Monday, October 10, 2011

You Need Continuing Education Hours, Don’t You?

Most mortgage loan originators will need to take eight (8) hours of continuing education before the end of the year. Actually, you should take your continuing education courses before November 1, 2011, when the ability to renew your license opens up on the NMLS. Some states have specific dates by when you must take your continuing education and other states simply will not let you submit your renewal license application unless your continuing education provider has uploaded the courses you have taken to the NMLS.

Each state has its own requirements as to whether you need to take continuing education this year and whether you need to take state-specific courses. For example, in Connecticut, unless you took your twenty (20) hours of pre-licensing education in 2011 and were approved for your license in 2011, you need to take continuing education in 2011. Exactly what is required? The SAFE Act requires the following education courses: 3 hours of Federal law and regulations, 2 hours of ethics that include instruction on fraud, consumer protection, and fair lending issues, 2 hours of training related to lending standards for the nontraditional mortgage product market, and 1 hour of undefined instruction on mortgage origination. Some states require specific courses on their state’s laws. For example, Georgia requires 1 hour of Georgia law that would count as your 1 hour of undefined instruction on mortgage origination. Georgia also has a deadline of October 31, 2011 for completing continuing education.

The NMLS has a state-by-state that details whether you need to take continuing education in 2011, what kind of courses you need to take, and when your deadline is:

If you are licensed in multiple states, the requirement that you take courses in state-specific law may mean that you are taking more than eight (8) hours of continuing education.

Also be aware that if you took continuing education in 2010, you may not take the same courses again in 2011.

Even if your state does not have a deadline before December 31, 2011, please remember that if you wait until the last minute to do your continuing education and license renewal, there is a good chance that your renewal will not be completed until sometime in January, 2012. Late renewals lead to major hassles with investors who want confirmation that you have a 2012 license to originate mortgages.

Monday, September 19, 2011

You Need Continuing Education

The SAFE Act created a requirement that all mortgage loan originators take at least 8hours of continuing education each year in order to get approval of your license renewal. If you were licensed in 2009 or 2010, you must comply with the continuing education requirement. If you took your pre-licensing education in 2011 and were licensed in 2011, you do not need to take any continuing education this year. If you took your pre-licensing education in 2009 or 2010 and your licensed was approved in 2011 or is still pending, you need to check with your state regulatory agency to find out if it is requiring loan originators to take continuing education.

If you are licensed in one (1) state, the requirement is that you take 3 hours of federal law and regulations, 2 hours of ethics, 2 hours of training related to lending standards for the nontraditional mortgage product market, and 1 hour of unspecified mortgage training (it's your choice of topic). If you took continuing education last year, you need to take different classes this year. Some states require a certain number of hours of state-specific education instead of the 1 hour hour of unspecified mortgage training. Therefore, if you are licensed is more than one (1) state, you may need to take more than eight (8) hours of continuing education.

The SAFE Act requirement is that you must take your continuing education hours by December 31, 2011. However, certain states require that you take continuing education before you can renew your license. Other states let you submit your renewal license applications, starting November 1, 2011, but they will not approve your renewals before you submit your continuing education hours through the NMLS. You need to check the rules for each state in which you are licensed to ensure that you are taking the correct number and types of continuing education courses so your licenses will be renewed.

Tuesday, September 6, 2011

What Do Mortgage Companies Need to Do About Computer Security?

All mortgage companies obtain very personal information from their customers that are stored on their computer systems. Computer security is an ongoing problem for your company because of the sensitive nature of the information that you store on your computers. You need to be proactive about your systems’ shortcomings and create a plan to upgrade your security. You must also have procedures in place to deal with a potential breach of security.

First, review the level of computer security that your system has. Most smaller mortgage companies do not have an IT department so they should hire an outside firm who has expertise in security breach problems. Have a survey of what information is stored, how it is stored, who has access to the information, and how your customers can use the internet to apply for a mortgage. An expert will point out where your systems are deficient, where you need to institute new policies for your employees, and where you may need to change or upgrade your software. Are your employees using smart phones or tablets that store private customer information? How easy is it for someone who finds a lost employee smart phone, tablet, or laptop to log in and access your customers’ information?

Do your personnel policies discuss how employees are to treat computer security issues? Are these policies rigorously enforced? Does your training emphasize the need to protect customer data?

Finally, you must review your computer security periodically. Hackers are always devising new ways to get into systems. You are obligated by law to safeguard your customers’ data. You could be sued by your customers whose financial information is now on the internet for the world to see. Therefore, your job of keeping their information safe never ends.

Tuesday, August 23, 2011

Maintaining Your Required Minimum Net Worth

Many states require your company to maintain a minimum net worth in order to get licensed and to keep your license. The amounts range from $10,000 to $1,000,000. If you are licensed or want to be licensed in a state that has minimum net worth requirements how do you obtain the capital you need?

There are a number of ways. The most obvious is to transfer money held in your personal bank account into the corporate entity’ bank account. Initially, this is how every new mortgage company gets started.

Beyond that, you could sell equity in the company and bring on a new partner. Your partner would have to buy shares in your corporation or a membership interest in your limited liability company, and the money from the sale of company stock or membership interests becomes part of the capital and net worth of the company.

Although it’s not easy, you may be able to find an investor willing to provide funding without giving up any equity in your business. Typically, this is a family member or a very good friend.

As you commence business operations, you can build net worth through retained earnings. Retained earnings are the profits your company makes that are not paid out to the owners of the company. To increase profits, increase your income (more closings or larger fees per closing) and/or decrease your expenses (go through each expense line-by-line and think of ways that each can be lowered). If the profits are kept in the company’s bank accounts or used to pay for company assets, they are counted as part of the company’s net worth.

Once you have been in business for awhile, you can explore merging with another company whose assets combined with yours will meet the minimum net worth requirements typically required of a mortgage lender. When you are looking to merge with another company, you want to find a company whose strengths complement your strengths. Together, your company and the company you merge with are greater than your two companies individually.

Eventually your plan should be to generate higher earnings by acquiring weaker companies and loan originators displaced by competitors who could not meet the net worth requirements and were forced to close. Your company may then continue to increase net worth as other competitive advantages become available as a larger company with increased production and profitability. Larger companies usually are stronger than smaller companies. They can offer more products, have offices in many locations to serve more borrowers, are licensed in more than one state, and have better management (which is how you became a bigger company).

The other key to the net worth issue is maintaining the net worth. Your company should never go below the minimum net worth required by your licenses. Hoard cash to get you through the lean times (including now) and do not make distributions to the owners if they will jeopardize your company’s net worth. Although you know that when your accountant comes in to audit your financials after each year-end so you make sure that your net worth meets the minimum requirements, you could also be subject to a random and unexpected examination of your records by your state licensing agency. You want to make sure that they find that you met every requirement, including net worth, when they conduct their examination.

Monday, July 25, 2011

Compare Your Company to Other Licensed Companies

The Nationwide Mortgage Licensing System & Registry (NMLS) has compiled information regarding licensees nationwide who are licensed in the first quarter of 2011. It can be accessed at

It shows how many licensees are licensed in more than one state, how many loan originators are sponsored by licensees, how many licensees have branch offices, etc. You can use the information for marketing purposes or for strategic planning purposes.

Wednesday, July 20, 2011

The Mortgage Call Report – It’s Back

Were you one of those mortgage company owners who were filing their Mortgage Call Reports late on Sunday, May 15, 2011? I had clients who sent me their information on 5:00 that afternoon and I was inputting information that evening. Don’t leave yourself in that position again. The Mortgage Call Reports for the 2nd quarter of 2011 are due on August 15, 2011. Don’t wait until the last minute to get your information together. As we get closer to the deadline, the NMLS computers work more slowly and it’s more difficult to get the information in. If you are having a fantastically busy summer, then hire outside help to get your Mortgage Call Report done. It’s money well spend because it lets you do what you do best - closing loans.

Tuesday, June 28, 2011

Mergers and Acquisitions – You Need Approval from the Regulators

The mortgage industry has been changing in the past four (4) years. Many mortgage lenders and brokers have closed their doors and stopped doing business entirely. Other companies want to stay in business but don’t want the headache of licensing compliance. Some of these companies are being acquired by other, larger companies who have compliance departments and who simply want to grow.

Most state licensing laws require that before one company can acquire or merge with another company their state banking department must approve the change. The statutes usually refer to a “change of control.” Most of these statutes require that, if there is an acquisition or merger, the acquiring company or companies being merged must notify the state regulatory agency and receive agency approval before the acquisition or merger is finalized. This means that if you are buying a company, the buy-sell agreement should have a contingency clause that the acquisition will not close until after all necessary regulatory approvals are received. If the company being acquired or merged is licensed in more than one state, the company that is buying must submit notification and approval paperwork to each regulatory agency in each state in which the company being bought or merged is licensed.

The company being acquired needs to close all loans in its pipeline and stop originating new loans while the approval is pending.

Do not jump the gun and start acting as if the acquisition or merger has gone through before the regulatory agency has given approval. You could be subject to fines, penalties and other disciplinary action that can affect your license and therefore your ability to originate loans.

Tuesday, June 21, 2011

Are You Keeping Your State Regulators Notified About Changes in Your Company?

Have you moved your offices? Has a loan originator been terminated or left your company? Do you have a new branch manager? Has a state or federal agency instituted a cease and desist order or have you entered into a consent agreement?

When any piece of information changes from what is listed in your company MU1, or a branch office MU3 or your loan originators’ MU4 records, you must notify your state banking department. Each state has slightly different requirements about the notification – some states require 30 days’ prior notice, others require 15 days prior notice, other states will allow notice after a situation changes.

Each state has different requirements about the timing but the SAFE Act requires that you update your NMLS records to reflect all changes in your company that pertain to the information that is maintained in the NMLS database. Remember, when you attest to your record (whenever that is required), you are attesting to the fact that all of the information in your company record is still current. Therefore, if you have sponsored a loan originator, and he is no longer working for you, you must change your NMLS record to terminate the sponsorship. If you have moved your office, you must change your MU1. In some cases, you will need to surrender a paper license to get a new one with your new address. Make sure your loan originators update their MU4 records when any information of theirs changes – if they change their residence address or employment address.

It is a good practice to check your NMLS records (all of the company, branch office and loan originator records) on a regular basis so that you remember to make the necessary changes and notify your state regulator. Add this to the list of proactive steps to take so you are always in compliance.

Wednesday, June 15, 2011

The Mortgage Call Report – A Problem If You Didn’t File

The Nationwide Mortgage Licensing System opened up the Mortgage Call Report for the first filing in May, 2011. All mortgage broker and mortgage lender/banker licensees must file quarterly reports regarding their loan applications and their closed loans. I have clients that are licensed in multiple states and both originate and broker loans. For this type of licensee, there are about 38 questions to answer, for each state report. That was a lot of information to compile and submit. You even had to file a report if you had no loan activity. What are the consequences of not filing a Mortgage Call Report?

Starting June 16, 2011, your state regulator will place a deficiency on your license if you did not file the Mortgage Call Report. Although it has not been spelled out as to the exact issues that you will face, it is possible that you will not be able to originate loans until you clear the deficiency. If you did not file your first Mortgage Call Report because you were too busy closing loans, I would be happy to help you file your Report. Don’t forget, this is a quarterly obligation and the next Mortgage Call Report is due August 14, 2011 for data from April 1, 2011 through June 30, 2011.

Monday, May 2, 2011

The Mortgage Call Report – Are You Ready to File Your First One?

The Nationwide Mortgage Licensing System has just opened up the Mortgage Call Report for the first filing. I just finished filing New Jersey Annual Reports on Friday so I know my clients are not going to be happy to be putting together the information needed for this new requirement. What is a Mortgage Call Report and what does it require?

All mortgage broker and mortgage lender/banker state licensees must file quarterly reports regarding their loan applications and their closed loans. I have clients that are licensed in multiple states and both originate and broker loans. For this type of licensee, there are about 38 questions to answer, for each state report. That’s a lot of information to compile and submit. You even have to file a report if you had no loan activity.

If you cannot submit your Mortgage Call Report because you are too busy closing loans, I will be happy to help you file your Report. Don’t forget, this is a quarterly obligation.

Monday, April 25, 2011

Maryland Loan Officers – You Need Company Sponsorship

By now, most of you loan officers have the licensing requirements down pat – 20 hours of pre-licensing education, pass the state and national tests, do the criminal background check, get the credit check done – and you’re licensed. There’s always a stray requirement hanging out there that you forget about and Maryland’s newest requirement highlights that fact.

The SAFE Act requires that all loan officers work for only one mortgage company at a time. The company that you work for must “sponsor” you. That means that your employer must show on the NMLS that you work for them. Most states, when they transitioned onto the NMLS, required the company sponsorship as part of the initial licensing application. You couldn’t get your loan originator license until your company sponsored you.

Maryland was different. You transitioned your license onto the NMLS but your company sponsored you on the Department of Labor, Licensing, and Regulation website. Now, Maryland is requiring that all employers create a sponsorship relationship with each of their loan officers on the NMLS. This must be completed by May 15, 2011 or there will be a payment involved.

All Maryland loan officers must first give access to their employer to their MU4 record. This is done by the loan officer getting onto their MU4 record on the NMLS and creating an “active relationship” with their employer. Once that has been completed, your employer must create the sponsorship.

You must keep checking your NMLS record to ensure that your employer has completed his part of the sponsorship request. After May 15, 2011, any loan officer who has not had a sponsorship request submitted via the NMLS will be placed in an "approved-inactive" status. That means that you will not have the authority to originate loans.

Tuesday, April 19, 2011

The Rules Keep Changing – A New Opportunity For You?

The SAFE Act required every state to create laws that governed the licensing of mortgage bankers, mortgage brokers and their employees. While creating the new laws that were compliant with the SAFE Act, many states changed their requirements for licensing.

Many states that had previously required that you maintain a physical office in their state eliminated that requirement (i.e., New Jersey and Pennsylvania). If you had ever thought of doing business in a state but were reluctant to spend the money on office rent and staff, re-check the new requirements in that state. You may find that the brick and mortar requirement doesn’t exist anymore and you can now get licensed there.

You should also check minimum net worth requirements. In some states they went up or were created where they had never existed, and in other states, because certain categories of licenses were changed, the minimum net worth requirements were changed.

Lastly, most states do not require audited financial statements, where they once may have been part of the licensing process. I know many mortgage brokers who did not want to spend the money to get an audited financial statement so they did not get FHA approval (FHA approval for the “mini-eagle” for loan correspondents does not exist anymore) or get licensed in a particular state.

My advice is to check the current licensing requirements for any state in which you may have in the past wished to do business. If you don’t have the time or inclination, hire outside counsel who can check it for you. You may find a new source of business in another state.

Monday, March 28, 2011

What Are Corporation and LLC Annual Reports and Why Does a Mortgage Company Need to Know?

Do you remember when you incorporated or created your limited liability company (LLC)? You did a filing with your state’s Secretary of State (some states use other agencies for this filing). If you expanded your territory to include other states, you needed to file for a Certificate of Authority to Transact Business as a foreign corporation or LLC (or a similar name for this document).

Most states have a requirement that you file an annual report with the Secretary of State’s Office or maybe the Franchise Tax Board. The filing times vary by state. The annual reports are designed to let the state know that you are still in existence, that you haven’t changed your registered agent, that you haven’t moved your offices, and that your officers, directors and/or members are still the same. Usually, there is a small fee to be paid. If there are changes, you are supposed to notify the state of those changes. Franchise board filings tend to be just a requirement to send a franchise fee to that state.

The consequences of not filing the annual report can be that you may eventually lose the right to legally transact business in that state and that the fees that are owed will continue to be owed and may incur interest and penalties. This is true even if you have stopped transacting business. it can also jeopardize your ability to renew your licenses.

You must file your annual reports on a timely basis. If you are not sure when you need to file, contact the Secretary of State (or whichever agency is in charge of corporate and LLC filings) or hire an outside company to do the filings for you (either a law firm or company that provides this service). If you have stopped doing business in that state, make sure the proper withdrawal documents are filed with that agency and pay the required fee. If you fail to do this, it could get quite expensive for your company.

Tuesday, March 22, 2011

Getting Annual Report Correspondence to The Right Person

I’ve been writing a lot recently about the annual reports that are due at the beginning of the year. A whole bunch are due at the end of March. This is in addition to or instead of the Mortgage Call Report that will start becoming required at the end of April.

Some states send letters in January or February with log-in information for their online reports. These letters typically go to one of the owners in the mortgage company. Unless the owner is the one who will be preparing the Annual Report or inputting the Annual Report, my experience is that this letter will likely get mislaid. If you are receiving a letter from a banking department about the Annual Report, and you have either appointed someone in your company to prepare and input the Report or are using an outside company or law firm for Annual Report submissions, please forward these letters immediately to that person. If you are now scrambling to find that letter, have your outside company or law firm call the banking department to get them to re-send the letter. Then, send a letter to the banking department, on company letterhead and signed by an owner of the company, requesting that the banking department send all correspondence in the future to your outside company or law firm. It will save you a lot of aggravation and time that you won’t need to spend looking for a letter that you may not understand that you need.

Tuesday, March 15, 2011

What Does a Mortgage Loan Originator Do If He Has a Criminal Conviction in His Past?

I’ve been receiving phone calls from mortgage loan originators from different states, asking what they should do if they have a criminal conviction in their past. The federal SAFE Act, enacted in 2008, provided minimum standards for the licensing of mortgage loan originators. Included in those requirements is a blanket prohibition on applicants who have been convicted of, pled guilty, or pled nolo contendere (no contest) to a felony if the felony was a crime involving fraud, dishonesty, breach of trust, or money laundering. There is a seven-year disqualification if the felony conviction was for any other type of crime.

If you have been denied approval of your mortgage loan originator license application because of a criminal conviction in your past, you have a couple of options. The first is that you can challenge your denial. Each state agency who issues decisions on license application has a set of procedures for challenging these decisions. Usually, it involves a hearing before someone else in the same agency or perhaps a hearing in front of an administrative judge. The procedures differ for each state. If you wish to challenge the denial of your license application, you must follow the rules for that agency. If you will be hiring a lawyer to represent you, you want to hire a lawyer who practices administrative law in the state in which the licensing agency exists. If your license was denied by the Massachusetts Division of Banks, you need a Massachusetts-licensed attorney. If your license was denied by the Illinois Department of Financial and Professional Regulation, you must hire an Illinois-licensed lawyer. If there are time limits for filing a challenge, you must not delay filing the challenge. If your challenge is filed too late, it is barred forever.

Your other choice is to try to find employment with a depository institution as the SAFE Act has different rules for mortgage loan originators employed by banks. If your felony conviction is for a dishonesty crime, you may never be a loan originator again.

Monday, March 7, 2011

Do You Still Need to File an Annual Report?

Once upon a time, just about every state required its own form of Annual Report. Most of them were due in the first 4 months of each year. Recently, the Nationwide Mortgage Licensing System sent out an email that functionality for a Mortgage Call Report that would be required quarterly, starting in April, 2011. Does this mean that you are not required to file an Annual Report?

The short answer is that it depends on in which state you are licensed. Most states which had required annual report filing still have the same requirements as in previous years. Some of the questions have changed but most of the reports that I have seen so far look quite similar to past years’ reports.

The Mortgage Call Report is required by the SAFE Act and will be a report that is in addition to the Annual Report that may still be required. All states will be requiring that you complete the Mortgage Call Report. But not all states require an Annual Report. You must check with your state agency that oversees your license if you are not sure that you need to file an Annual Report. Be aware that most Annual Reports also require financial statement reporting so you may need to get your accountant on top of this requirement immediately. You should also be aware that one (1) Mortgage Call Report will be sufficient for all states in which you are licensed.

There is plenty of aid out there to help you get your information organized and inputted on the Annual Report form so that your filing is timely. You really do not want to be late. The penalty may exceed the cost of hiring someone to help you.

Monday, February 28, 2011

Do You Need to Take Continuing Education Courses This Year?

Are you aware that loan originators will need to take at least eight (8) hours of continuing education this year? That’s right, the SAFE Act doesn’t just require the twenty (20) hours of pre-licensing education. Now that you are licensed, you need to take continuing education every year.

The Safe Act requirements are that you take 3 hours of federal law and regulation, 2 hours of ethics, including mortgage fraud, consumer protection, and fair lending issues, 2 hours of training regarding nontraditional mortgage products, and 1 hour of unspecified mortgage origination training. In addition to these requirements, some states also require state-specific hours. This means that if you are licensed in a state that requires state-specific education hours, you will be taking more than eight (8) hours of continuing education.

You must take these hours from an NMLS-approved provider and you cannot take the same courses year after year. Moreover, the courses that you take must be approved for continuing education as opposed to pre-licensing education. Since continuing education is required each year before your license can be renewed, you may want to think about scheduling your continuing education hours. You do not have to take all of your courses at once so think about scheduling courses when your office is traditionally less busy. You do not want to be taking your continuing education at the last minute when you need to renew your license.

Tuesday, February 22, 2011

What Are You Doing Differently To Stay In Business?

The number of licensed mortgage brokers, lenders, and loan officers is a fraction of what it was five (5) years ago. If you are still working in the mortgage industry, you are serious about your business. But, the industry has changed and is still changing. What worked in the past is not a viable business model anymore. You are (hopefully) doing things differently to stay in business. Do you have a strategic plan for surviving and then growing your business? Can you afford not to?

There is a lot more regulation about licensing. Every state requires that mortgage brokers, lenders and loan officers be licensed. The exceptions to licensing that used to exist if you did only a few loans in a state are largely gone. So, what are you doing to ensure that your new loan officers get licensed?

Fraud played a large enough part in the mortgage meltdown to push states to enact new laws and regulations that require licensees to create fraud prevention programs. What have you done to ensure that your employees are complying with your procedures?

The number of new loan applications is down sharply from even the start of the housing bubble. Do you have a plan that you are following to get a steady stream of real estate agent referrals, other referral partners, past and present customers, and internet leads? Do you track from where you are getting your leads so you can do more of those actions? Do you know which marketing strategies are not working enough to justify spending much time on them?

Are you training your staff so that they know what your vision of your business is and how you want them to implement that vision? In addition to the required continuing education, do you offer in-house education on new laws, new products, the best ways to get iffy borrowers approved for their loans? Those loan officers who are still in the business want to work for the best companies.

Borrowers want their loans approved faster and want to close their loans more conveniently. Is your technology able to provide your customers with the best loan application experience? Do your employees also add to the loan application process or are your borrowers ready to complain to their friends, family, and state regulators how much of a hassle working with your company was? Do you even survey your customers to know what they liked about working with you and what they hated about their loan application process?

What the industry will look like in the next five (5) years is only everyone’s guess. To stay in business, you need to adapt your procedures, work with the current regulatory environment, and use it to your advantage, wherever possible. Make a plan to use the best ideas out there and then keep testing to see what works.

Thursday, February 17, 2011

What To Do When You Don’t Want to Originate From a State Anymore

Are you one of the many mortgage brokers or lenders who applied for numerous state licenses during the housing boom and now you wonder why you are still paying for the licenses and the additional costs associates with those licenses? I’ve counseled all of my clients that at least once a year, they should compare how much they earn from each state against how much each state’s license costs them. Included in the calculations are the costs of the licenses, the filing fee for the annual report to the state’s Secretary of State Corporations Division, the cost of the surety bond, and the payment to the company who acts as your registered agent. If there hasn’t been much origination activity lately, you may decide that it’s not worth the expense of the license and the hassle of keeping the license. What do you do when you decide you want to give up a license?

You can decide to do nothing until renewal season. At that point, you can simply not renew your license. If you choose this course of action, you must comply with all license requirements, even if you do not originate any loans for the entire year.

If you don’t want to wait until the license expires on December 31st, you need to find out the requirements for each state where you want to surrender your license. Some states require prior notice of your surrender of a license. Other states require notice within a certain number of days after you decide to surrender the license. What is the notice that is required? You go to your MU1 record on the NMLS and indicate that you wish to surrender your license in a particular state.

After you change your MU1 record, you may need to take additional action. Some states require a final Annual Report to be filed within a specified number of days after surrender. Other states may have additional forms that you need to submit. If you have branch offices licensed in the state whose license you are surrendering, you must surrender the branch license as well as the company license.

After the state has accepted the surrender of your license, then you can cancel your surety bond and registered agent. Don’t forget to file a Certificate of Withdrawal of your Certificate of Authority to Transact Business as a Foreign Corporation/LLC. Some states charge annual fees if you haven’t withdrawn, regardless of whether you are conducting business in that state or not.

Monday, February 7, 2011

Is There a Specific Order For Completing the Licensing Requirements for a Loan Originator?

I’ve been receiving phone calls and emails from people who want to get licensed as mortgage loan originators (usually known as loan officers). One of their questions is whether there is a required order in which to complete the various requirements that must be satisfied in order to get your loan officer license. There is no required order but certain requirements should be completed before other requirements. You should familiarize yourself with all of the requirements before you even start of the process of licensing.

The licensing laws of each state contain certain disqualifiers to licensing. If you have one of the disqualifiers, you should not even start the licensing process. If you have a dishonesty criminal conviction in your past, no matter how good a citizen you have been since you have been convicted, you will not be approved for a license. A dishonesty crime is theft, embezzlement, fraud, perjury, passing bad checks, among others. These types of crimes are total disqualifiers. If you have a criminal conviction within the past seven (7) years, you are disqualified from licensing. A very bad credit report is not an automatic disqualifier, depending upon the reasons for the bad credit. Were you unemployed for several months and had no income to pay your bills? Or did you declare bankruptcy because you had so much consumer debt due to purchases of lots of “stuff” that you were overwhelmed with bills? Depending upon the circumstances of your bad credit items, you may still get approved for your license.

Assuming you have no automatic disqualifiers, you need to create an MU4 record in the Nationwide Mortgage Licensing System (NMLS) database. The creation of your record gives you an NMLS number that you will keep throughout your life. In the mortgage broker/lender world, your NMLS number is your identifier the same way your social security number is your identifier elsewhere.

After you get your NMLS number, you start to complete the licensing requirements: taking pre-licensing education, passing the state and national tests, sending your authorization so that your state regulators can pull your credit report, and getting your background check done. There is no required sequence in which to complete these requirements. The stumbling block for many applicants is passing the tests so make sure you prepare for them.

Monday, January 31, 2011

Filing Reports with the State Regulators and the NMLS

Several of my clients and the NMLS have sent an email about a new reporting requirement. Within forty-five (45) days after the end of each quarter, all mortgage companies must file a report through the NMLS, reporting their mortgage activity in each state in which they are licensed or registered. If the company does not submit the report, then each loan originator in that company must file his/her own report. Each company must also submit a financial condition report (basically, an unaudited financial statement) once a year, within ninety (90) days after the end of the company’s fiscal year.

Many states are still requiring their own form of annual report in addition to the quarterly filings that you will need to start doing. These states (e.g., Pennsylvania, Virginia, Washington D.C., California, and Massachusetts) have, in the past, required elaborate paper or electronic forms, with financial information, loan activity, names of appraisers, title companies and lenders with whom they do business, and warehouse line of credit information. For 2011, many of these states have already sent out their forms to their licensees. If you are licensed in a state in which you have, in the past, filed an annual report, you must check with that state to find out whether they have changed their annual reporting requirement. These annual reporting requirements are in addition to the new NMLS quarterly reporting requirements.

As you know, some of the state annual reports are quite lengthy and take a fair amount of time to prepare. If you are too busy to get your reports ready, hire an outside company or law firm to do them for you. It is true that the SAFE Act has increased the amount of regulation reporting with which you must comply. Don’t let ignorance of the new compliance requirements and lack of time to organize your office to carry out your compliance obligations cost you in enforcement penalties and fines.

Monday, January 24, 2011

What Do You Do If an Investor Asks For a Copy of Your License?

Many times in the past (especially just after renewal season), I have received calls from my clients asking for copies of their licenses because an investor had asked for it. Most states have stopped sending out paper licenses.

If an investor needs proof that you are licensed in a particular state, you can either send that person to the NMLS Consumer Access database, at or you can go to your own company record in the NMLS, click on Composite View, click on View Company, (or Branch if a branch license is needed), click on View License/Registration list (on left side of screen) and then print out the list. You can do the same with any loan originator. For some states, this is the only record they will have for you; many states do not send out paper licenses or keep a database on their state agency website.

This is the new normal.

Monday, January 17, 2011

What Should You Expect From the Loan Originator Licensing Process?

If you want to be a mortgage loan originator, what do you need to do to get licensed? What should you expect from the licensing process?

There are several requirements that are common to each state because of the Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act. These requirements are:

1. Registering with the Nationwide Mortgage Licensing System (NMLS) and applying for a license through the NMLS;
2. Taking 20 hours of pre-licensing education;
3. Passing state and national exams;
4. Submitting fingerprints for a federal background check that cannot show a conviction for a dishonesty crime;
5. A satisfactory credit report (“satisfactory” as defined by the state regulatory agency).

Once you have applied for your license, you may need to send in additional documentation to the state regulatory agency that approves loan originator licenses. Some states have extra documents and other states require an additiona set of fingerprints for a state background check.

Then, you complete the balance of the requirements in any order that you wish. The completion of each requirement must be done through the NMLS, as the regulatory agency will be checking the NMLS to see if you complete your requirements. Likewise, you must monitor your record on the NMLS to see if the state regulator has posted a request for clarification of anything you have sent in or a reminder that you still need to do something.

Once you have completed all of your requirements, you must wait for the regulators to review your license application and approve or deny it. The waiting period varies by state and by time of year. If your state has just transitioned its licenses to the NMLS, then your new application will be reviewed after all the transitioning licenses are reviewed. If you apply for a license during renewal season (November and December), then you will likewise have to wait until all the renewals have been processed. If you are applying for a New York license, they are severely backlogged and you could be waiting for a year to get a decision on your license application.

Check with your state regulator to make sure that he/she has received all of the required elements of your application. You may want to periodically check in to see how much longer you will need to wait for your application decision.

Monday, January 10, 2011

FHA Requires Your NMLS Number

Major changes were enacted by the Federal Housing Administration (FHA) in 2009 that applied to the approval, renewal, and loan submission process for FHA-approved mortgagees, starting in 2010. Those changes are still coming as FHA continues to revamp its procedures. The latest changes intersect the requirements that all mortgagees and loan originators have to be licensed under the SAFE Act and maintain a record of their licensing status on the Nationwide Mortgage Licensing System (NMLS).

The latest Mortgagee Letter (Mortgagee Letter 2011-4) requires all FHA-approved mortgagees to provide their Nationwide Mortgage Licensing System (NMLS) number in a number of places during the approval, renewal, and loan origination process. FHA also requires that mortgagees obtain and provide to FHA the NMLS numbers, names and tax identification numbers of the mortgage brokers for whom the mortgagee is acting as a sponsor. This process has been designed to allow FHA to provide performance data on the mortgagees’ third-party originators. If a particular originator is having high rates of default, the mortgagee can choose to no longer underwrite any loan applications from that mortgage broker. The FHA Connection has also been revised to capture the name and NMLS number of the loan officer involved in submitting an FHA loan. The entry of the NMLS number and name of the loan officer involved in a loan origination is optional until April 1, 2011.

Friday, January 7, 2011

Why Don't You Have a Lawyer on Retainer

This is just a quick post directed to mortgage broker/lender company owners. Do you have a lawyer on retainer for your company so that you can shoot questions about licensing, compliance, or general corporate/LLC issues as you think of them? If you do, how often do you call or email your lawyer? If you do not, why not? Please send me your responses or comments at Thank you.

Monday, January 3, 2011

Here’s Some Possible Help if You Missed the December 31st Renewal Period Deadline – The Reinstatement Period

December 31st was the deadline for renewing your company and loan originator licenses. A number of my clients were very busy at the end of December trying to close loans. I was calling them every week to see whether they had renewed their licenses, or to find out whether their cash flow was sufficient for me to renew their licenses and charge the renewal fees to their credit cards. If you didn’t have someone calling you to remind you to start the renewal process by December 31st, are you sure you renewed all of your licenses?

The Nationwide Mortgage Licensing System (NMLS) has been sending out emails to all company administrators informing them of any licenses that were not renewed. If you received one of these emails, you are now aware that you messed up if you had intentions of renewing a particular license (although I’m sure that many of the “failure to renew licenses” were deliberate decisions not to renew a license). Even if you did not receive that email yet, you may now be realizing that you missed a renewal or one of your loan officers may have forgotten to renew his/her license. What can you do now?

Some states allow its licensees to renew late. It is a state by state decision and the time periods for getting in a “late” renewal vary by state. You can have only 15 days up to 2 months, depending on which state’s license you need. In most cases, you will need to pay a late fee but it’s much cheaper than starting a new license application from the beginning. You can see if your state is accepting late renewals by going to
and clicking on the Renewals Deadline Chart in step 3 for the chart of all states.

What if your state does not accept a reinstatement of your license (since it has technically expired as of December 31, 2010)? Call your state regulatory agency and speak to the reviewers in the licensing division and find out whether you need to submit an entire new application. Make that call immediately if you need to reinstate any of your licenses or those of your loan officers.

If you do need to reinstate a license, plan now for the renewals period that starts November, 2011. Set firm deadlines on your calendar to assess which licenses you will want to renew (are you making enough money from every branch office and every loan officer?). If your company NMLS administrator is you and you are usually too busy at the end of the year to handle this job, delegate it to an employee or hire an outside company that will take care of it for you. After all, if you don't have a license, you cannot make any money at all.