I was a student .
So,
staff,
an MLO and --
it's your job, along with other Bureau
to decide who is qualified to be licensed as
MR . BALDWIN :
The question is leading in form,
appropriate .
MR . BALDWIN :
13
witness what his job is .
14
better person for that .
15
MS . JOHNSTON :
17
18
19
20
I must object .
and that is not
Try to rephrase your
question .
12
16
Your Honor,
HEARING EXAMIN ER :
10
W
0
11
Counsel is telling the

I think the witness is the
Okay .
BY MS . JOHNSTON :
Q
Do you also de termine whether MLOs are
qualified as part of you r application reviews?

A
We investigate the applications and make a
recommendation based off of the statutes .
21
For MLOs?
22
Correct .
23
As part of your investigation, do you
24
25
review credit reports?

A
PA
W
Yes, we do .
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1
2
Have you received training on how to
review credit reports?
I have .
Great .
I'd like to turn to just the
backgrou nd of MLO regulation and the SAFE Act .
Physioc, when did the Bureau begin licensing
individu al MLOs?
8
9
We began accepting applications in August
The licensing deadline was July 1st,
of 2009 .
10
Mr .
So, prior to that time,
2010 .
individuals who
11
originat ed mortgage loans in Virginia did not need a
12
license?
13
14
Correct .
Since the laws that were passed that
15
require individuals to become licensed as MLOs, can
16
you tell me where they're found in the code?
17
Chapter 17 of Title 6 .2 .
18
Very briefly, can you give us background

General Assembly
19
on why t he Virginia assembly,
20
enacted the set of laws to require licensing for
21
MLOs?
22
MR . BALDWIN :
Your Honor,
with all
23
deference,
why the General Assembly did something is
24
purely speculative .
The code is the code .
25
law .
And why they did something is
It's the law .
It's the
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only very rarely in some jurisdictions such as the
Congress and the Federal courts, there's a
legislative history that can come into play in the
interpretation of the code .
something happened, particularly in with respect to
our General Assembly is, I respectfully submit, not
appropriate .
appropriate .
But generally why
I'm going to overrule
10
your objection this time .
11
knows what the atmosphere or climate was prior to
12
the passage of that legislation, I am certainly
13
going to entertain it .
14
Okay .
To the extent Mr . Physioc
Well, in 2008, our country was
15
going through -- in the midst of a national
16
recession .
17
country was going economically had been attributed
18
to malpractices within the mortgage industry .
19
And many of the -- the problems our
One of Congress' responses was to pass a
20
law called the SAFE Act .
And the SAFE Act
21
established a licensing requirement for all
22
residential mortgage loan originators .
23
minimum licensing qualifications for that license,
24
and it also mandated that each state pass an
25
equivalent law with the same minimum standards or
It set forth
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else the Federal Department of Housing and Urban
Development would take over the program .
BY MS . JOHNSTON :
4
5
Just to clarify,
name of the SAFE Act?
can you state the full
Do you know it?
it is the --
Would it be the Secure and Fair
Enforcement Mortgages?
9
10
It's known as the SAFE Act?
The SAFE Act is the common acronym,
but I
believe that's the full name .
11
Right .
And is there a new Federal
12
regulator that's taken over HUD's responsibilities
13
most recently?
A
14
Yeah, the Consumer Financial Protection
15
Bureau was created after the passage of the SAFE
16
Act,
17
of Housing and Urban Development,
18
overtaken that responsibility that was granted to
19
them through the SAFE Act .
20
21
is
and they have overtaken HUD's or the Department
they have
So, did Virginia incorporate the standards
from the SAFE Act into its own laws?
22
Yes .
23
And can you please discuss the licensing
24
qualifications that are found in Section 6 .2-1706 of
25
the code of Virginia?

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That section states an applicant for a
mortgage loan originator license,
Commission, before granting a license, must find
that the applicant has such character,
responsibility,
warrant belief that the applicant,
license, would act as a mortgage loan originator
efficiently and fairly in the public interest and in
accordance with the law .
10
11
1-6
W
that the
financial
and general fitness such as to

if granted a
And does Chapter 17 have other
requirements for applicants for MLO licenses?
12
Yes .
13
And what are those?
14
There's a requirement that applicants must
15
have surety bond coverage .
They cannot have had a
16
mortgage loan originator license revoked in any
17
other states .
18
applicants are required to pass a written test on
19
state and Federal laws and regulations .
20
required to complete 20 hours of prelicensing
21
education .
Mortgage loan originator license
They're
22
They're also required to submit
23
fingerprint cards and biographical information for
24
the purpose of obtaining a criminal background
25
check .
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And there's a requirement that -- as
relates to that criminal background check that an
applicant shall not have had any felony convictions
or pled no contest to a felony offense within the
last seven years or ever if that felony pertained to
certain types of financial offenses .

And is it the Bureau's job to administer
these laws?
Yes .
10
Did the Bureau develop standards for
11
determining when an applicant possesses the
12
requisite financial responsibility, character, and
13
general fitness7
14
Yes .
15
And are the regulations that the
16
Commission,
17
MLOs?
that the Bureau promulgated in regard to
18
That's correct .
19
Do these regulations outline the standards
20
for financial responsibility,
21
fitness?
character,
and general
22
They do .
23
And are they found in 10VAC5-161-45 of the
24
25
Virginia Administrative Code?

A
Yes .
is
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1
2
consistently from applicant to applicant?

A
We do .
And can you please identify what the
regulation requires?
Start with financial responsibility?
Sure .
Okay .
The financial responsibility
section says that an applicant shall not be found to
10
have the financial responsibility required by the
11
code if the Commission finds that the applicant has
12
one or more outstanding judgments or collection
13
accounts that exceed $2,000 in the aggregate ; one or
14
more outstanding tax liens that exceed a thousand
15
dollars in the aggregate ; any foreclosures within
16
the prior seven years ; or one or more other
17
delinquent accounts,
18
that in the aggregate exceed $3,000 .
19
including charged-off accounts
Is an applicant who has an outstanding
20
judgment for over $2,000 going to be denied a
21
license?
22
Not automatically .
23
So,
24
25
what does the regulation further
require?
A
There is a two-part test .
If we find that
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the applicant does have one or more of the
disqualifying debts that are enumerated in the
previous subsection,
whether or not the applicant has made good faith
effort to satisfy all of the delinquent accounts .
we first look to determine
Secondly, we also look to see if there was
6
7
mitigating circumstance such as loss of income,
divorce, medical expenses,
substantially impeded their ability to repay the
10
or natural disaster that
debt .
11
And what are good faith efforts?
12
It depends person-to-person .
13
We look at
each person's circumstances in their totality to

within their means and what their
14
figure out,
15
situation is, whether or not what they have done has
16
been completed in good faith .
17
So, even if an applicant has a financial
18
problem,
19
efforts in the manner you've just described,
20
may still be able to get a license ;
if they demonstrate they've made good faith

they
is that correct?
21
Yes .
22
Do they have to contact each and every
23
24
25
creditor?
A
They have to demonstrate a good faith
effort to satisfy each of the outstanding debts .

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0
Bureau to show that?
We're looking for written documentation,
something that we can point to to say here is what
they've done with each of t he outstanding debts that
we found .
And what do they have to provide to the
Is it enough for an applicant to report he
or she is in the process of setting up a payment
plan?
1 10
No .
11
In addition,
Rule 10VAC5-161-45,
this is
12
B, also requires that the Bureau investigate an MLO
13
applicant's character and general fitness ;
14
correct?
is that
15
Yes, that's correct .
16
And can you please describe what does this
17
regulation require in order for an applicant to have
18
good character and be generally fit for licensure as
19
an MLO?
20
Yes .
That section says that an applicant
21
shall be found to have the character and general
22
fitness required by the code unless the Commission
23
finds that the applicant has been convicted of, pled
24
no contest -- I believe I already said pled guilty
25
to certain types of financial crimes or crimes
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involving dishonesty, breach of trust or fraud .
The section also requires us to look at
whether or not an applicant has provided material
omissions or material misstatements to the Bureau in
connection with the application .
Suppose the Bureau has learned that an
applicant has failed to disclose information on his
application .
applicant's qualifications?
Would that negatively impact the
10
Yes,
11
And what does "material" mean?
12
If the Commission would consider that fact
if it was a material omission .
13
to be important as part of its investigation of the
14
application,
15
it's material .
to the Bureau in response to a question that turns
17
out to be false?
19
20
What if an applicant provides information
16
18
That would negatively,
in most cases,
impact our character and general fitness findings .

Q
Do you know of circumstances when the
21
Bureau has denied an application for an MLO license
22
based on the fact that the applicant has made
23
omissions or representations in a material nature to
24
the Bureau?
25
Yes .
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Okay .
I would like to turn to the
application process and the Nationwide Mortgage
Licensing System also known as NMLS .
individual would like to get an MLO license in
Virginia,
If an
what is the first thing they have to do?

They have to go onto NMLS, which is the
computer system used by every state agency that
administers mortgage loan originator licenses and
establish a base record where they just say here is
10
11
who I am ; and they get a unique identifier .

Q
So, just to clarify,
this NMLS is a system
12
that the Bureau uses in regard to licensing
13
regulating MLOs in the State of Virginia, correct?
14
Yes, that's correct .
15
Do other states use NMLS for the same
16
purpose?
17
Yes .
18
Okay .
19
20
So,
record and then what?

A
an applicant will create a base

What is next?
They then complete their application form
21
on NMLS and submit it electronically to whichever
22
state they're seeking a license in .
23
An applicant also signs up for their
24
prelicensing education via classes that have been
25
approved by NMLS .
And also,
they sign up for their
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written test, which is done at a separate offsite
facility .
Once that applicant has completed the
prelicensing education and testing and also gotten
their fingerprint scanned in for the criminal
background check,
application to the states and also authorize NMLS to
obtain a credit report .
9
10
they can then submit their
Is the application, the initial
application form,
is that also called an NU4 Form?
11
Yes, that's what they call it .
12
Are you familiar with -- wait,
13
let me step
back one more important question .
14
Does the code of Virginia address the role
15
a credit report can play in making this
16
determination as to whether an applicant is
17
financially responsible?
18
Yes,
19
And what's the role it can play?
20
It states that the Commission can't use a
it does .
21
credit report as the sole basis for the denial of an
22
MLO license application .
23
Okay .
Are you familiar with Mr . McDonald?
24
Yes,
25
And did the Bureau conduct an
I am .
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investigation of the application he filed on
November 23rd, 2012?
Yes .
What was your role in regard to that
application?
and proce ss that application .
8
9
10
I was the analyst assigned to investigate
Okay .
And do you remember approximately
how many MLO applications the Bureau reviewed in

2012?
11
About 3,000,
12
Okay .
1 believe .
You have a notebook in front of you
13
that was prepared for your testimony .
14
please turn to Tab 4?
15
document?
Could you
Do you recogni ze that
16
Yes,
17
18
This is the MU4 application form submitted
19
I do .
by Mr . Mc Donald on November 23rd, 201 2 .
20
And is this the application you reviewed?
21
Yes .
22
23
24
25
MS . JOHNSTON :
Your Honor,
I would like to
offer it into evidence at this time .

HEARING EXAMINER :
I have not seen any
personal identifying information on this document ;
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is that correct?
MR . BALDWIN :
Your Honor,
if I may,
perhaps the Court could direct counsel to,
the closure of the evidence,
appropriate redaction actions if second cite so
that -- so that --
counsel to assume that responsibility .
is something that's disclosed,
after the hearing .
to review and take
it's certainly appropriate for
HEARING EXAMINER :
10
following
So,
if there
we can deal with it
It's more difficult to
11
deal with it after because I will mark the
12
confidential exhibits differently than I mark the
13
publicly available documents .
14
MR . BALDWIN :
15
MS . JOHNSTON :
And the bailiff has been
16
given a redacted copy already .
17
one does --
18
yes .
19
yes,
So,
I understand .
So,
I believe this
it's got -- I believe this one does,
I'd like to enter this one under seal,
please .
20
HEARING EXAMINER :
So,
I will mark the
21
redacted version of this application as Exhibit 5
22
and the unredacted version of this exhibit will be
23
marked as Exhibit 5C and admitted into the record .

MS . JOHNSTON :
24
25
Great,
thank you,
Your
Honor .
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(Exhibits 5 and 5C were marked and
1
2
received into evidence .)
W
W
3
4
5
BY MS . JOHNSTON :
Q
Mr . Physioc, can you walk us through this
document?
you please walk us through this and tell us what's
on this application?
And this is the application or MU4 .
Sure .
So,
Can
each MU4 application form
10
contains the same basic information .
11
section identifies which states the applicant is
12
applying for licenses and what type of licenses .
13
The first
The second section contains basic
14
identifying information about the person,
15
and contact information and current mailing address
16
as well as any other names they may use .
17
their name
The application form then goes on to
18
describe the applicant's residential history for the
19
prior ten years, their employment history for the
20
prior ten years .
21
I-&
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And then it moves on to a series of
22
disclosure questions .
The disclosure questions,
23
there are some that are financial related,
24
are criminal related,
25
judicial matters,
some that
some that involve civil
some that involve their regulatory
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history, and then others that involve information
about litigation that they may be involved with, and
then finally about previous terminations and whether
or not the applicant has ever been accused or found
to have been involved in a violation of NMLS
test-taking policy .
For applicants that affirmatively answered
7
8
some of the disclosure questions, they are then
allowed to provide an answer or an explanation and
10
attach supporting documentation for whatever it is
11
that their response may be .
12
And then finally, it shows where they
13
authorize the criminal background check and credit
14
report ; and it concludes with an attestation .
15
attestation at the end .
17
sign this MU4 form under oath?
Are applicants required to
18
Yes, they are .
19
And that's in the last section of this
document?
21
Correct .
22
And can you please just read or paraphrase
23
24
2S
So, are applicants -- and there is an
16
20
10
Item No . 1 in the attestation clause?

A
Item No .
1 states that the information and
statements contained herein,
including exhibits
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attached hereto and other information filed
herewith,
application are current,
complete and are made under the penalty of perjury
or unsworn falsification to authorities or similar
provisions as provided by law .
true, accurate, and
And is there anything else in this
attestation that warns an applicant about what might
happen if they put false information on the
10
application?
11
Yes,
there is .
There is a sentence that
12
says at the end,
13
statement of a material fact in this application or
14
in any documentation provided to support the
15
foregoing application,
16
application maybe denied .
17
Now,
if an applicant has made a false
then the foregoing
I'd like you to discuss this MU4 form
18
and just talk about what Mr . McDonald submitted in
19
each section,
20
40
all of which are made a part of this
so,
Okay .
at the beginning .
So,
as you can see here, Mr .
21
McDonald has applied for mortgage loan originator
22
licenses in Maryland and the State of Virginia .
23
provided his identifying information showing his
24
name, business phone number,
25
line,
cell phone number,
He
fax
e-mail address, and his current mailing

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address .
is
He provided his residential history
showing that he's lived at a Fredericksburg,
Virginia, address since November of 2006 .
on his employment history that he has worked at
Security Trust Mortgage, LLC,
And there are five previous employers during the
last ten years shown in total .
He states
since December 2005 .
Okay .
10
On the disclosure questions, he disclosed
11
that he has unsatisfied judgments and liens and that
12
he has previously been denied or suspended a
13
registration or license -- excuse me, he's
14
previously been denied or suspended his registration
15
or license or application for license, been
16
disciplined or otherwise by order prevented him from
17
associating with a financial services related
18
business or restricted his activities .
19
And then his explanation for that
20
particular disclosure question was that he had been
21
denied a Virginia mortgage loan originator license .
22
He states that the disposition is that it was
23
pending and that he had met all of Virginia
24
requirements and that the application was under
25
review by the Virginia Commission .

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And he provided supporting documentation
1
2
showing some of the items he provided to the
Commission in connection with his -- his previous
hearing here .
Okay .
He authorized a background check and -- a
criminal background check,
attested to the truthfulness of the application .
a credit report,
and he
Now, when you reviewed this application,
10
did you notice any discrepancies or inaccuracies in
11
this initial review?
12
Yes,
I did .
13
What were they?
14
The initial discrepancy,
I noticed,
15
pertains to the employment history .
I was aware
16
from the previous hearing that the Hearing officer
17
had found that he failed to disclose his prior
18
employer .
19
was .
20
had corrected his record and if he had disclosed
21
that employer and he had not .
And I was aware of which employer that
So, being aware of that,
22
Okay .
23
Yes .
I looked to see if he
Any other discrepancies?

I did not understand why he reported
24
that his previous mortgage loan originator license
25
denial was still pending and that he had met all
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Virginia requirements and again stating that his
application is pending review by the Virginia
Commission .
5
6
And why did you -- why did you know that
was not true or appeared inaccurate?

A
Because I was aware that the Commission
had adopted the Hearing Officer's findings and
issued a final order in the matter .
And that that order had not been appealed
10
by McDonald?
11
Correct .
12
And I think you mentioned McDonald
13
authorized a credit report associated with this
14
application .
15
please?
Can you turn to the next tab, Tab 5,
Yes,
17
And can you tell the Court what it is,
19
I do .
please?
A
This is the TransUnion credit report that
20
Mr . McDonald authorized NMLS to obtain on
21
November 23rd,
22
23
24
25
Do you recognize this document?
16
18
2012 .
MS . JOHNSTON :
Your Honor,
I would like to
offer this credit report into evidence at this time .

HEARING EXAMINER :
All right .
And this
has a redacted version?

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MS . JOHNSTON :
Yes, yes,
HEARING EXAMINER :
it does .
Okay .
We will mark the
redacted version as Exhibit 6 and the unredacted
version as Exhibit 6C .
6
7

8
9
MR . BALDWIN :
May it please the Court,
10
believe it's appropriate -- and I have to admit I've
11
filed a number of bankruptcies .
12
familiar with the Commonwealth's standards on
13
redactions as those in the Federal courts, but I
14
believe with regard to accounts,
15
delete the account information except for the last
16
four, and that does not appear to be done on this
17
credit report .
18
19
20
21
22
HEARING EXAMINER :
So,
I am not as
it's customary to
I believe you're
probably looking at an unredacted version .

MS . JOHNSTON :
We don't have the redacted
ones, just the bailiff ; but I will check to be sure .

HEARING EXAMINER :
At the conclusion ofif you want
23
the hearing or during the lunch break,
24
to take a look at the redacted versions to verify
25
all information you believe should be redacted is,
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those won't go into the public record until probably
tomorrow,
I would guess,
or --
THE BAILIFF :
HEARING EXAMINER :
Mavbe .
They eventually are
scanned,
through our website .
want to l ook at the redacted versions to make sure
you agree with the redactions .
and all public records are available

So,
MR . BALDWIN :
10
Honor .
11
BY MS . JOHNSTON :
12
Mr . Physioc,
at some point,
Very good .
you may
Thank you,
Your
did you review this
13
November 23rd credit report as part of your
14
investiga tion of McDonald's MLO application?
15
Yes I did .
16
What's the credit reporting agency on this
17
This is TransUnion .
19
At a very high level,
20
details,
21
about the credit report?

A
There were multiple delinquent accounts,
including charged-off accounts,
24
and outstanding judgments .

Q
not getting into the
in your initial review, what did you notice
23
25
report?
18
22
collection accounts,
And did the liabilities on this credit

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I believe so, yes .
Could you take a look at your next tab in
your notebook, please, Tab 6 ; and do you recognize
this document?
Yes,
And can you tell the Court what it is,
report exceed approximately $500,000?
I do .
please?
A
This is a personal financial statement
10
filed by Mr . McDonald .
11
financial statement is November 26,
12
received on November 30,
13
14
FA
W
The date of the personal

2012 ; and it was
2012, by the Bureau .
And did you review it as part of your
investigation --
15
Yes,
16
-- of Mr . McDonald's application?
17
I did .
MS . JOHNSTON :
Your Honor,
18
offer into it evidence at this time .
19
redacted .
20
HEARING EXAMINER :
I would like to
This has been
The unredacted version
21
will be marked as Exhibit 7 and the redacted -- I'm
22
sorry,
the other way around .

The redacted version will be marked as
23
24
Exhibit 7,
and the unredacted version will be marked
25
as Exhibit 7C, both admitted into the record .

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1
2
3
4
5
6
7
BY MS . JOHNSTON :
Q
Did Mr . McDonald file this personal
financial report?
A
As part of the application instructions he
would receive on NMLS,
the instructions direct
applicants to submit this form if they have total
10
collection accounts or judgments or delinquent
11
accounts that exceed the thresholds described in our
12
regulation for financial responsibility .
13
And where did Mr . McDonald get this form?
14
Via an application instructions checklist
15
16
on NMLS .
Q
Can you please run through and discuss
17
this personal financial report, please?
18
what Mr . McDonald submitted on this report .
19
Okay .
Mr . McDonald reports that he has
20
total assets of $565,500,
21
$365,000,
22
$200,500 .
23
24
25
Discuss
total liabilities of
and a net worth of $2,500 .
Excuse me
And then what about the fourth page of
this document?
A
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are carried forth to the balance sheet on the front .
on -- he describes his liabilities as being real
40
estate mortgage payable to Bank of America in the
amount of $365,000 and a credit card with a balance
of 1,000 .
not carried forth to the balance sheet on the first
page of the statement .
However, that credit card liability was
HEARING EXAMINER :
Ms . Johnston, for my
clarification, I have a three-page document, not a
10
four-page document although it's numbered Page 2, 3,
11
4.
12
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13
MS . JOHNSTON :
HEARING EXAMINER :
I just wanted to make
sure .
MS . JOHNSTON :
16
That's correct .
17
three-page document, but labeled Pages 2,
18
Thank you .
19
20
THE WITNESS :
MS . JOHNSTON :
22
clarification,
23
BY MS . JOHNSTON :
25
So,
3,
right,
and 4 .
I believe there's
instructions .
21
24
Your
Honor .
14
1 15
I have the same thing,
Thank you for the
Your Honor .
Mr . Physioc,
did this MLO personal
financial report match up with McDonald's credit
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report?
No,
it did not .
And did you communicate this finding that
they didn't match up in regard to your review of the
application,
financial report to Mr . McDonald?
the credit report, and the MLO personal
Yes,
Could you please turn to the next tab in
10
I did .
your notebook, Tab 7?
Do you recognize this
document?
11
Yes,
12
13
This is an e-mail I sent to Mr . McDonald
14
on December 11th,
15
16
I do -
2012 .
MS . JOHNSTON :
Your Honor,
HEARING EXAMINER :
18
MS . JOHNSTON :
20
I would like
the offer this e-mail into evidence a t this time .
17
19
I'm not seeing --
We redacted his e-mail
address .
HEARING EXAMINER :
All right .
I will mark
21
this as Exhibit 8 .
22
as Exhibit 8 and the unredacted version as
23
Exhibit 8C, both admitted into the record .
24
1 will mark the redacted version
MS . JOHNSTON :
Thank you,
Your Honor .
25
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0
1
2

3
4
BY MS . JOHNSTON :
can you please read through
this e-mail -- you don't have to read it
word-for-word .
Mr . McDonald .
Mr . Physioc,
Yes .
But explain what you communicated to
In this e-mail,
I was trying to
10
communicate to Mr . McDonald the various
11
discrepancies or deficiencies that I noticed upon my
12
initial review of his application .
13
five main areas or items that -- that I reported to
14
him .
15
e-mail was in response to one that he had sent to me
16
on the same day where he stated that some of the
17
items on his credit report are being paid in full
18
and updated .
And there was
I guess it's important to point out that this
19
So,
I responded to him by noting that
20
that's what he reported .
And I asked him to
21
provide,
22
accounts,
23
unsatisfied judgments,
24
good faith effort to satisfy the debts,
25
evidence that his ability to satisfy the debts was
for each of the outstanding collection

charged-off slash past due accounts and
documentation demonstrating a
as well as
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substantially impeded by loss of income, divorce,
medical expenses, natural disaster, or other
unanticipated events or circumstances that he wished
to be taken into consideration .
The second item pertained to his MLO
personal financial report and the credit report .
And I noted that he had only reported the one credit
card and a mortgage as liabilities on his personal
financial statement, but that his credit report
10
reflected additional liabilities .
11
And I asked him to explain that
12
discrepancy and file an amended personal financial
13
statement if necessary .
14
The third item pertains to the fact that
15
he had previously applied for a mortgage loan
16
originator license and that it was found that he did
17
not have the financial responsibility,
18
general fitness required by the code .
19
character,
or
And I asked him to explain in writing what
20
had changed regarding his qualifications for
21
licensure since the SCC had affirmed the previous
22
denial .
23
The fourth item pertained to his
24
disclosure question explanation that was provided in
25
NMLS .
I noted that he reported that he had met all

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of Virginia requirements and that his application is
pending review, but as mentioned previously that the
SCC had affirmed the license denial and that there
was a final status .

So I requested he explain the discrepancy
5
6
and,
correctly state the current status of the denial .
if necessary,
8
9
amend his explanation in NMLS to
The final item pertained to his employment

history .
I noted that it had previously been found
10
that he failed to disclose one of his provider
11
employers and that that prior employer still wasn't
12
listed on his application form .
13
explain the discrepancy and to update his
14
information form,
17
I asked him to
if necessary .
Based on this communication with Mr .
15
16
So,
McDonald, what actions did he take?

A
on the following date, he updated his
18
application form to report the missing employer .
19
And he also changed the status of -- or excuse me,
20
changed his explanation for the disclosure question
21
response to state it went from that the denial was
22
pending to other .
23
SCC had affirmed the denial .
24
25
Tab 8?
And I believe he stated that the
And can you turn in your notebook to

Do you know what this document is?
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Yes, this is the amended filing, NU4
filing submitted by Mr . McDonald on December 12th,
2012 .
4
5
Did you review this update as part of your
investigation of his application?
I did .
MS . JOHNSTON :
Your Honor,
I offer this
update to the MU4 application into evidence at this
time .
10
HEARING EXAMINER :
All right .
11
will be marked .
12
update will be marked as Exhibit 9 .
13
right?
14
Exhibit 9 .
15
This update
The unredacted version of this

Did I say that
The redacted version will be marked as
MS . JOHNSTON :
anything on this one since this was just an update .
17
This one's just an update,
18
the original .
19
information in the beginning .
just shows the updates to
It doesn't have all the identifying
20
THE BAILIFF :
21
MS . JOHNSTON :
23
I don't know if we redacted
16
22
That's just blacked out .

Since it's just the
updates .
HEARING EXAMINER :
Okay .
The unredacted
24
version of this document and only will be marked as
25
Exhibit 9 and admitted into the record .

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evidence .)
BY MS . JOHNSTON :
I believe you started to discuss,
but how
is this update different from the one from the
application McDonald filed on November the 23rd?
8
9
Yeah .
So, you can see in the document
that the changes are underlined .
10
page,
11
Loans,
12
last ten years .
So,
on the first
it shows that he added Equity Source Home
13
LLC,
as one of his prior employers during the
And the last page of this document shows
14
where he amended his disclosure explanation .
15
changed the disposition from pending to other .
16
he added a description to say that the license
17
denial affirmed on July 6th,
18
He
And
2012 .
Was McDonald's omission of Equity Source
19
as a prior employer on his application for license a
20
material omission?
21
Yes,
it was .
22
Was Mr . McDonald's representation that the
23
December 27th,
2011, denial was pending review by
24
the Virginia Commission on his application a
25
material misrepresentation?
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Yes .
And was Mr . McDonald's representation that
he met all the Virginia requirements for licensure
on his application a material misrepresentation?
Yes .
Okay .
I'd like to return to the
discrepancies between the MLO personal financial
report and Mr . McDonald's credit report, please .

MR . BALDWIN :
Your Honor,
if I may just
10
ask one thing,
I thought that the --
11
in Exhibit 8 is the revised application .
12
mishear?
HEARING EXAMINER :
13
shown in mine
Did I
I'm one number off
14
because I marked the requests for admissions as
15
Exhibit 1 .
16
going to be one off .
So, all of the notebook exhibits are
17
MR . BALDWIN :
18
HEARING EXAMINER :
19
MR . BALDWIN :
One off?
sorry I missed that point .
21
BY MS . JOHNSTON :
Q
One off .
Thank you,
20
22
You previously testified,
Your Honor .
I'm
Mr . Physioc,
23
that you noticed discrepancies between the
24
TransUnion credit report and the MLO personal
25
financial report that Mr . McDonald filed ;
is that
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correct?
Yes,
Let's turn back to Tab 5 in your notebook,
which is going to be the TransUnion credit report .
Do you see that document?
I do .
Okay .
And I'm going to ask you to go
through this document .
Account-by-account?
10
Well,
11
I'll identify them and -- I'll try
and help you along since it's so long .
12
0
that's correct .
At the time McDonald filed his personal
13
financial report on November the 30th, did his
14
credit report reflect that he owed the following
15
debts :
16
Funding,
An unpaid collection account with Midland

LLC,
in the amount of $3,061?
17
That's correct .
18
An unpaid judgment to Midland Funding,
19
LLC,
in the amount of $4,607?
20
Yes,
21
And judgments are in the back if that
that's correct .
22
helps anyone who's following along .
23
collection account with Calvary Port in the amount
24
of $1,994?
25
1.6
W
An unpaid
Yes .
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An unpaid collection account with Asset
Accepta nce in the amount of $2, 981?
Correct .
An unpaid collection account with Profess
Account in the amounts of $300 and $100?
Correct .
Unpaid collection account with FCB in the
amount of $668?
Yes .
10
An unpaid judgment to CapitalOne Bank
11
USANA in the amount of $3,788?
12
Yes .
13
An unpaid judgment to Mary Washington
14
Health Car e ODC Recovery Services in the amount of
15
$14,572?
16
In the credit report,
17
a medical judgment ;
18
that's who the creditor was .
19
correct amount .
20
Okay .
it's just listed as
and it was later determined that

But yes,
that's the
An unpaid judgment to
21
Fredericksburg Implant and Oral Surgery in the
22
amount of $1,393?
23
Yes,
and that would be the same,
that it's
24
only identified as a medical judgment on the credit
25
report .
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2
And an unpaid collection to Carrington
Mortgage in the amount of $118 .455?
What was the amount?
$118,455 .
Yes .
Did these seven collections and four
I'm sorry .
judgments total approximately $151,919?
Yes .
Did McDonald, Mr . McDonald, disclose these
10
debts in his MLO personal financial report?
11
No .
12
Was he required to disclose them?
13
Yes .
14
Were these omissions by McDonald material?
is
Yes .
16
Was the MLO personal financial report as
17
filed by McDonald on November the 30th a material
18
misrepresentation?
19
Yes .
20
And at the time he filed his MLO personal
21
financial report,
did McDonald have outstanding
22
collection accounts and judgments that in the
23
aggregate exceeded $2,000?
24
Yes .
25
Did Mr . McDonald send you two letters
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dated December the 12th, 2012?
Yes, he did .
Could you please turn to Tab 9 in your
notebook?
Do you recognize this document?
I do .
Yes .
8
9
10
11
McDonald dated December 12,
your investigation of his MLO application?

A
Yes,
I did .
MS . JOHNSTON :
Your Honor,
I would like to
offer this letter into evidence at this time .

HEARING EXAMINER :
14
15
2012 .
Did you review this document as part of
12
13
This is a letter to me from Mr .
This letter will be
marked as Exhibit 10 and admitted into the record .
16
17
18

evidence .)
19
20
21
22
23
BY MS .
Q
JOHNSTON :
Mr . Physioc,
can you please describe the
contents of this letter?

A
Yes .
The first paragraph describes the
24
reason why he was not able to satisfy his debts,
25
which he attributes to loss of income and no income .

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I believe,
is in
response to my question as to why he didn't disclose
all of his debts on his personal financial
statement .
liabilities were a mortgage with the Bank of America
and three credit cards .
7
8
The second paragraph,
And he stated that his current
Does he also indicate he had been approved
for an MLO license in Maryland?
Yes, he did .
10
Does Mr . McDonald's representation in this
11
letter that his liabilities list included a mortgage
12
with Bank of America and three credit cards,
13
this conflict with the November 23rd credit report?
14
It does .
15
And on December 12th,
does
2012, did McDonald's
16
liabilities include 11 collection accounts and
17
judgments?
18
Yes .
19
Was McDonald's representation to the
20
Bureau that he had four liabilities on
21
December 12th,
2012,
false?
22
Yes .
23
And was that misrepresentation by Mr .
24
25
McDonald material?
A
Yes .
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Did Mr . McDonald make filings with the
Bureau showing that some of the debts listed on his
credit report were being paid?
Yes, he did .
Can you please turn to Tab 10 in your
notebook?
And do you recognize that document?
I do .
And is what it just briefly?
This is a letter dated January 18,
2013,
10
to Mr . McDonald from Midland Credit Management,
11
Inc .,
12
had reached regarding an account that was -- a debt
13
that was originally owed to Target National Bank in
14
the amount of $3,086 .
15
confirming a settlement agreement that they
your investigation of Mr . McDonald's MLO
17
application?
18
Yes .
MS . JOHNSTON :
Your Honor,
I offer this
20
letter into evidence at this time, and we did redact
21
portions of this letter .
22
Did you review this document as part of
16
19
HEARING EXAMINER :
The redacted version of
23
this letter will be marked as Exhibit 11 and the
24
unredacted version Exhibit 11C,
25
the record .
both admitted into
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2
(Exhibits 11 and 11C was marked and

3
4
5
Can you describe what this document shows
in regard to a debt that was identified on the
credit report?
8
9
10
11
BY MS . JOHNSTON :
Yes .
So,
Midland Funding,
the current owner of the debt is
LLC .
The original creditor was
Target National Bank .

And can you turn to next tab in your
12
notebook, please, Tab 11?
13
documents?
14
you recognize it?
Do you recognize these
It's one document, but two images .
Do
15
Yes .
16
17
This is a copy of a check made by Mr .
18
McDonald payable to Midland Credit Management,
19
in the amount of $1,500 on January 18,
20
21
22
23
Inc .,
2013 .
And did you review this document as part
of your investigation?
A
Yes .
MS . JOHNSTON :
Your Honor,
I offer the
24
copies of the checks into evidence at this time, and
25
they are redacted .
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HEARING EXAMINER :
The redacted version
will be marked as Exhibit 12,
and the unredacted
version will be marked as Exhibit 12C and admitted
into the record .
5
6
7

8
9
BY MS . JOHNSTON :
10
Mr .
11
this check,
12
Physioc,
what is the significance of
the front and back copies of this check?
Mr . McDonald is representing that he made
13
the $1,500 payment as stipulated in the repayment
14
arrangements with Midland Credit Management,
15
established on January 18th,
16
17
2013 .
Did Mr . McDonald disclose this debt on his
MLO personal financial statement?
18
No, he did not .
19
Was his failure to do so a material
20
Inc .,
misrepresentation?
21
It was .
22
Could you please turn to the next tab in
23
your notebook, Tab 12?
24
document?
2S
And do you recognize this
I do .
0
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COMMONWEALTH OF VIRGINIA, ex rel . vs.

SECURITY TRUST MORTGAGE, LLC

I'm the Deputy Commissioner over

the Nondepository Section,

Mortgage Section of the Bureau of Financial

the Consumer Finance and

And what are your section's

our primary responsibility is the

examination of the nondepository institutions .

we examine them, and we also monitor them to

determine compliance with the applicable laws and

regulations and to ensure that they still meet the

qualifications and requirements to -- for license .

Do you also carry out enforcement actions

for noncompliance with laws and regulations?

And do these nondepository institutions

include mortgage brokers?

And are you familiar with Security Trust

Who is that entity?

It is one of our licensed mortgage

And how long has Security Trust been

COMMONWEALTH OF VIRGINIA, ex rel. vs. SECURITY TRUST MORTGAGE, LLC

licensed in Virginia as a mortgage broker?

I think it's since 2006 .

And is Security Trust also licensed in

Maryland as a mortgage broker?

And who owns Security Trust?

Daniel McDonald is the owner .

Is he also an officer of the mortgage

He's the president .

He's the sole

and member of the company .

And does Mr . McDonald originate

residenti al mortgage loans for Security Trust?

Mr . McDonald should not be originating

mortgage loans because he's not licensed in Virginia

And is Security Trust currently brokering

loans on property located in Virginia?

The company has reported to the Bureau --

or according to reports filed with the Bureau,

has not o riginated any or brokered any loans in 2012

or the fi rst two quarters of 2013 .

And is the Bureau seeking revocation of

Security Trust's mortgage broker license at this

COMMONWEALTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC

And very briefly,

Well, because I think as you stated in

your opening remarks,

the mortgage loan originator license correlated

directly with the mortgage broker license for

since Mr . McDonald is the sole

and member of Security Trust

Does Security Trust meet the

qualifications for licensure?

I'd like you to turn

and discuss some background related to mortgage

What services do mortgage brokers

they're like an intermediary between

the consumer and the lender .

application and gather information and try to place

a -- find a mortgage loan for the consumer,

They will take the