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.