Wednesday, August 29, 2007

Changes to Texas Mortgage Broker Licensing Law

Texas has a new licensing statute that takes effect for applications received on and after September 1, 2007. One of the changes is higher fees to license loan officers: the application fee is $275, $20 is for the recovery fund fee, and $39 is for the background check, for a total of $334.

A mortgage broker company principal will need to have 36 months of origination experience and 90 hours of classroom education taken within the last 2 years if the principal was not previously licensed as a broker or loan officer or 30 hours of classroom education if the principal was licensed as a loan broker. Loan officers must have 18 months of loan origination experience and 30 hours of classroom education taken within the past 2 years or 60 hours of classroom education if the loan officer does not have any origination experience.

Starting January 1, 2008, mortgage broker companies will have to be licensed (unless the company is a sole proprietorship) as well as having the loan officers licensed. The company will have to designate a principal as the company representative and that principal must be a licensed mortgage broker. The company will have to pay a $175 fee for the company license. There are no forms for the company license application created yet.

Additional parts of the changes to the law will take effect on November 1, 2007, however, the regulations to implement those parts have not been finalized.

Wednesday, August 22, 2007

You Really Need a Shareholder/Operating Agreement

If you are an owner in a corporation or limited liability company with at least one other person, you should have a shareholder (for corporations)/operating (for LLCs) agreement.

Why do you need one? Do you want to spend thousands of dollars in legal fees if one of the owners wants to get out and sell his/her interest in the business or disagrees with your ideas of how to run the company? Litigation is always more expensive than drawing up an agreement before the fighting starts. The ideal time to draw up a shareholder/operating agreement is before the company is formed. But even if you have been in business for a number of years, it is never too late to put everything in writing in advance of problems occurring.

A basic agreement should include sections about how to distribute profits and losses (this may not be done evenly depending on each owner’s contributions and time spent in the business), how to bring in new owners, how each owner will be allowed to sell his interest in the business, what happens in case of the death of an owner, how to resolve business disagreements, how much of a commitment to the business is required, and what could trigger a dissolution of the business.

It is imperative that you consult a business lawyer who has drafted these types of agreements before to help you with your agreement. You may also need to consult with your accountant and an insurance agent (typically a company buys life insurance to cover the buyout of a deceased owner). In discussing the different points of the agreement, you will discover that your partners may have very different views than you do. If relations are still friendly between you and the other owners, coming to an understanding about how the company will proceed in the future is more likely than if all of the owners are hostile.

A shareholder/operating agreement can be changed after it is drafted and signed but at least it serves as a starting point for how to decide questions that are very likely to arise in the life of a company. Business is like a marriage in some ways but most participants do not expect it to be for life. At some point, you will want to get out. If you do not have a shareholder/operating agreement, you could wind up in court, like a divorce action. And we all know that divorce isn’t pretty or cheap.

Tuesday, August 14, 2007

How Will You Survive the Subprime Mortgage Mess?

I'm sure you are no different than all of the other mortgage companies who are finding their investor sources drying up. I read something new about the subprime mortgage mess in the newspaper every day as do your customers. This is the time to let them know that you are still around and that you still have options for their varying needs.

I know that volume is down and some of you may even be wondering how you will stay in business. In down cycles, you must work harder to keep the phones ringing. If you have been keeping a stash of tips on marketing for when you "have the time" this is the time to get that stash out and start implementing those ideas that sound good to you. Some of them will work and some won't but you will not know which is which until you experiment. Most of the marketing suggestions that you hear about have something to do with customer contact, either existing customers or potential customers. In the current climate, most potential borrowers, especially those with more difficult credit histories, are anxious to know that there is a mortgage out there for them. Although many lenders and investors are tightening up or eliminating programs, if you can find those lenders and investors that are still offering mortgages to your types of customers, then you must educate your customers and potential customers that you are the one who will help them buy a house or refinance their current mortgage.

Only those mortgage brokers and lenders who can weather the difficult times will be around when the upcycle comes again.

Monday, August 6, 2007

Licensing in a "Brick and Mortar" State

I periodically receive phone calls and emails from mortgage companies that want to get licensed in all states. Since there is no "national" license, such a company must get 51 licenses (including Washington DC). When they hear that some states require a physical presence in their states, they realize that such licensing will be very expensive.

As of today, the following states require an office in their state for a mortgage broker license: Alabama, Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, and Texas. For mortgage lenders, the states are: Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, Ohio, Oklahoma, Pennsylvania, and Texas.

Even within the requirement of brick and mortar, the different states have different requirements. Some states permit any home office, other states allow the home office if you can prove that the home is zoned for office use and/or there is a separate entrance for the office. Some states permit month-to-month leases on these offices, other states do not and even require leases of at least 6 months to 1 year. In addition to the expense of the rent on these offices, certain states require that the office be staffed by a W-2 employee. Since I am aware that some mortgage companies do not pay branch managers or loan officers as employees but treat them as independent contractors, this can be an additional expense.

I am frequently asked whether my office or some relative’s address can be used as the "office" that is required in brick and mortar states. My office is not used for any client’s needs and I tell clients that a relative’s address can in some situations be used as the office. Again, because each state has a different requirement, I need to know the particular state that someone is inquiring about.

Because a brick and mortar state is a much more expensive state in which to operate, I caution clients that there must be a good reason to go into that state, other than part of a 50-state strategy. If a loan officer has family, friends or a real estate agent who will refer a steady stream of business, the costs of maintaining the office will be offset by the fees you will earn. Likewise, if your clientele are buying second homes in a particular state, that state is a good candidate for spending the money to retain an office. And each year, you should conduct a cost-benefit analysis to determine whether you spent more on the office than you earned in fees to decide whether to renew your license in a brick and mortar state.