I am frequently asked how long it will take for a mortgage company to get a mortgage broker or lender license. I have to say as in most of my responses, it depends upon which state you are asking about.
There are the less populous states, who tend to be the less popular states, such as Iowa, New Hampshire, Arkansas, and Mississippi, where the first review takes less than 3 weeks. If the application is perfect, then you have a license in your hand in less than one month. The other end of the spectrum is New York, which can take 8 months, and I've never seen a perfect application submitted to New York.
Many times, the problem is that the mortgage company is so eager to get that application in to the Banking Department that they do not submit each document that is requested or answer every question. The licensing reviewers will not let you skip a question or leave out one of the required back-up documents, i.e., letter of reference, updated financial statement, bank check instead of company check for the fees. The devil is always in the details. You cannot be too detail-oriented when submitting a license application.
Another answer that I give to this question is that the timing is dependent on whether the banking departments are also in renewal season. A few states have licenses that never expire so that is not always an issue. However, most states issue licenses that need to be renewed every year or every two years. Most licensing departments are under-staffed. I'm sure they have offices piled with appllications waiting to be reviewed. When renewal season comes around, a reviewer may be pulled from new applications and re-assigned to processing renewal applications. That means your new application sits in a corner for maybe a month until the backlog of renewals has been cleared.
If you consult with a company or law firm that specializes in mortgage company licensing and you get an answer to the question "how long will it take" that sounds much shorter than the responses you have been receiving from other companies or law firms, find out why they can give you such a favorable answer. It's better to know upfront that the process is slow than to gear up and hire loan officers for a license that won't be in your office for several months, no matter what you have been promised.
Wednesday, January 31, 2007
Friday, January 26, 2007
Mortgage Brokers and Lenders and Certified or Audited Financial Statements
Many states have minimum financial requirements for mortgage brokers and lenders. The more serious states want you to prove that you have established and continue to maintain the required net worth by submitting certified (also known as audited) financial statements, both with the initial application and annually, either with the renewal application or the annual report.
What is a certified (or audited) financial statement? It is a personal financial statement (if you are a sole proprietorship) or business financial statement (for corporatations, limited liability companies and partnerships) which have been reviewed and authenticated by a certified public accountant.
Let's break out that definition into its different components. A financial statement consists of a balance sheet and a profit and loss statement. The balance sheet shows either your personal assets and liabilities (for sole proprietorships) or the business' assets and liabilities (for corporations, limited liability companies and partnerships). The profit and loss statement details your income (and its sources) versus your expenses, in their various categories. Before you start the business, the profit and loss statement is a guestimate of what you hope to take in as income against what you will need to spend to keep the business going. Once the business is licensed and hopefully making money, the figures are actual calculations in each category of income and expense.
What do I mean by "reviewed and authenticated by a certified public accountant"? The Banking Department is not taking your word on what figures appear on the financial statement. It wants you to hire a C.P.A. who will review all of your financial books and records and verify that what you have stated on the financial statement is the truth. The certification process is very quick before your company starts business and will cost you relatively little at this point. Once you are conducting your mortgage business, the review of your books and records and the verification of each piece of information will take several weeks and can costs thousands of dollars. Why so much money for the certification? Because of liability issues. Accountants get sued if there is a discrepancy between what is in the financial statement that they have certified as accurate and what is really in your books and records. Think Enron. Their accountants, Arthur Andersen, don't exist anymore, stemming from the fallout from the Enron debacle.
Where certified or audited financial statements are required on an annual basis, some states, such as Virginia and New Hampshire, require their submission at a fairly early date (February 1). For those companies whose fiscal year ends on December 31st, this deadline is very difficult to adhere to. However, there is no way to get an extension and you could be in regulatory trouble if you cannot find a C.P.A. who can work within these timeframes. Accordingly, it is important to find a C.P.A. who understands the mortgage industry requirements and whose fee will work within your budget.
What is a certified (or audited) financial statement? It is a personal financial statement (if you are a sole proprietorship) or business financial statement (for corporatations, limited liability companies and partnerships) which have been reviewed and authenticated by a certified public accountant.
Let's break out that definition into its different components. A financial statement consists of a balance sheet and a profit and loss statement. The balance sheet shows either your personal assets and liabilities (for sole proprietorships) or the business' assets and liabilities (for corporations, limited liability companies and partnerships). The profit and loss statement details your income (and its sources) versus your expenses, in their various categories. Before you start the business, the profit and loss statement is a guestimate of what you hope to take in as income against what you will need to spend to keep the business going. Once the business is licensed and hopefully making money, the figures are actual calculations in each category of income and expense.
What do I mean by "reviewed and authenticated by a certified public accountant"? The Banking Department is not taking your word on what figures appear on the financial statement. It wants you to hire a C.P.A. who will review all of your financial books and records and verify that what you have stated on the financial statement is the truth. The certification process is very quick before your company starts business and will cost you relatively little at this point. Once you are conducting your mortgage business, the review of your books and records and the verification of each piece of information will take several weeks and can costs thousands of dollars. Why so much money for the certification? Because of liability issues. Accountants get sued if there is a discrepancy between what is in the financial statement that they have certified as accurate and what is really in your books and records. Think Enron. Their accountants, Arthur Andersen, don't exist anymore, stemming from the fallout from the Enron debacle.
Where certified or audited financial statements are required on an annual basis, some states, such as Virginia and New Hampshire, require their submission at a fairly early date (February 1). For those companies whose fiscal year ends on December 31st, this deadline is very difficult to adhere to. However, there is no way to get an extension and you could be in regulatory trouble if you cannot find a C.P.A. who can work within these timeframes. Accordingly, it is important to find a C.P.A. who understands the mortgage industry requirements and whose fee will work within your budget.
Tuesday, January 23, 2007
License Renewals
Only a few states, i.e., New York, Virginia, and California, issue mortgage broker and mortgage lender licenses that never expire. The vast majority of the states issue licenses that expire every year. The rest of the states have licenses that are renewed every 2 years.
The Banking Department (or whatever they call it in each state) will send out a renewal application about 2-3 months in advance of the expiration date of the license. More and more, the renewal is done online and the information is inputted. Some of the smaller states have very streamlined renewal procedures. They just require that you notify them of any changes since the previous year. The more time-consuming ones need to include updated surety bonds, Certificates of Good Standing, and proof that continuing education was completed. It takes several weeks to get all of the documentation together so you have to be very organized and keep on top of each requirement to ensure that you can send in a complete renewal application.
What should you do if the renewal license application isn't complete and the deadline is drawing near? I send in whatever I have and forward any missing documentation as I receive it. I have found that most states will grant some leeway if the renewal application is in their office. At least then they know you are trying to renew your license. If you have missed the deadline because you are still waiting for one last piece of paper, the Banking Department will not let you continue to broker or originate loans and will assess fines for a late filing.
Most of the Banking Departments take several weeks past the expiration date of your license to process all of the renewal applications. They know that lenders may not let brokers close loans if the new license has not been issued. The Banking Departments will usually confirm with the lenders that a renewal license is pending and that the Department is allowing the broker to cintinue to close loans while the application is being processed.
What if you have decided that you do not wish to renew your license in a particular state? Check that state's requirements. Some states merely let the license lapse on its expiration date and no further action is necessary. Other states require you to let them know that you are not renewing and you must comply with that instruction. You never know when you might change your mind and want to re-apply.
The Banking Department (or whatever they call it in each state) will send out a renewal application about 2-3 months in advance of the expiration date of the license. More and more, the renewal is done online and the information is inputted. Some of the smaller states have very streamlined renewal procedures. They just require that you notify them of any changes since the previous year. The more time-consuming ones need to include updated surety bonds, Certificates of Good Standing, and proof that continuing education was completed. It takes several weeks to get all of the documentation together so you have to be very organized and keep on top of each requirement to ensure that you can send in a complete renewal application.
What should you do if the renewal license application isn't complete and the deadline is drawing near? I send in whatever I have and forward any missing documentation as I receive it. I have found that most states will grant some leeway if the renewal application is in their office. At least then they know you are trying to renew your license. If you have missed the deadline because you are still waiting for one last piece of paper, the Banking Department will not let you continue to broker or originate loans and will assess fines for a late filing.
Most of the Banking Departments take several weeks past the expiration date of your license to process all of the renewal applications. They know that lenders may not let brokers close loans if the new license has not been issued. The Banking Departments will usually confirm with the lenders that a renewal license is pending and that the Department is allowing the broker to cintinue to close loans while the application is being processed.
What if you have decided that you do not wish to renew your license in a particular state? Check that state's requirements. Some states merely let the license lapse on its expiration date and no further action is necessary. Other states require you to let them know that you are not renewing and you must comply with that instruction. You never know when you might change your mind and want to re-apply.
Friday, January 19, 2007
Licensing your loan officers
The trend in licensing is towards more regulation rather than less regulation. As the real estate market stabilizes or declines, foreclosures are starting to increase. This alarms consumer advocates and legislators who clamor that bad mortgage originators are steering borrowers to mortgage loans that they cannot afford. The cure, to them, is registering or licensing loan officers.
Colorado is the latest state to require licensing. It doesn't even license mortgage lender or broker businesses - it only licenses the loan officers.
Registration of loan officers, in the states that require them, such as New Jersey, Connecticut, Arkansas and Wisconsin, merely require the filing of the application and the payment of a fee.
The licensing states, such as Utah, Illinois, North Carolina, and Texas, require passing an exam, background checks, a certain number of years of mortgage industry experience, or continuing education.
By requiring your loan officers to be licensed in the states that require it, you are ensuring that they are knowledgeable about the laws and regulation that govern the industry.
Colorado is the latest state to require licensing. It doesn't even license mortgage lender or broker businesses - it only licenses the loan officers.
Registration of loan officers, in the states that require them, such as New Jersey, Connecticut, Arkansas and Wisconsin, merely require the filing of the application and the payment of a fee.
The licensing states, such as Utah, Illinois, North Carolina, and Texas, require passing an exam, background checks, a certain number of years of mortgage industry experience, or continuing education.
By requiring your loan officers to be licensed in the states that require it, you are ensuring that they are knowledgeable about the laws and regulation that govern the industry.
Tuesday, January 16, 2007
Mortgage license solutions and your credit report
Many of the states request that you send in a current credit report or agree that the banking department can pull your credit report. What are they looking for? The same things you are looking for when you have a potential customer - how good you are at managing money.
Does your credit report have a low FICO score? Lots of late pays? Open judgments? Some states, like West Virginia, will automatically deny the application if you have a FICO score in the 500s. Other states will also deny the application if you have open judgments and refuse to pay (no matter what the reason for the non-pay). The banking departments take the position that if you can't manage your own finances, how will you be able to advise consumers on what is the best financial decision among the many loan programs that are out there.
What do you do if you suspect you have a problem credit report? First, get a copy of your credit report and FICO score. Review the report and note any items that would raise a red flag. If there are problems with your credit report, pay the judgments, take a few months to make all of your payments on time, get your FICO score up. If you cannot solve this dilemma, do not become an owner of record. Let your partner be the one to submit only his/her credit report.
Does your credit report have a low FICO score? Lots of late pays? Open judgments? Some states, like West Virginia, will automatically deny the application if you have a FICO score in the 500s. Other states will also deny the application if you have open judgments and refuse to pay (no matter what the reason for the non-pay). The banking departments take the position that if you can't manage your own finances, how will you be able to advise consumers on what is the best financial decision among the many loan programs that are out there.
What do you do if you suspect you have a problem credit report? First, get a copy of your credit report and FICO score. Review the report and note any items that would raise a red flag. If there are problems with your credit report, pay the judgments, take a few months to make all of your payments on time, get your FICO score up. If you cannot solve this dilemma, do not become an owner of record. Let your partner be the one to submit only his/her credit report.
Wednesday, January 10, 2007
Mortgage license solutions for brick and mortar states
One of the most vexing problems that mortgage brokers and lenders face when they wish to expand their territory is the requirement of some states that they have a "brick and mortar" presence in that state. What is a "brick and mortar" presence? It means a physical office in that state.
Currently, about 2/3 of the states do not require an office in their state. This makes them very popular in terms of getting a license. But there are some very lucrative states, including Texas, New Jersey, Pennsylvania and Arizona, where a mortgage broker or lender must have a physical office in those states in order to get a license. Georgia requires an office if your home states requires an office.
What constitutes an office? Again, it varies by state. Many states permit home offices, other states permit home offices if the town zoning laws permit that home office to exist. Some states permit executive suites so long as the suite is a fully enclosed office in which customer files can be locked away. If the "office" consists of a desk in a shared room with a common receptionist, that will not qualify as an office.
If you intend to get a license in a new state where one of your loan officers is living or intends to live, and they have a "brick and mortar" requirement, first find out whether a home office will qualify. That is your cheapest option. If the state does not permit home offices, find the cheapest office arrangement in that state. Especially in this age of customers finding a new mortgage loan on the internet, your office doesn't have to be the nicest one in the largest city, where the rents are the highest. Chances are your customers will never see your office so conserve your cash.
Currently, about 2/3 of the states do not require an office in their state. This makes them very popular in terms of getting a license. But there are some very lucrative states, including Texas, New Jersey, Pennsylvania and Arizona, where a mortgage broker or lender must have a physical office in those states in order to get a license. Georgia requires an office if your home states requires an office.
What constitutes an office? Again, it varies by state. Many states permit home offices, other states permit home offices if the town zoning laws permit that home office to exist. Some states permit executive suites so long as the suite is a fully enclosed office in which customer files can be locked away. If the "office" consists of a desk in a shared room with a common receptionist, that will not qualify as an office.
If you intend to get a license in a new state where one of your loan officers is living or intends to live, and they have a "brick and mortar" requirement, first find out whether a home office will qualify. That is your cheapest option. If the state does not permit home offices, find the cheapest office arrangement in that state. Especially in this age of customers finding a new mortgage loan on the internet, your office doesn't have to be the nicest one in the largest city, where the rents are the highest. Chances are your customers will never see your office so conserve your cash.
Thursday, January 4, 2007
Mortgage Industry Experience Requirements
One of the reasons that the states require that mortgage brokers and lenders be licensed is to ensure that a person who has no experience cannot just open a mortgage business and start originating loans.
Many states require that before you can be licensed, either as a company or as an individual loan officer, you have a certain amount of loan origination experience. For example, New York requires 2 years of full-time mortgage industry experience for mortgage brokers and 5 years of underwriting experience for mortgage lenders. And the experience must be in loan origination. Arizona requires 3 years of industry experience, but loan processing only counts as half the equivalent time of loan origination. For example, if the president of the mortgage broker company has 2 years of loan processing experience and 1 year of loan origination experience, that will not be sufficent to satisfy the 3 year requirement. The loan processing experience will count as 1 year, not 2, plus the 1 year of loan origination experience equals 2 years of mortgage industry experience.
The states that have mortgage industry experience requirements have different ways for how you prove that you have the needed experience. Georgia and Arizona, for example, require letters from previous employers. This can be problematic when the company you worked for is no longer in business. In those cases, you need to track down your supervisors and have them write letters about your experience with the defunct company. Other states, such as Florida, will allow a letter from an industry professional who has knowledge of your work experience to confirm that they have known you as a mortgage broker or underwriter for the requisite period of time. Still other states contact your past supervisors and request that they complete a verification form and send it to the banking department.
As tempting as it may be to fudge this requirement, remember that if you do not have the experience to originate loans and do not know what the laws and regulations are in the state in which you want to be licensed, you will make mistakes that will cost you a great deal of money.
Many states require that before you can be licensed, either as a company or as an individual loan officer, you have a certain amount of loan origination experience. For example, New York requires 2 years of full-time mortgage industry experience for mortgage brokers and 5 years of underwriting experience for mortgage lenders. And the experience must be in loan origination. Arizona requires 3 years of industry experience, but loan processing only counts as half the equivalent time of loan origination. For example, if the president of the mortgage broker company has 2 years of loan processing experience and 1 year of loan origination experience, that will not be sufficent to satisfy the 3 year requirement. The loan processing experience will count as 1 year, not 2, plus the 1 year of loan origination experience equals 2 years of mortgage industry experience.
The states that have mortgage industry experience requirements have different ways for how you prove that you have the needed experience. Georgia and Arizona, for example, require letters from previous employers. This can be problematic when the company you worked for is no longer in business. In those cases, you need to track down your supervisors and have them write letters about your experience with the defunct company. Other states, such as Florida, will allow a letter from an industry professional who has knowledge of your work experience to confirm that they have known you as a mortgage broker or underwriter for the requisite period of time. Still other states contact your past supervisors and request that they complete a verification form and send it to the banking department.
As tempting as it may be to fudge this requirement, remember that if you do not have the experience to originate loans and do not know what the laws and regulations are in the state in which you want to be licensed, you will make mistakes that will cost you a great deal of money.
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