Monday, October 10, 2011

You Need Continuing Education Hours, Don’t You?

Most mortgage loan originators will need to take eight (8) hours of continuing education before the end of the year. Actually, you should take your continuing education courses before November 1, 2011, when the ability to renew your license opens up on the NMLS. Some states have specific dates by when you must take your continuing education and other states simply will not let you submit your renewal license application unless your continuing education provider has uploaded the courses you have taken to the NMLS.

Each state has its own requirements as to whether you need to take continuing education this year and whether you need to take state-specific courses. For example, in Connecticut, unless you took your twenty (20) hours of pre-licensing education in 2011 and were approved for your license in 2011, you need to take continuing education in 2011. Exactly what is required? The SAFE Act requires the following education courses: 3 hours of Federal law and regulations, 2 hours of ethics that include instruction on fraud, consumer protection, and fair lending issues, 2 hours of training related to lending standards for the nontraditional mortgage product market, and 1 hour of undefined instruction on mortgage origination. Some states require specific courses on their state’s laws. For example, Georgia requires 1 hour of Georgia law that would count as your 1 hour of undefined instruction on mortgage origination. Georgia also has a deadline of October 31, 2011 for completing continuing education.

The NMLS has a state-by-state that details whether you need to take continuing education in 2011, what kind of courses you need to take, and when your deadline is:

If you are licensed in multiple states, the requirement that you take courses in state-specific law may mean that you are taking more than eight (8) hours of continuing education.

Also be aware that if you took continuing education in 2010, you may not take the same courses again in 2011.

Even if your state does not have a deadline before December 31, 2011, please remember that if you wait until the last minute to do your continuing education and license renewal, there is a good chance that your renewal will not be completed until sometime in January, 2012. Late renewals lead to major hassles with investors who want confirmation that you have a 2012 license to originate mortgages.

Monday, September 19, 2011

You Need Continuing Education

The SAFE Act created a requirement that all mortgage loan originators take at least 8hours of continuing education each year in order to get approval of your license renewal. If you were licensed in 2009 or 2010, you must comply with the continuing education requirement. If you took your pre-licensing education in 2011 and were licensed in 2011, you do not need to take any continuing education this year. If you took your pre-licensing education in 2009 or 2010 and your licensed was approved in 2011 or is still pending, you need to check with your state regulatory agency to find out if it is requiring loan originators to take continuing education.

If you are licensed in one (1) state, the requirement is that you take 3 hours of federal law and regulations, 2 hours of ethics, 2 hours of training related to lending standards for the nontraditional mortgage product market, and 1 hour of unspecified mortgage training (it's your choice of topic). If you took continuing education last year, you need to take different classes this year. Some states require a certain number of hours of state-specific education instead of the 1 hour hour of unspecified mortgage training. Therefore, if you are licensed is more than one (1) state, you may need to take more than eight (8) hours of continuing education.

The SAFE Act requirement is that you must take your continuing education hours by December 31, 2011. However, certain states require that you take continuing education before you can renew your license. Other states let you submit your renewal license applications, starting November 1, 2011, but they will not approve your renewals before you submit your continuing education hours through the NMLS. You need to check the rules for each state in which you are licensed to ensure that you are taking the correct number and types of continuing education courses so your licenses will be renewed.

Tuesday, September 6, 2011

What Do Mortgage Companies Need to Do About Computer Security?

All mortgage companies obtain very personal information from their customers that are stored on their computer systems. Computer security is an ongoing problem for your company because of the sensitive nature of the information that you store on your computers. You need to be proactive about your systems’ shortcomings and create a plan to upgrade your security. You must also have procedures in place to deal with a potential breach of security.

First, review the level of computer security that your system has. Most smaller mortgage companies do not have an IT department so they should hire an outside firm who has expertise in security breach problems. Have a survey of what information is stored, how it is stored, who has access to the information, and how your customers can use the internet to apply for a mortgage. An expert will point out where your systems are deficient, where you need to institute new policies for your employees, and where you may need to change or upgrade your software. Are your employees using smart phones or tablets that store private customer information? How easy is it for someone who finds a lost employee smart phone, tablet, or laptop to log in and access your customers’ information?

Do your personnel policies discuss how employees are to treat computer security issues? Are these policies rigorously enforced? Does your training emphasize the need to protect customer data?

Finally, you must review your computer security periodically. Hackers are always devising new ways to get into systems. You are obligated by law to safeguard your customers’ data. You could be sued by your customers whose financial information is now on the internet for the world to see. Therefore, your job of keeping their information safe never ends.

Tuesday, August 23, 2011

Maintaining Your Required Minimum Net Worth

Many states require your company to maintain a minimum net worth in order to get licensed and to keep your license. The amounts range from $10,000 to $1,000,000. If you are licensed or want to be licensed in a state that has minimum net worth requirements how do you obtain the capital you need?

There are a number of ways. The most obvious is to transfer money held in your personal bank account into the corporate entity’ bank account. Initially, this is how every new mortgage company gets started.

Beyond that, you could sell equity in the company and bring on a new partner. Your partner would have to buy shares in your corporation or a membership interest in your limited liability company, and the money from the sale of company stock or membership interests becomes part of the capital and net worth of the company.

Although it’s not easy, you may be able to find an investor willing to provide funding without giving up any equity in your business. Typically, this is a family member or a very good friend.

As you commence business operations, you can build net worth through retained earnings. Retained earnings are the profits your company makes that are not paid out to the owners of the company. To increase profits, increase your income (more closings or larger fees per closing) and/or decrease your expenses (go through each expense line-by-line and think of ways that each can be lowered). If the profits are kept in the company’s bank accounts or used to pay for company assets, they are counted as part of the company’s net worth.

Once you have been in business for awhile, you can explore merging with another company whose assets combined with yours will meet the minimum net worth requirements typically required of a mortgage lender. When you are looking to merge with another company, you want to find a company whose strengths complement your strengths. Together, your company and the company you merge with are greater than your two companies individually.

Eventually your plan should be to generate higher earnings by acquiring weaker companies and loan originators displaced by competitors who could not meet the net worth requirements and were forced to close. Your company may then continue to increase net worth as other competitive advantages become available as a larger company with increased production and profitability. Larger companies usually are stronger than smaller companies. They can offer more products, have offices in many locations to serve more borrowers, are licensed in more than one state, and have better management (which is how you became a bigger company).

The other key to the net worth issue is maintaining the net worth. Your company should never go below the minimum net worth required by your licenses. Hoard cash to get you through the lean times (including now) and do not make distributions to the owners if they will jeopardize your company’s net worth. Although you know that when your accountant comes in to audit your financials after each year-end so you make sure that your net worth meets the minimum requirements, you could also be subject to a random and unexpected examination of your records by your state licensing agency. You want to make sure that they find that you met every requirement, including net worth, when they conduct their examination.

Monday, July 25, 2011

Compare Your Company to Other Licensed Companies

The Nationwide Mortgage Licensing System & Registry (NMLS) has compiled information regarding licensees nationwide who are licensed in the first quarter of 2011. It can be accessed at

It shows how many licensees are licensed in more than one state, how many loan originators are sponsored by licensees, how many licensees have branch offices, etc. You can use the information for marketing purposes or for strategic planning purposes.

Wednesday, July 20, 2011

The Mortgage Call Report – It’s Back

Were you one of those mortgage company owners who were filing their Mortgage Call Reports late on Sunday, May 15, 2011? I had clients who sent me their information on 5:00 that afternoon and I was inputting information that evening. Don’t leave yourself in that position again. The Mortgage Call Reports for the 2nd quarter of 2011 are due on August 15, 2011. Don’t wait until the last minute to get your information together. As we get closer to the deadline, the NMLS computers work more slowly and it’s more difficult to get the information in. If you are having a fantastically busy summer, then hire outside help to get your Mortgage Call Report done. It’s money well spend because it lets you do what you do best - closing loans.

Tuesday, June 28, 2011

Mergers and Acquisitions – You Need Approval from the Regulators

The mortgage industry has been changing in the past four (4) years. Many mortgage lenders and brokers have closed their doors and stopped doing business entirely. Other companies want to stay in business but don’t want the headache of licensing compliance. Some of these companies are being acquired by other, larger companies who have compliance departments and who simply want to grow.

Most state licensing laws require that before one company can acquire or merge with another company their state banking department must approve the change. The statutes usually refer to a “change of control.” Most of these statutes require that, if there is an acquisition or merger, the acquiring company or companies being merged must notify the state regulatory agency and receive agency approval before the acquisition or merger is finalized. This means that if you are buying a company, the buy-sell agreement should have a contingency clause that the acquisition will not close until after all necessary regulatory approvals are received. If the company being acquired or merged is licensed in more than one state, the company that is buying must submit notification and approval paperwork to each regulatory agency in each state in which the company being bought or merged is licensed.

The company being acquired needs to close all loans in its pipeline and stop originating new loans while the approval is pending.

Do not jump the gun and start acting as if the acquisition or merger has gone through before the regulatory agency has given approval. You could be subject to fines, penalties and other disciplinary action that can affect your license and therefore your ability to originate loans.