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.