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.