Monday, December 15, 2008

Delaware Loan Originator Licensing Requirements

Delaware has sent out a letter to its licensees informing them of how it will comply with the federal SAFE law in connection with mortgage loan originators.

The first step you would have noticed is that, unlike in prior years, when you renewed your Delaware company license, the application asked for the names and addresses of the loan originators that you employ. In the future, on a quarterly basis, you will be required to report any newly hired mortgage loan originators.

If a loan originator is currently employed by a licensed Delaware lender or broker, the loan originator will be required to submit a license application through the Nationwide Mortgage License System (NMLS) by March 31, 2009. The loan originator will be allowed to keep originating while the license application is pending, once the application is timely submitted.

If you hire a loan originator after January 1, 2009, that originator must first submit a license application through the NMLS immediately upon beginning employment (he/she can’t wait until March 31, 2009). Once the application is submitted, the loan originator may start to originate loans until a decision on his/her license application is made.

If your loan originator is already on the NMLS because of licensing in another state, he/she doesn’t need to create a new record. A simple amendment to the MU4, adding Delaware as a new state, is all that is required. Delaware is not yet requiring fingerprinting, credit reports, education hours or a national test yet. But if your loan officer answers ”yes” to any of the disclosure questions, he/she must send in additional information, giving all of the details about the problem that caused the “yes” answer.

There will be a $280.00 application fee which must be paid through the NMLS with a credit card or through electronic debit from a checking account. Once the loan originator license is approved, another $250.00 license fee will be required. There will also be annual assessment fees and annual NMLS processing fees.

Delaware has not announced when it will transition company licensing to the NMLS. The above information is for the licensing of individual loan officers only.

Wednesday, December 3, 2008

New HUD-1 and GFE forms

This is not a licensing issue but I thought I’d give out some information on the compliance front. HUD has announced that it is requiring new Good Faith Estimate (GFE) and HUD-1 and HUD-1A forms. The new HUD-1 forms have references back to the GFE so savvy consumers can compare the two documents. Although the new forms won’t be required until January, 2010, you should take a look at them:

Friday, November 14, 2008

Don’t Forget Loan Originators on the NMLS Must Renew Their Licenses

Mortgage companies who are on the NMLS have probably paid attention to their notices to renew the company license through the NMLS. But how many of you have reminded your loan originators to renew their licenses?

Although the renewal process is started on the NMLS, each state has its own follow-up requirements. For instance, in Mississippi, Rhode Island, and Washington, loan originators must submit proof that required continuing education has been completed. In Vermont, loan officers must submit their certification that they do not owe any Vermont taxes and that they do not owe child support. The other states on the NMLS do not require anything from loan officers after they have completed their NMLS renewals.

In order to renew, you must log in to the NMLS, go to Renewals, attest that your record has not changed (did you change employers, did your employer move their offices?), then renew and pay.

Connecticut does not renew until next year and New York is renewing outside the NMLS system. So, check with your state and make sure to renew if it is required.

Monday, November 3, 2008

Hire Talent Now

Although much of the mortgage industry is disappearing, you may be bucking the tide and having a good year. Or you may be holding your own, unlike your competitors who are closing up their shops. If you have any plans to be around at the next up part of the cycle, now is the time to hire the talent that is flooding the streets.

Although wages and commissions may be the most costly part of your overhead, if you don’t have the best people working for you, you will never get ahead. Now you have the time to be choosy. You have time to read the resumes, interview the candidates, and check references. You are not desperate to just get bodies in the office, talking to customers. In addition to the hard skills that you always ask for (ability to bring in lots of new loans or strong processing experience), you can now look at how your newest employees will fit into your organization and how likeable they are.

Don’t hire people who seem desperate to get any job. They will leave you when the good times come. And that will cost you in company morale and training costs. You will uncover some excellent talent in a slow job market so wait until the hidden gems emerge. And snatch them up. They will help you move into the next profitable business cycle.

Wednesday, October 8, 2008

Renewals on the NMLS

You should have received an email from the Nationwide Mortgage License System (NMLS) notifying you that the renewal season is about to start. If you live in a state that has transitioned onto the NMLS, you need to renew your license. For states whose license period was not the calendar year, this may seem strange. When you moved your licensing record onto the NMLS, you were advised that all licenses would, in the future, expire on December 31st. Renewal fees for some states were prorated to accommodate the change in renewal dates.

In order to renew all of the licenses that you have on the NMLS, you need to review your records to make sure that all of the information is accurate. You can start doing that as of October 13th. Even if there are no changes, you must attest that your records are accurate. Regardless of whether there are any changes, each state may require that you send in additional paperwork, such as financial statements, continuation certificates for surety bonds, or proof that continuing education requirements have been met. Those additional documents must be submitted to the licensing agency within 5 days of your renewing your license. To find out what additional documentation is required, you need to check the NMLS website here:

Don’t forget that, in those states that license individual loan officers, each loan officer must update his/her record and renew his/her license. After that is done, the company must finish up the loan officer renewal process. Renewal for the company cannot be completed until after loan officer licensing is finished.

Remember that all license renewals must be reviewed by the state banking departments so get your renewals done by December 1, 2008. If you wait, your license may expire before your renewal license is issued.

Tuesday, September 16, 2008

Update on Virginia laws

As of July 1, 2008, Virginia has required that all employers must obtain a criminal history record from the Virginia Central Criminal Records Exchange for all new employees who have access to personal identifying or financial information from customers. The report must show that the prospective employee has not been convicted of any felony or misdemeanor involving fraud, deceit, or misrepresentation in any state or under federal law. If there is such a conviction, no matter how old, you must get permission from the Bureau of Financial Institutions to hire this person. You must keep the criminal records report in the event of an examination of your books and records by the Bureau of Financial Institutions.

Employers also need to provide initial training and continuing education for all employees who are involved in the origination, marketing, underwriting, closing or quality control of Virginia loans. The initial education must be provided to all who were your employees who fit the definition that I just stated and anyone else who fits that definition who is hired after July 1, 2008. You have until May 1, 2009 to have the initial training completed for employees who were with your company on July 1, 2009. You have 90 days to have the initial training completed for anyone new who is hired after July 1, 2009. The initial training consists of at least 12 hours of federal law including the Truth-in-Lending Act, RESPA, Equal Credit Opportunity Act, and the Fair Credit Reporting Act, 4 hours of Virginia law, including the Virginia Mortgage Lender and Broker Act and 2 hours of mortgage fraud prevention, including the penalties for participating in mortgage fraud. Marketing and sales training courses don’t count.

Additionally, there is continuing education required for these employees on an annual basis after the initial training and consists of at least 4 hours of federal law, 2 hours of Virginia law, and 1 hours of mortgage fraud prevention. All employers must keep documentation showing which employees had initial and then continuing education, which courses they took (you must provide descriptions of each course), how many hours each course was, who the provider was, and when each course was completed.

You should have received a copy of this new law if you are currently licensed in Virginia. If you are like many of my clients, when you receive notice of a new law, you quickly skim the notice and decide you can’t figure out what it says. And then you wonder what you need to do next. You should have retained a lawyer to explain the new laws to you if you cannot understand what the Bureau of Financial Institutions has sent to you. Your inability to understand the new laws, rules, or regulations will not serve to protect you if you violate them.

Wednesday, September 10, 2008

New Law in North Carolina

There is a new law set to go into effect on October 1, 2008. This new law affects all mortgage companies currently licensed in North Carolina as well as those companies thinking of getting licensed in that state.

The most cutting edge provision of the law is the ban on yield spread premiums on loans that are defined in North Carolina as “rate spread” loans. Basically, yield spread premiums on subprime loans are not permitted in North Carolina as a result of this new law. North Carolina is the first state to eliminate yield spread premiums on any type of loans.

In addition, the new law provides that all branch offices must be located in commercial office space. Home offices are now prohibited. I am aware that many loan officers operate out of their own houses, and no one even thinks of this arrangement as a branch office. But in North Carolina, this pattern on cutting down on office space will not be allowed. And remember that North Carolina is a brick-and-mortar state so that if you are an out-of-state mortgage company thinking of getting licensed in North Carolina, your in-state office cannot be a home office.

If you are a loan officer who is now employed by a North Carolina licensee, you are classified as an employee and must receive a W-2 at the end of each year, showing your wages. There are no loan officer independent contractors in North Carolina.

If you want to apply for a license as a loan officer, you must now take 24 hours of approved pre-licensing education and pass an exam. When you have passed the exam, and are submitting your application, your background check must show a FICO score of at least 600. Moreover, your credit report cannot show any outstanding tax liens or judgments in the past 7 years.

The new law also affects minimum net worth requirements. If you are a mortgage broker, you must maintain a minimum net worth of at least $25,000. Your statement of net worth does not need to be from an accountant but must be certified by an authorized officer or member of the company. Additionally, the mortgage broker must provide the Commissioner of Bank’s office with bank statements or other proof that they have liquid funds of at least $10,000. For mortgage bankers, the net worth requirement is a minimum of $100,000 and that amount must be proven by an audited financial statement. In addition, the mortgage banker must show evidence of a line of credit or other available funds of $1,000,000.

Other provisions of the new law:

1. Reporting about closed loans will now be on a quarterly basis.
2. Renewals will be done at the end of the year as all licenses expire on December
3. Requires licensing for servicers as of January 1, 2009, however, you do not need an additional license if you are a mortgage banker who will be servicing (you will need to provide notice to the Commissioner of Banks).

If you need further information about the new law, you should look at the Commissioner of Bank’s website at, place your cursor on Mortgage and then on Legal Compliance References.

Monday, August 18, 2008

Are You Licensed in the Right States?

During the height of the real estate boom, mortgage companies were getting licensed in the states that had the most active selling climate. Assuming you could meet the brick and mortar and other licensing requirements, Nevada and Arizona were on everyone’s “hot” list. So were California and Florida.

Times are different now and the “hot” states are experiencing very high rates of foreclosures. This means a slow sales climate and selling prices that are plummeting. It is much more difficult now to make money in these states.

If you are licensed in a state that is not your home state, you should do some market research for that state. How much business are you doing in this state and how much profit are you making? Are there any very active markets in that state (not every city is experiencing the same level of sales meltdown)? Have sales prices fallen or risen? Do you have contacts in those active markets or can you create referral relationships?

Do the same market research in states that you are not licensed in now but could be if the conditions were favorable for you to make money. First, find the cities and states where sales levels are greater than the national average. Do you have any contacts in these cities? Can you find referral sources through your contacts? Don’t forget to use your business and social contacts to reach out to others who are living and working in other states and can lead you to those referral sources (the six degrees of separation phenomenon). If you join LinkedIn or Facebook or other internet social media, can you locate possible referral sources or borrowers?

You want to be one of the survivors in this very difficult market. This means changing strategies to take advantage of changes in the lending environment. Use the ability to be licensed in more than one state strategically to make more money.

Monday, August 11, 2008

Surety bonds

Mortgage brokers and mortgage lenders are frequently required to submit a surety bond as part of the licensing process. The bond guarantees that the mortgage broker/lender will obey the laws and regulations of the state in which it is licensed. In the event that the state banking department finds a violation of its laws or regulations, it can impose a fine or require the company to issue refunds to its customers. If the company does not make the required payments, the surety bond will be used to make the payments. When the bonding company makes the payment to the banking department, it then requires the mortgage company to reimburse the bonding company for all amounts it paid out under the bond.

Each state has its own language and required amount for its surety bond. Based on the language and amount of the bond, certain bond companies will not write surety bonds in certain states or will make the premiums to buy the bond very high. In the boom years that ended in 2006, it was very easy to get a surety bond. Underwriting was simple and premiums were low. But in the last two years, mortgage companies have gone out of business or filed for bankruptcy, leaving the bond companies to pay the claims that the mortgage companies should have. Since the risk has gone up to the bond underwriters, the costs of getting a surety bond have gone up for mortgage companies. Additionally, as the net worths of mortgage companies have gone down, it becomes harder for them to qualify to obtain or renew their surety bonds. Moreover a surge in litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. Start-up companies are being especially hard-hit by the new underwriting climate. Many of the surety bond companies refuse to underwrite surety bonds to new companies.

If you need a surety bond, you will have to expect to pay more than you have in the past. You can also anticipate that you may not qualify for as many bonds as you did in the past. This is the time to do your cost benefit analysis of each state in which you are licensed. Are the costs of maintaining your license in each state less than the fees you are making in each state? If not, get out of that state (follow each state’s rules for inactivating or surrendering a license) and cancel your registered agent and surety bond. If you intend to stay in the business, keep your financials looking healthy by putting earnings back into the business. Individual loan officers should be cognizant that in some states, their credit report must be submitted. You should also be aware that part of the underwriting process requires personal guarantees from the owners of the mortgage broker and lender companies. Even if the company goes out of business, the surety bond companies reserve the right to go after the owners to pay the claims from the banking departments.

It’s a difficult climate to be in the mortgage business and the state regulation will get tighter. Stay on top of the licensing requirements to ensure that your business stays in business.

Monday, August 4, 2008

New Federal Law Affects Loan Originators

On July 30, 2008, President Bush signed into law the S.A.F.E. Mortgage Licensing Act of 2008. It was part of the Housing and Economic Recovery Act which is designed to help homeowners caught in the foreclosure mess. The S.A.F.E. Mortgage Licensing Act is designed to regulate loan originators and start a nationwide scheme of loan officer licensing.

Some of the provisions of the new law are:

1. All loan officers will be part of the Nationwide Mortgage License System (NMLS);
2. The NMLS will create a unique identifying number for each loan officer that permanently identifies the loan officer;
3. All loan officers will have to be registered or licensed in their states and maintain their registration or license in order to originate mortgages;
4. All independent contractor loan officers must be registered or licensed;
5. In order to get licensed, loan officers must submit to the NMLS fingerprints, a personal history and experience report;
6. The NMLS will run criminal background and credit history checks on each loan officer;
7. In order to get a state license, a loan officer must:
a. never have had a license revoked in any jurisdiction, have had no convictions, pled guilty or no contest to a felony in any court for the past 7 years or at any time in the past if the felony involved fraud, dishonesty, money laundering or breach of trust;
b. show good character an financial responsibility;
c. completed 20 hours of pre-licensing education;
d. passed a written test;
e. met a net worth requirement, paid into a state fund or obtained a surety bond.

8. In order to renew a license, loan officers will need to complete at least 8 hours of continuing education credits.

All states are going to have to create new procedures to comply with the new federal law. Stay tuned for more information as the states roll out their implementation requirements.

Tuesday, July 29, 2008

Indiana Loan Brokers Need to Name a Principal Broker

Over a year ago, the Indiana legislature passed a new law that made several changes to the Indiana Loan Broker Act.

One of the provisions of that law requires a licensed loan broker to name a principal manager for each office in which it conducts brokering activities. The applicants for Principal Manager must submit a completed application, pay a fee of $232.25 (which includes the FBI background check fee), complete 24 hours of approved instruction, pass the originator test, provide proof of 3 years of mortgage industry experience, and must be employed by a licensed loan broker.

The Indiana Secretary of State has advised all loan brokers that if they do not comply with the new law by August 5, 2008, their license could be revoked. Licensees that offer Veterans Administration or Federal Housing Administration loans have until December 5, 2008 to comply.

If you are required to comply with the new law and haven’t done so, you could find that you cannot conduct business as a loan broker after August 5, 2008.

Tuesday, July 22, 2008

Paying Your Loan Officers a Commission

Do you pay any of your loan officers a commission when a loan is closed? Are you aware that state law may control the details of when a commission must be paid, whether you can deduct any costs or expenses from the commission, or what commissions, if any, are due to a loan officer who leaves your employ before the loan closes? In some states, you must pay their commissions no later than the last day of the month following the month in which these commissions are earned. In other states, such as California, commissions must be paid on the next regular payday after they have been earned and are "reasonably calculable." An employer has the flexibility to deem commissions earned either when the sale is made or when the customer pays for the service.

Some states, such as New York, generally prohibit an employer from deducting any sum from an employee's commissions and other wages, except for deductions for the benefit of the employee (e.g., pension, health benefits). Examples of prohibited deductions are deductions for spoilage or breakage, cash shortages or losses, and fines or penalties for lateness, misconduct, or quitting by an employee without notice. The reasoning is that the employer should bear the risk of such losses rather than the employee. This means that you may not deduct anything from a loan officer's commission if there is any reason that the full fee on a particular loan cannot be collected.

The largest source of conflict regarding the payment of commissions occur when a loan officer leaves before a loan closes. Certain states require you to pay the wages, including earned commissions, no later than the regular payday for the pay period during which the termination (voluntary or involuntary) occurred. In other states, employees who are discharged, or who resign with 72 hours' notice, are entitled to all wages due at the time of termination. If the resigning employee fails to provide notice, the employer has 72 hours after the resignation to make payment. In those states, an employer may not wait until the customary time for calculating the commissions of current employees, nor delay payment of earned commissions until the next regularly scheduled pay date.

You must have a policy as to when commissions are earned if the loan officer leaves your employ before the loan closes. The policy should be in writing and each new loan officer should be made aware of it. Remember, once a commission is earned, it cannot be forfeited, even if the loan officer was terminated for cause or left you with no notice.

If your policy is badly drafted, you will ultimately find yourself dealing with the Labor Department in your state. You will be answering the complaint of an unhappy ex-employee. In addition to awarding the commission that you disputed, the Labor Department can also assess penalties for your "willful misconduct." It can get very expensive if a complaint is filed against you. Subsequent complaints will be even more expensive.

You need to know what your state's law requires you to do when you create a compensation policy for your employees. You should have the assistance of a lawyer who is well-versed in employment law if you insist in drafting your own agreements. Make sure that you specify when and how a commission is earned and when that commission will be paid. Your agreement should also state when and how any draws against commissions earned will be reconciled, as well as how and when all commissions will be paid if the employee leaves. If you are doing business in more than one state, your agreements might differ in each state, depending upon the law in each state. One form of agreement may not be sufficient.

Tuesday, July 15, 2008

New Licensing Law in Pennsylvania

A new law was just signed into existence which will completely replace the existing licensing scheme. The new law will take effect on November 4, 2008.

Under the new law, there will not be separate licenses for first and second mortgages. Additionally, all mortgage loan solicitors will be required to get a license. The requirements for loan officers will include 12 hours of pre-exam education, an exam, a criminal background check and continuing education. One officer from each licensee will need to take the pre-licensing education and pass the exam. Lastly, Pennsylvania will join the list of states whose licensing records will be part of the Nationwide Mortgage License System (NMLS). The transition to the NMLS will start on November 1, 2008.

The Pennsylvania Department of Banking will be issuing more information about the specifics of complying with the new law. As the information becomes available, I will write more blog entries on the new law.

Tuesday, July 8, 2008

Licensing of Branch Offices

All states require licensing of branch offices. But, again, each state has its own procedures for licensing branch offices. You should look on the website of each state in which you need to obtain a license to see what the requirements are for that state. For example, Nevada does not permit a branch office until after the main office has been examined by the Mortgage Lending Division and received a satisfactory rating in the preceding 12 months.

Many states have adopted the Uniform Application. In those jurisdictions, you will be filling out the Form MU3 as a starter. But each state can customize the additional information and documentation that it requires for a license approval. Some states require branch manager fingerprints, other states require that the branch manager have a certain number of years of mortgage industry experience, other states permit the branch to use a different assumed business name from the principal office, others require that all offices use the same business name.

Some of the states that have adopted the Uniform Application have moved to the Nationwide Mortgage License System (NMLS), the computerized national licensing database. If the state from which you want a license is on the NMLS, you must use the NMLS to get your branch licenses.

If the state has not adopted the Uniform Application, you must obtain its branch office license application from its website and review its requirements before submitting the application.

Usually, a branch office license application has fewer requirements than the initial license application. The license fee is lower, the minimum net worth does not change, or credit reports are not required. But some states, such as Maryland and Connecticut, do not have a separate branch office license application or different requirements. Each branch office is licensed with the same requirements and documentation as the initial office. In some cases, this makes it difficult to license additional offices if the company cannot find branch managers with the requisite number of years of industry experience or cannot obtain additional surety bonds.

You are not permitted to begin operations in the branch office until it has been licensed. The regulatory agencies treat this as unlicensed activity, the same as if you had never licensed the main office and you will be subjected to disciplinary action if caught. In many states, it is expressly prohibited to license a net branch. What is a net branch? It is a branch where a different company will be paying the employees of that location, where someone other than the main licensee is paying the expenses of the branch office, where the branch manager is totally responsible for hiring and firing employees in that office, or where someone other than the licensee has signed the lease, contracted with the utilities or the vendors that supply services or goods to the office.

In states where the branch office applications are not as extensive as the original application, the review time is also streamlined. In some states, it can take as little as 2-3 weeks for an approval.

Monday, June 30, 2008

New Net Worth Requirements in Maryland

Effective June 1, 2008, Maryland licensed lenders (and that includes brokers) must meet new net worth requirements in order to get approved and renew their license. Remember, net worth equals assets minus liabilities. If you are a broker or table –funding a loan (but your name is not on the mortgage), the minimum net worth that is required is $25,000. For lenders, the minimum net worth is a sliding scale, based on the amount of lending you did in the previous 12 months. If your loans totaled $1,000,000, your minimum net worth must be at least $25,000. If you lent between $1,000,000 and $5,000,000, your minimum net worth must be at least $50,000. And, if you lent more than $5,000,000, you need a minimum net worth of $100,000. As of January 1, 2009, if you are a lender with mortgages of more than $10,000,000, your minimum net worth requirement increases to $250,000.00.

You can satisfy the requirement with cash, a line of credit (brokers cannot use a line of credit), or other assets. A line of credit cannot be used for more than 75% of the net worth. You can show proof of your net worth by submitting a certified financial statement, certified by a principal of the licensee and compiled, reviewed, or audited by a certified public accountant. If cash is used as the sole qualifying asset, you can submit a letter from your bank. If a line of credit is used, you must submit a copy of the line of credit agreement.

Tuesday, June 24, 2008

Alaska Joins the Licensing Club

The Alaska Mortgage Lending Regulation Act (AMLRA), AS 06.60, requires mortgage lenders, mortgage brokers, and originators operating in Alaska to become licensed, starting July 1, 2008. This new law does not permit anyone to be grandfathered so everyone who is doing mortgage lending or brokering in Alaska needs to get a license.

If you are already doing business as a lender or broker in Alaska (as evidenced by your current business license), you have until March 1, 2009 to get your license. But, if you want to start doing business in Alaska after June 30, 2008, you must be licensed.

The new law does not require a brick-and-mortar presence in Alaska so you can do all of your solicitation of business through the internet, mail, or telephone. Companies get a company license and loan officers each get their own licenses. Loan officers must undergo a background check, pass a test, and will be required to get 24 hours of continuing education every 2 years. A company owner who also originates loans must be licensed as an originator as well as getting the company license. The license fee for originators is $150.

The company must submit the license application, a $25,000 surety bond, and a $250 investigation fee and $500 license fee. All control persons of the mortgage company will have to undergo fingerprinting.

Applications are already available at the Alaska Banking Department website.

Tuesday, June 17, 2008

Loan Officer Licensing

The mortgage meltdown has led to a re-examination of whether a loan officer has a duty to protect customers from “risky” mortgages. Many in the regulatory agencies believe that licensing all loan officers would help avoid a re-occurrence of the recent subprime mess. To that end, there is a pronounced trend toward requiring loan officers working for non-depository lenders and brokers to be licensed.

Licensing typically requires some education, maybe passing a test and undergoing a criminal background search to ensure that the applicant has not been arrested or convicted of any crime. There may also be continuing education requirements. It’s not terribly rigorous. And there is no way to regulate integrity. There are plenty of rogue loan officers out there who jump from company to company, state to state.

Right now, the states that require licensing or registration of loan officers are: Arkansas, California (if licensed through the Department of Real Estate), Colorado, Connecticut, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, and Wisconsin. If you are an Alaskan loan officer, your licensing requirement starts July 1, 2008.

You are in violation of your state’s licensing law if you have licensed or registered one loan officer and funnel all applications through that one person. You are in violation if an unlicensed or unregistered loan officer is originating mortgages with consumers. You are in violation if you are co-brokering with another broker that is not licensed. Violations can be expensive if you are caught. Think thousands of dollars in penalties and fines.

Obviously, my recommendation is to register or license every loan officer in all of your offices for every state in which they will solicit business. If you have a branch that is located in New York and they do business in New York only, you’re fine. Once that branch starts talking to consumers in New Jersey or Connecticut, you need to get them registered in those other states.

Monday, June 9, 2008

New Oregon Annual Report Rule

Oregon has just sent out notice of its new requirement regarding annual reports. The rule is OAR 441-865-0022 and can be read in its entirety on the internet at
The rule details what information will be required to be on the annual report. In addition to the standard totals for number and dollar amount for 1st mortgages, there are questions about loans insured or guaranteed by a federal agency, totals for negative amortization mortgages, and loans with a loan-to-value ratio of less than 80% but to a borrower with a FICO score of 620 and above. In all, there are 17 sections with some sections having more than 1 question.

The annual report is due on or before August 30, 2008 for loans made in 2007. There are no forms available yet. However, I would suggest that all mortgage bankers and brokers who are licensed in Oregon read the rule and start gathering the necessary information.

Tuesday, June 3, 2008

NMLS Participating States

This is just an update of which states are now using the Nationwide Mortgage Licensing System (NMLS), the national database of mortgage lenders, brokers and loan originators.

Currently using the system are Idaho, Iowa, Kentucky, Massachusetts, Mississippi, Nebraska, New Hampshire, New York, North Carolina, Rhode Island, Vermont, and Washington. Some of these states are fully using the NMLS for all licensee information and others are just transitioning to the NMLS, with a date in the future, up to September 1, 2008, to be fully transitioned. If you are licensed in one of the states listed here, you should have been notified by your regulatory agency that you need to input all company and loan originator information into the NMLS database during the transition period. If you have not received such a notice, I suggest that you check with your banking department to get the latest information to keep you in compliance.

Forty-two states have signed up for the NMLS so expect that you will be on the system within the next couple of years.

Tuesday, May 27, 2008

New York Licensing Timeframe

I just received the news that a client’s application for a New York mortgage broker license was just approved (if he submits his surety bond). I originally submitted his application over a year ago. Although there were delays by him in responding to requests for additional information that increased the timeline for an approval, I have other clients whose applications are also pending for over 10 months.
I am trying to make 2 points: it doesn’t help you to dawdle about submitting the information that a licensing reviewer has requested and New York takes many months to approve an application.

If your goal is to get a new license because you need the new business, you must make the time to respond to a reviewer’s questions about anything you have submitted or to get new documentation that has been asked for. If you show the reviewer that you do not care about the application (and to a reviewer, there is no other explanation for why you are not jumping when they contact you), they will put your file aside and get to it when they aren’t busy (which is almost never).

Yes, I know that it is very frustrating to hear that a license application will take many months to get approved. Some unscrupulous companies, in order to get your business, may tell you they can get it for you in a matter of weeks or that they know someone who will fast-track your application. When asked questions about approval timelines, I try to be as honest as I can within the framework of my experience. Even though I know many of the reviewers in the state banking departments, I can’t get a “rush” on every application that I send in. I use my relationship with the reviewers to help move applications through the process but I don’t beg a favor with every application. After awhile, the reviewers will stop responding. If you are checking around to find someone to handle your license applications, ask each of them about approval timeframes. If someone tells you something radically different from the others, find out why. It may be an unusual situation, or more likely, someone is telling you what they think you want to hear. Be realistic about the time it takes to get a license and start now.

Monday, May 19, 2008

Lowering Your Chances of Getting Sued

From time to time, clients ask me if they can get sued for this or that. My response is always “yes.” In America, we have a very open system that allows anyone to start a lawsuit. The lawsuit may have no merit and may be quickly dismissed, but in the meantime, you will be spending time and money to get the dismissal.

Are there ways to minimize the likelihood that you will be sued? Yes, there are.
You can be sued by your employees, you can be sued by your customers, and you can be sued by your investors who purchased the loans you underwrote that are now in foreclosure.

You should start by getting all agreements in writing. Nothing will protect you if the arrangement is verbal. Your word against someone else’s word means the lawsuit will be drawn out and expensive. Have your lawyer review the proposed contract before it is signed. The money you spend now to have that review will seem cheap if you are sued and have to pay litigation costs. But also recognize that even having an agreement in writing cannot stop a lawsuit from being started.

Supervise your managers closely. You should have a good idea of what is happening to your employees in terms of how they treat other employees (sexual harassment or discrimination suits) and how they treat your customers. Make sure that employees that are not following your company’s procedures are made aware that they are not following your company’s procedures. Document in writing all employee issues and how you resolve those issues. Consult with an employment law attorney so that you know how to handle these problems in accordance with all relevant laws.

Do not ignore customer complaints or let your managers do so. Customer complaints will result in lawsuits and complaints with the banking department. It may be cheaper to settle a complaint monetarily than to ignore the complaint. Customers hate being ignored or having their concerns ridiculed. If they feel as if they were not heard or were disrespected, then they get angry, and it starts a cycle of animosity that results in the lawsuit (and a difficult case to settle since they want "justice"). And the breakdown in communication may not even be intentional. It can as simple as one side being out of town (unbeknownst to the other side) and not returning a phone call. If you express your willingness to satisfy your customer, this may prevent a costly lawsuit or complaint. If you solve the problem even better than the customer expected, you can turn that angry customer into one who will rave about your customer service and send all of her family and friends to you with their business. Sometimes (actually, many times), it’s not the principle that counts. Many times, you will spend so much time and money on defending the principle that you will damage your company so severely that it may never recover.

Talk to your insurance company about managing risk before you have an inkling about a lawsuit (and you should have liability, professional practices, and errors and omissions insurance). They may suggest various procedures to put in place and strategies to use that help you lower your risk of being sued. Having those procedures in place may also lower your insurance premiums.

The subprime mess and current wave of foreclosures is also leading to lawsuits by borrowers claiming that they were misled about mortgage terms. Cities are suing lenders claiming that their lending policies have led to the cities’ losing tax revenue due to homeowners in foreclosed houses not paying their real estate taxes and trying to recoup their costs of maintaining vacant houses. In turn, the lenders are suing the mortgage brokers alleging that the mortgage brokers supplied fraudulent asset and income information about their borrowers. Homeowners are suing lenders, mortgage brokers, real estate agents, appraisers, and everyone else involved in a mortgage transaction. Some of these lawsuits are the typical “sue everyone in sight” nature of our current litigation practice and difficult to prevent. However, you must know that your loan officers are not engaging in any actions that leave you vulnerable to losing such a lawsuit. Although the focus of a loan officer may be his commission, you must ensure that you have procedures in place to ensure that neither your customers nor your loan officers are engaging in mortgage fraud.

We live in a litigious society and lawsuits are part of the cost of doing business. But there are many steps you can take to make lawsuits a smaller cost than it is now.

Wednesday, May 14, 2008

New Requirements in Maryland

Maryland has new laws taking effect on June 1, 2008 that affect licensed lenders (which also includes mortgage brokers). The new requirements concern surety bonds and minimum net worths for licensees.

Maryland has always had a system of requiring surety bonds based on the volume of business in the previous 12 months. Effective June 1, 2008, if your company has done no business anywhere in the prior 12 months (you are a start-up) or up to $3,000,000 in closed mortgage loans, you will need a $50,000 bond. If you closed more than $3,000,000 but less than $10,000,000 in mortgage loans, you need a $100,000 bond. If your closed volume is more than $10,000,000 in the previous 12 months, you need a $150,000 bond. If your company has multiple offices, the largest surety bond you will need for all of the offices combined is $750,000.

Additionally, mortgage lender licensees will need a net worth of $25,000 if your company had no activity or up to $1,000,000 in loans closed in the previous 12 months. If you closed more than $1,000,000 and less than $5,000,000, you need at least $50,000 in net worth. If your dollar volume of loans closed was more than $5,000,000 you need a net worth of at least $100,000. Starting January 1, 2009, if you closed more than $10,000,000 in mortgage loans in the previous 12 months, you will be required to maintain a minimum net worth of $250,000.

Proof of compliance with the new net worth and surety bond obligations will be required when you renew your license or if you are being examined.

Tuesday, May 6, 2008

Inactive status

Maybe I never noticed during the busy years of the real estate bubble, but I am aware now that some states let you put your license in an “inactive” status. What does this mean and why would you want to do this?

Inactive status means that you have notified the state banking department that you are not actively conducting business in their state but you do not wish to relinquish your license. For those states that have an inactive status for licensees, notification may mean sending a letter or completing and submitting a specific form. Arizona, Florida, Montana, New Jersey, New York, Oklahoma, Texas, and Washington are some of the states that have a formal inactive status.

However, other states do not have such a category and if you do not wish to maintain the license and all of its requirements, you must surrender the license.

For states that allow you to go inactive, it is an excellent way to temporarily suspend your expenses in that state and wait until the market comes back. It permits you to postpone making a decision about your current business plan until the subprime mess shakes itself out and you can jump back into the newest trends. You will not need to go through the time and expense of getting a license when you wish to go back into that state. You only have to re-file for active license status.

What if your state does not have a category called inactive licensee? Then you must make a cost-benefit analysis of keeping your license. Is the reason that you obtained the license still valid but market conditions are not permitting you to earn enough in fees to justify the expense of surety bonds, accountants’ fees, renewal fees, and registered agent fees? Then, bolster your marketing dollars so that the license does become profitable. If you feel that you misjudged the market in a particular state, then surrender the license and cut your losses. Not every business proposition is a winner. Know when to hold ‘em and know when to fold ‘em.

Thursday, May 1, 2008

Washington State Consumer Loan Company License

Washington State has a new law requiring lenders to be licensed under the Consumer Loan Company Law. The law becomes effective on June 12, 2008. The license permits, lending, funding, brokering, or loan origination services to Washington consumers or others with Washington real property. The applicant needs to provide a financial statement, a surety bond of $100,000.00 per office location (up to a total of $500,000.00) and principals of the company must submit to criminal and credit background checks.

As of May 1, 2008, all lenders must apply for the license through the Nationwide Mortgage License System. Washington State will not be accepting paper applications anymore.

Monday, April 14, 2008

Florida Has Gone Paperless

If you have a current Florida mortgage lender, correspondent lender, mortgage broker business, or mortgage broker license, you should have received a letter from the Florida Office of Financial Regulation letting you know that you must start using their new online system called REAL. The letter gave you an authorization code to create an account for you to input your license information. If you did not receive your authorization code letter, you must call the Office of Financial Regulation.

From now on, all license applications, scheduling of the broker or principal representative exam, license renewals, filing of quarterly reports and all other functions associated with your license must be done through their online system.

The new system removes all paper filings, including a paper license. If an investor requires proof that you have a valid Florida license, you will have to print out your information from the database.

Monday, April 7, 2008

Notification of Changes

I hope you are aware that when you change addresses or get a new qualifying person (one whose experience and maybe residency permits the company to get and maintain a license), add or close a branch, or change contact persons for licensing, audits, complaints, etc., you are supposed to notify the banking department. Each state has its own requirements of how much advance notice it requires, but generally the timeframe is thirty days prior written notice. You may be required to send a letter on company letterhead or complete a form that is on the banking department website. Check your state’s regulations so that you are in compliance.

The most radical change is change of control. Most states treat this situation as a new license application, when you notify them. There is usually an extensive form to complete and all new owners, officers, and directors must complete personal biographies, financial statements, and undergo fingerprinting, if it was required with the initial application for the company license. The new owners are not permitted to solicit new business until they receive approval from the banking department of the change in control. The new company owners can only finish out the existing pipeline. Because there is extensive background checking by the regulatory agency, the timeframe for approval is similar to that of a new license application. And approval is not just a rubber stamp. If the new owners would not have been licensed on their own, they will not be approved by the banking department just because they are part of a going concern.

Tuesday, April 1, 2008

Waiting until the last minute

I have just spent the last 2 days at my computer trying to get a client’s license renewal application through the state's online system. The amount of time I have wasted is staggering.

Most states have now moved their annual reports and license renewals to online systems. I’m sure it is much more convenient for the banking departments but for the person who must input the information, it is very time-consuming. Most of those states have stopped using paper forms so you don't even have a choice.

The person who designed the system has, in many cases, made it impossible to see all of the information that is being requested if all of the information on the current screen is not inputted. The system just does not let that page get submitted if you leave any blanks. So, unless you are doing the input for your own company, your assistant, compliance department, or lawyer must go screen by screen to learn what information will be needed and must input every field, leaving no blanks, or you can’t get any further. This means that, if another person than you is doing the input, they are requesting information in bits and pieces. I’m sure you love getting interrupted 10 times a day to answer questions regarding the same subject.

Worst of all is if you wait until the last minute to submit an annual report or file a license renewal. Today is the last day for the Georgia license renewal. Every screen that I tried to input showed an internal error with the server. All day yesterday, until 10:00 p.m., I tried to just start the procedure and was unable to do so. The system was overwhelmed with last-minute filers. My client had not notified me until yesterday that he intended to renew the license so I was not going to start the procedure if the client had no intention of renewing. I did start reminding him a month ago about this deadline. And, of course, I did not have all the information I needed to renew the license all at once. After taking a half-hour to get through the first set of questions, I needed to get more information and the people I needed to get me the information were unavailable. I'm sure this happens in your company as well.

So, my advice to all is not to wait until the last minute to file anything online. The systems inevitably crash from the overload and it will take you 10 times as long as it should to get the project done.

Tuesday, March 25, 2008


Mortgage companies use many different marketing methods to drum up new business. Advertising and direct mail are two common methods. Depending upon where you are licensed, your state may dictate what you can and cannot say in your direct mail piece or in your commercial. Failing to include the required language or using language that has been banned can lead to fines, penalties or licensing problems.

Some states require identification language in every marketing piece such as Alabama’s and Illinois’ requirement that you state your company name (including assumed business names), your license number and whether you are a lender or broker. Other states demand that you include your office address, as well.

Some states require additional language that mortgage brokers must use to indicate that they are brokers and not bankers. In addition, Massachusetts prohibits brokers from stating that they will fund a mortgage loan.

Finally, certain types of language is prohibited. Terms such as “immediate closing” or “immediate approval” are suspect and “bad credit no problem” usually requires extensive disclaimers as to what limitations are placed on borrowers with credit issues.

Finally, there is the common prohibition against “false, misleading or deceptive statements.” What does that mean? If there is any question in your mind as to whether your advertising is misleading or deceptive, then you have a problem with the banking department. Any question will be resolved against you.

You must be in compliance with every state in which you are licensed. If you have ever seen a commercial for Ditech or Lending Tree, you see a full screen of advertising disclosures.

Monday, March 17, 2008

Mortgage lender, correspondent lender, or broker

Some states have different licenses for mortgage lender (or banker), correspondent mortgage lender and mortgage broker. Other states simply require you to check off the appropriate box on their application, although the Uniform Mortgage Lender/Mortgage Broker Form (MU1) does not have a check-off box for correspondent lender.

How do you decide which kind of license you want? In many cases, mortgage brokers have no intention of being lenders. This may be because they cannot qualify or it may be because they do not want the problems that being a lender can create. This makes the decision quite easy.

On the other hand, mortgage lenders will usually apply for a new lender license if they can meet the qualifications of that new state. Sometimes, they don’t have enough net worth or years of experience in the industry. This will typically lead to a lender starting as a broker and eventually switching over to a lender license.

Correspondent lender is a category that does not exist in every state. It is usually an intermediate category between broker and lender. A correspondent lender does not use its own funds to close, may or may not have its name on the loan but does not service the loan. Typically, the requirements to become a correspondent lender are more onerous than those to become a broker. Correspondent lenders do make more money than brokers on each transaction.

In some states, a lender and correspondent lender can also broker loans. In other states, you need to have applied for a lender or correspondent lender and broker license.

If you are a mortgage broker looking to get licensed in a state that has a correspondent lender license, check to see whether you can qualify for that license. It might be a more lucrative proposition than being a mortgage broker.

Tuesday, March 11, 2008

Audited financial statements

An audited financial statement is one that is prepared by a certified public accountant and certified by that accountant that it has been prepared in accordance with generally accepted accounting principles.

It is typically needed when a state or the FHA requires a minimum net worth in order to get and keep a license. Accountants who are willing to prepare audited financials are getting scarce and they are not cheap. I've heard of start-up companies being charged $5,000 and existing companies being charged twice that amount.

Why so expensive? Accountants can be sued when the company for whom they prepared audited financials lose a lot of money or go out of business, leaving unhappy investors and creditors. To compensate accountants for the risk of a lawsuit, many charge very high fees. Some accountants feel they don't want the risk and will not prepare audited financial statements at all.

I have been asked what to do if a mortgage company cannot find an accountant who will prepare an audited financial statement. My recommendation is to ask your family and friends, every accountant that you know, and every accountant all of those accountants know. Your accountant does not have to be local. One client of mine has his accountant in New Jersey, even though he is located in Maryland. Another client is located in Colorado, his accountant is in Florida. So, if your brother, best friend, or wife's cousin has a great accountant in another state, find out if that accountant does audited financials or knows of an accountant that does. In addition to finding an accountant that you can work with, you might find that he/she charges less than your local accountant does. Go with someone who is recommended and who you feel comfortable with. You will be working with that someone for many years.

Monday, March 3, 2008

Do You Need to be Licensed?

I have been getting a number of telephone calls lately with the question essentially being do I need to get a license? Some of these calls are from companies that do mortgage servicing, some do commercial mortgages and some do a variation of what can be called “lead generation.”

The short answer to every question of whether someone needs a license in a particular state is “what does the statute say?” Every state has a law that creates the requirement that some persons doing certain activities must be licensed. Part of every licensing statute is the definitions section. The definitions section will describe what activities constitute “mortgage lending,” or “mortgage brokering” or “mortgage servicing.” If the activities that your company does fall within the description provided in the statute, you need a license. Sometimes, it’s not so clear whether your activity falls within the definition. If you are not sure whether your activity requires a license, my recommendation is to get the license anyway. It’s more costly to be wrong about your guessing about the need for a license. Yes, you may go about your business for several years without the license with no troubles, but the first complaint that alerts the banking department to your existence may find that you did need a license and your ignorance of that fact is no defense. Unlicensed activity invokes a heavy fine and you will be stopped from continuing your lucrative business.

The other short answer is that most states do not regulate commercial brokering and it varies by state whether mortgage servicers need to be licensed. Again, go back to the licensing statute to be sure.

Monday, February 25, 2008

Working with the Nationwide Mortgage Liensing System

I represent a number of clients on an ongoing basis, keeping them in compliance with the states in which they are licensed. Because the Nationwide Mortgage Licensing System (NMLS) has been up since January 2, 2008, I’ve been on the system quite a bit.

My experience is that it is somewhat time-consuming to work with the NMLS. I actually have that same opinion about all computer-based systems (i.e. annual reports and renewals that must be done online). If the entry isn’t done in the exact format that they require, the computer kicks it back. If I don’t have the answer to a question for a client, I need to go back to the client and get the answer; otherwise the system will not let me get further through the questions. This is true even with questions that seem to be irrelevant as to whether a mortgage originator or owner is honest and experienced in the industry. Questions about 10 years of residential history, providing month and year for each residence, do not make sense to me. Ten years of employment history, even if it is not mortgage related, seems excessive. When you have a paper-based system, the reviewer seems to have the leeway to allow a small piece of information to be omitted. And the format of the response does not stop you from moving from question to question.

I have not yet had the pleasure of adding a new state to be licensed for a client already in the system. I hope that it will just require a few minutes of input for the new state (each state still has its own requirements for what it requires for licensure) and the application will be submitted. I still need to know each state’s requirements, but the added work of re-typing each state’s application form will eventually disappear. That will make the NMLS a pleasure.

Tuesday, February 19, 2008

Massachusetts Will Require Loan Originator Licensing

We’re adding yet another state to the list of states that require loan originator licensing. Massachusetts has just started to implement a new law that was passed in November, 2007 and becomes fully effective July 1, 2008.

By July 1, 2008, all Massachusetts-licensed mortgage lenders and brokers may not employ or retain loan officers who are not licensed. Starting February 19, 2008 and ending on May 27, 2008, all loan officers who were employed by a licensed mortgage lender or broker on November 29, 2007 must register as a loan officer through the Nationwide Mortgage Licensing System (NMLS). Each mortgage lender or broker must have already created their company’s record with the NMLS by this date. If the loan officer was hire after November 29, 2007, he/she will have to go through a different licensing procedure, which has not yet been disseminated to the public yet.

Monday, February 11, 2008

Training Your Loan Officers

A couple of months ago, I blogged about the best practices for hiring new loan officers. Now, it’s time to review the procedures to use to ensure that your loan officers stay compliant with all laws.

If your company is large enough, it should have a manual of company policies and procedures (prepared or reviewed by a lawyer who is very familiar with employment law). When a new loan officer starts his/her job with your company, the new loan officer should be given a copy of the company manual, should read the manual and should be required to sign an acknowledgement that the manual was read. If you don’t have a company manual, you need to meet with each new loan officer and explain what the company’s policies are regarding vacation and sick days, dress codes, email and use of the company computers, confidentiality of company information and client privacy information, all statutes and regulations that apply to your company and its business, etc.

Each job should have a job description so that everyone knows what he/her responsibilities are. Review each job description and make sure that all employees are complying with their job duties.

If your loan officers do not have experience in originating or processing loans of any state in which you are licensed, you must give some training to new loan officers in compliance with state laws and regulations. You can hire a trainer to give this training. If you are outsourcing this function, make sure that your trainer is entirely familiar with the subject matter in which he/she is giving training. You should monitor training sessions so that you know what is being taught to your employees. If anything is said that seems to contradict what you know about your state’s requirements, check with the state banking department to clear up all discrepancies. If there is a contradiction between the trainer and the banking department answers, go with the banking department answers.

Each employee should have training on how to deal with customers and potential borrowers. Loan officers should know what they can and cannot say to customers. You may want to hire a professional to teach sales development techniques and marketing skills. All loan officers should be familiar with investor requirements and the different loan programs that you offer to customers. They should be able to explain each program in detail so that it is easily understandable to borrowers.

Training should be ongoing and refresher courses should be given at least annually. Loan officers who need continuing education to maintain their licenses must keep a schedule of when they completed their required hours and employers should require that they receive a copy of that schedule.

Finally, model the type of behavior and standards that you want others to follow. Loan officers that do not follow state and federal law as well as your company’s procedures will get you into trouble. The loan officer may be long gone by the time the problem comes to light. But you will be left with the consequences.

Friday, February 1, 2008

Banking Department Frequently Asked Questions

Many state banking departments include Frequently Asked Questions (FAQs) on their websites that give answers to questions you had and to some you didn’t have but should have had. It can give you insight on how to approach an issue when dealing with a state regulator or learn that you don’t need a license to make or broker that one loan (only permitted in a few states).

For example, the North Carolina Commissioner of Banks website includes Frequently Asked Questions about examinations. Although some of the information is specific to North Carolina laws and regulations, I find that the majority of information can be applied to most states. One question that I found interesting was about whether referral fees were permissible.

Although I am aware that many mortgage brokers and lenders pay “referral” fees, they should all be aware that it is a RESPA violation. In many states, it is also done to do an end-run around state licensing laws. After all, if you don’t call it a “commission” or “bonus” when the loan closes, how can anyone say you are paying an unlicensed loan officer in violation of the state’s licensing statute? Every state comes down hard on paying fees to unlicensed mortgage originators, no matter what you call the originator (e.g., a net branch) or what you call the fee. Expect to pay a heavy fine or have your company placed on probation if you are caught.

The Washington D.C. Department of Insurance, Securities and Banking’s FAQs lets you know that the exemption for making 3 or fewer loans per year is now gone. You need a license to make or broker even 1 loan. On the other hand, Massachusetts’ Division of Banks FAQs lets you know that 5 or fewer loans per every 12 consecutive months exempts you from their licensing requirements.

Most FAQs deal with licensing qualifications and are helpful to know when diciding whether you should even submit a license application (minimum net worths, minimum number of years of origination experience, etc.). I suggest you look over the FAQs on the banking department websites of every state in which you are licensed and any state in which you are interested in becoming licensed to learn as much about what you need to know as possible.

Thursday, January 24, 2008

Colorado clarifies who needs to be licensed as a mortgage broker

Colorado has found it necessary to clarify whom it is requiring to license as a mortgage broker. Although the definition of a mortgage broker seems clear, the Department of Real Estate just issued new regulations specifying who the licensing statute and regulation covers. And one category that does not seem to fit the definition now requires licensing.

All loan officers who “broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker” must be licensed. I think most of the industry already knew that. What seems to be new and different is that supervisors who directly supervise loan officers must also be licensed. The Department of Real Estate also explained that administrative and clerical personnel do not need a mortgage broker license. If your processors only collect and distribute information about applicants, they do not require licensing. If they talk to borrowers about loan terms and rate or offer any kind of advice about loan terms and rates, then they cross the line and fall within the definition of mortgage broker.

When in doubt, either get the license for your employees or make sure their actions and speech do not extend to advice of any kind.

Wednesday, January 16, 2008

Post-Licensing Requirements

Although the licensing process is the one that all mortgage companies focus on in terms of compliance with state banking regulations, in many states, there are ongoing requirements to remain in compliance with state law and regulation.

Most states require the filing of an annual report each year. The report can be a simple one, asking only a few questions about number and total dollar volume of loans brokered, originated or serviced. Or it can be pages and pages of questions regarding information regarding the company’s financial situation, appraisers and title insurance companies used, and the license numbers of lenders who closed the brokered loans. Delaware requires a report twice a year. Massachusetts and New York require their licensed lenders to file quarterly reports. Failure to file the necessary reports can lead to fines and a refusal to renew a license.

Georgia raises money for its banking department budget by charging $6.50 for each loan closed. Typically, the lender pays the fee but both lenders and brokers are required to file the report stating how many loans were closed.

Those states that require a minimum net worth usually require that the licensees submit audited financial statements every year. Sometimes, it is part of the annual report process, in other states, the financials get submitted separately from the annual report.

Florida requires quarterly reporting of new loan officer hiring and firing. Many other states require annual updates of who your company’s loan officers are. This may be separate from the renewal of mortgage originator licenses.

And always keep in mind those continuing education requirements. Each state has a different number of required continuing education hours and a different timeframe within which they must be completed. If you are licensed in multiple states, you need to take the required number in each state and there is no overlap.

As you can see, getting your license is just the beginning of the work it takes to stay in compliance to keep the license.

Friday, January 11, 2008

New York Now Requires Mortgage Loan Originator Registration

New York now requires all loan officers, which they call mortgage loan originators (MLOs), to be registered. This state is one of the first to become part of the Nationwide Mortgage Licensing System (NMLS). In addition to the detailed online application through the NMLS, loan officers are required to submit supplementary documents directly to the New York Banking Department, including fingerprints, credit history, and documentation related to financial and criminal disclosures. Loan officers who work for banks, thrifts and credit unions do not have to register. Loan processors would need to register if they discuss loan products or terms with customers.

Sole proprietors and company officers, directors, members and shareholders who also engage in soliciting customers for New York loans must register as MLOs.

Each loan officer will need to set up his/her own account on the NMLS, creating a personal user name and password. He/she will need to complete the MU4 form and pay a registration fee.

Each loan officer will be required to get his/her fingerprints taken, getting the fingerprint cards either through the Banking Department or through the employer. Even company officers, directors, members and shareholders who were previously fingerprinted for the company license must be fingerprinted again if they are required to register as an MLO.

Additionally, a recent (within 30 days of registration on the NMLS) credit report for each registered MLO must be submitted with the fingerprint cards. If the MLO answered “yes” to any of the questions regarding criminal charges and convictions, bankruptcy filings, civil litigation, regulatory problems with any state or federal agency, and whether he/she was ever fired from a previous job, back-up documentation must be submitted along with the fingerprint cards and credit report. All MLO applications must be approved by the Banking Department or that loan officer cannot solicit any business in New York.

The registrations are good only for one calendar year and expire on December 31st. MLOs can work for only one company. If the MLO switches companies, the Banking Department must be notified of the change.

If your company was licensed in New York before January 1, 2008, your existing MLOs must submit applications through the NMLS for registration before July 1, 2008. If your company is licensed after January 1, 2008, the MLOs should immediately submit their applications as they have only until April 1, 2008 to receive notification from the Banking Department that their application has been received to be allowed to solicit New York business.

Wednesday, January 2, 2008

New Year's Resolutions

The New Year is always a time for reflecting about the past and looking to make changes in the future concerning problems that came up in the last year. Although many people make personal New Year’s resolutions, it’s also a good idea to make some resolutions for your business so that it will have the best year of its existence!

Here are 10 New Year’s resolutions that will make this year the most successful year you’ve ever had.

1. Written contracts

All businesses need contracts. If your company has more than one owner, you need a shareholder agreement or operating agreement. If you are hiring employees, you need a job application and possibly an employment agreement. You may also want your employees to sign non-solicitation of customer contracts. And you need a contract that will detail what services you are providing, how and when you will get paid and what happens if something goes wrong. Whatever type of contract you need or receive, you should have your lawyer review it to make sure that you are properly protected.

2. Unclear rules for employees

There are few things more expensive than a problem employee. Many times issues will come about because employees did not know what you expected from them. By having rules regarding attendance, behavior, use of computers, time off from work, drugs and alcohol, and discrimination and sexual harassment, you can head off problems with employees who will create morale problems and even expose you to a lawsuit.

3. Not hiring an experienced business attorney

Lawyers specialize. This is a good thing. You want an attorney who has seen your type of problems before and can offer vital assistance in every part of your business from basic contracts to office leases to copyrights and trademarks. It’s not a good idea to have your brother-in-law, the divorce lawyer, negotiate your vendor contracts or advise you on whether to terminate a disruptive employee.

4. Ignorance of the law

The fact that you did not know that a law or regulation existed or applied to you when you violated that law or regulation will not be a defense to a lawsuit or enforcement action. Laws do not carve out an exception if you are a small company. They tend to apply to all businesses, regardless of size. So, you are bound by and presumed to know about all laws and regulations that affect you. Make sure you either read up on all the laws and regulations that pertain to your business or consult with an attorney who knows the laws and can advise you so that you will not be inadvertently in violation of the laws that affect your business.

5. No shareholder/partnership agreement

If you are not the sole owner of your business, you need a shareholder/operating/partnership agreement. These are like pre-nuptial agreements for businesses. The document should set forth who will contribute what to the business (i.e., assets, labor), how existing members can get out and new members get in, what happens if one person dies, and how profits and losses should be allocated among the shareholders/members/partners. By writing down these potentials concerns, problems are anticipated and dealt with. This is not a do-it-yourself task. An experienced business attorney should draft this agreement for you.

6. Ignoring intellectual property issues

What is intellectual property? It involves copyrights, trademarks and patents. Have you ever copied something you saw on the Internet and integrated it into your advertising materials without permission? Do you use software on multiple computers without buying multiple licenses? Intellectual property laws place restrictions on the public and violations of those laws have economic consequences. Do not just hope that you never get caught. It will be an expensive lesson.

7. Getting involved in litigation

Litigation is not cheap. It costs you money to hire lawyers to prosecute or defend a lawsuit and it costs you time that you spend focusing on the lawsuit instead of on your business. Stay out of litigation if you can, and if you can’t, listen if your lawyer suggests settling the case.

8. Employee or independent contractor

It can cost you so much money that it will put you out of business if you misclassify an employee as an independent contractor. Consult with your accountant and attorney to ascertain whether you meet the state and federal tests for independent contractor.

9. Extending credit to the wrong persons

No one wants to work for free. If you do not specify how and when you get paid for services, you may never get paid. Some customers should always pay you up front; some customers will pay you if you send them a bill after you have performed your services. Know which customer is which. If they are willing to pay cash up front, take it. If you are operating a net branch, keep tabs on the company you are working with. Mortgage companies are going out of business every day. If you are not getting paid quickly, find out why and make sure you get your commissions before they close their doors.

10. Not having insurance to cover business risks

Businesses incur risks every day – that a visitor to your business premises will get slip and get injured, that your office will burn down and all your records will be totally destroyed, that one of your employees will do or say something that will land you in legal difficulties. There are all types of business insurance to cover these risks. Learn which ones your business needs and purchase the coverage. It may save your business.

If 10 resolutions take too much time or money, pick 4 or 5 to concentrate on right now. Take a look in 6 months to see whether the ones you picked are working for you and pick another 4 or 5 to focus on for the second half of the year.