Thursday, March 22, 2007

Staying in Compliance

I recently had a conversation with one of the state banking department regulators about ongoing compliance with that state's rules. This particular state had a minimum net worth requirement.

I have many clients who ask me about how to comply with a minimum net worth requirement when they first get their license. For example, New Jersey has a $50,000 minimum net worth requirement for first mortgage brokers. The minimum net worth is $150,000 for first and second mortgage brokers. This is a very high hurdle for many companies. Potential clients ask me all the time "do I need to keep that amount in the company name all the time?" They figure that they can put the money in when they apply for the license and immediately pull it out after the license is granted. Unfortunately, that isn't allowed. The rules usually state "must maintain a minimum net worth of $_______" or "shall register all loan orginators."

How do the state regulators find out that a company hasn't been following the rules after the license is granted? It is carelessness that trips up many companies. Many times that carelessness is uncovered when an examination is conducted by the banking department. Mortgage companies hand the examiner a balance sheet with a negative net worth or a file that has a 1003 signed by a loan officer who is not registered. Or a branch office has not been licensed.

The penalties can be huge. That state regulator that I was talking to mentioned that a company that had not maintained the minimum net worth had their license revoked. Other infractions have cost other brokers and lenders thousands of dollars in fines.

Can you afford to pay large fines or lose a license just because you think you won't get caught breaking the rules? The state regulators don't go after just the big fish. They will go after any licensee, no matter how small or large.

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