Most companies do not realize that you cannot just start doing business in another state without filing certain documents with that state’s government. The document is usually called an “Application for Certificate of Authority to Transact Business.” In most states, it is filed with the Secretary of State.
The Application usually requires you to list who the officers and directors (or members of the limited liability company) are, their home addresses, and the name and address of the registered agent. A registered agent is the person or company located in that state who is authorized to receive service of process or any legal documents on your behalf. Although the filing of the Application for Certificate of Authority is fairly automatic, it can be rejected if your company name is already taken by an existing company or if that state requires that you first get permission from the banking department to use your name. In some states, certain words trigger the permission issue, words like “mortgage,” “finance” or “loan.” If that state requires banking department approval, they could prevent you from using your real company name if they believe that it is “confusing” (this could mean either another company has a similar name or that you are a mortgage broker with the word “banker” or “lender” in your company name). In that case, you must use an assumed business name (also known as a “dba”) in that state.
You cannot get a mortgage broker/lender license without first getting the Certificate of Authority since every application asks for the date on which you received your Certificate of Authority.
Friday, February 23, 2007
Tuesday, February 20, 2007
Mortgage Licensing – What the Application Process is Like
Most of my mortgage broker and lender clients have no idea of what to expect when they hire me. They just know that I will take care of all the details of the application process so they can do other things (like close loans if they are an existing company).
Most applications are still very lengthy and each one is different from the other. The first one that I do for a client is the most time-consuming one for the client because I need to get all of the information that the application requires. By the time I get to the client’s third or fourth state, I have just about all of the information I need and only need to ask a few questions.
After I submit the application, we are forced into a waiting game. The banking departments are all under-staffed (typically there are 1 or 2 people reviewing applications). Depending on how popular a state is (California and New York are very popular, Iowa and Maine are not as popular), the waiting time for review can be 2 weeks to 3 months. If there are any missing documents or questions about one of the responses, a deficiency letter goes out and we need to correct the deficiencies. Many times I send out an application that I know has deficiencies just so that I can get the review process initiated. Depending on how busy a client is, I can turn around the application and re-submit it in days. Other clients do not clear the deficiencies for several weeks.
The reviewers at the banking departments do not get paid better if they process more applications or review them faster. So it is always a struggle to get them to move an application along towards an approval. Sometimes, there is more than one round of deficiencies and the reviewer will ask for something new that was not requested on the previous round. If your new application comes in during renewal season, your application won't be looked at until the renewals are all processed. Typically, the application gets reviewed by about 3 or 4 layers of reviewers, as you go up the chain towards the head of licensing, and each reviewer can raise a new question or ask for another document before signing off and passing it to the next person up the ladder.
And you cannot solicit business from that state until you have the license (although some states will permit you to start once they give the approval).
Most applications are still very lengthy and each one is different from the other. The first one that I do for a client is the most time-consuming one for the client because I need to get all of the information that the application requires. By the time I get to the client’s third or fourth state, I have just about all of the information I need and only need to ask a few questions.
After I submit the application, we are forced into a waiting game. The banking departments are all under-staffed (typically there are 1 or 2 people reviewing applications). Depending on how popular a state is (California and New York are very popular, Iowa and Maine are not as popular), the waiting time for review can be 2 weeks to 3 months. If there are any missing documents or questions about one of the responses, a deficiency letter goes out and we need to correct the deficiencies. Many times I send out an application that I know has deficiencies just so that I can get the review process initiated. Depending on how busy a client is, I can turn around the application and re-submit it in days. Other clients do not clear the deficiencies for several weeks.
The reviewers at the banking departments do not get paid better if they process more applications or review them faster. So it is always a struggle to get them to move an application along towards an approval. Sometimes, there is more than one round of deficiencies and the reviewer will ask for something new that was not requested on the previous round. If your new application comes in during renewal season, your application won't be looked at until the renewals are all processed. Typically, the application gets reviewed by about 3 or 4 layers of reviewers, as you go up the chain towards the head of licensing, and each reviewer can raise a new question or ask for another document before signing off and passing it to the next person up the ladder.
And you cannot solicit business from that state until you have the license (although some states will permit you to start once they give the approval).
Tuesday, February 13, 2007
Mortgage Licenses and Annual Reports
Once you have your license as a mortgage broker or lender, you still have regular contact with the agency that granted you the license. Just about every state requires an Annual Report. Most of them are due in the first 4 months of each year.
The first one that you file is obviously the most daunting. You've never seen the form before, you didn't know that you should keep the information that is being asked for and they may even require that you input the information onto their form online.
The states will send out a reminder that the Annual Report is due in 2 months (this is the typical amount of notice that the states give). At this point, you should appoint someone in your office to gather the information that will be needed for each state. Although some of the information is common to all of the Annual Reports (i.e. information on your profit and loss statement and your balance sheet), how many loans and the total dollar ammount of the loans you closed in Virginia will not help you with the California Annual Report. Depending on how many states you are licensed in, this can be a very time-consuming job. And that person needs to keep track of the dates that each Annual Report is due.
For states that require that you submit certified financial statements each year, you have to give your accountant enough notice so that this work can be squeezed into his busy tax season. Most states do not have any mechanism for allowing an extension of time if your accountant can't get your certified financial statement together on time. You will be facing fines and penalties from each state in which your financial statement is late.
The second year and every year after should be easier when you know what will be asked for. Just create a computer program to store and retrieve the information that you know each state will need. But also be aware that each state can ask for additional information that it had not asked for in the previous year.
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.
The first one that you file is obviously the most daunting. You've never seen the form before, you didn't know that you should keep the information that is being asked for and they may even require that you input the information onto their form online.
The states will send out a reminder that the Annual Report is due in 2 months (this is the typical amount of notice that the states give). At this point, you should appoint someone in your office to gather the information that will be needed for each state. Although some of the information is common to all of the Annual Reports (i.e. information on your profit and loss statement and your balance sheet), how many loans and the total dollar ammount of the loans you closed in Virginia will not help you with the California Annual Report. Depending on how many states you are licensed in, this can be a very time-consuming job. And that person needs to keep track of the dates that each Annual Report is due.
For states that require that you submit certified financial statements each year, you have to give your accountant enough notice so that this work can be squeezed into his busy tax season. Most states do not have any mechanism for allowing an extension of time if your accountant can't get your certified financial statement together on time. You will be facing fines and penalties from each state in which your financial statement is late.
The second year and every year after should be easier when you know what will be asked for. Just create a computer program to store and retrieve the information that you know each state will need. But also be aware that each state can ask for additional information that it had not asked for in the previous year.
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.
Friday, February 9, 2007
Getting Your California Mortgage Broker License
California is the state with the largest population and some of the highest housing prices in the country in its different markets. That combination is the reason that I recommend getting a mortgage broker license from California to all of my clients. Even the clients located in the east coast states are willing to work with the time zone difference in order to get the business from California borrowers.
California offers two different licenses for brokers and two possible licenses for lenders but the one that most of my clients can qualify for is the Finance Lender Law License. The application lets you get a license that permits you to lend, broker, or do both.
The requirements are fairly straight-forward. You don't need a physical office in California, nor is there any pre-licensing education or testing requirement. Just have $25,000 in net worth, a $25,000 surety bond, fingerprints, and complete the application.
The quirky thing about the California Finance Lender Law License is that if you are a broker, you must broker only to lenders who have the Finance Lender Law License. This means you cannot broker to banks, savings and loans, and credit unions. A mortgage broker must make sure that the company that they are brokering to does have the Finance Lender Law license (ask your account executive and double-check by checking the database on the California Department of Corporation's web site).
The real estate broker license from the Department of Real Estate also lets you be a mortgage broker. But, for out-of-state mortgage lenders and brokers, the Finance Lender Law License is the way to go.
How long will it take? Unfortunately, California is not one of the quicker ones - plan on 6 months to get your license.
California offers two different licenses for brokers and two possible licenses for lenders but the one that most of my clients can qualify for is the Finance Lender Law License. The application lets you get a license that permits you to lend, broker, or do both.
The requirements are fairly straight-forward. You don't need a physical office in California, nor is there any pre-licensing education or testing requirement. Just have $25,000 in net worth, a $25,000 surety bond, fingerprints, and complete the application.
The quirky thing about the California Finance Lender Law License is that if you are a broker, you must broker only to lenders who have the Finance Lender Law License. This means you cannot broker to banks, savings and loans, and credit unions. A mortgage broker must make sure that the company that they are brokering to does have the Finance Lender Law license (ask your account executive and double-check by checking the database on the California Department of Corporation's web site).
The real estate broker license from the Department of Real Estate also lets you be a mortgage broker. But, for out-of-state mortgage lenders and brokers, the Finance Lender Law License is the way to go.
How long will it take? Unfortunately, California is not one of the quicker ones - plan on 6 months to get your license.
Tuesday, February 6, 2007
Getting your New York Mortgage Broker License
New York has one of the most detailed applications for mortgage licenses and one of the longest timeframes in which to get the approval for the license. But the large population in the state coupled with some very high housing prices (and therefore mortgage amounts) make New York one of the most coveted licenses for a mortgage broker that can generate business in that state.
The lengthy process starts with word approval from the Banking Department if you are a corporation or limited liability company (LLC). Even if your company is from out-of-state, you need the Banking Department approval to use certain words in your company name. "Mortgage" is one of the words that require approval. If another company has a similar name, you will need to use a different name in New York. It takes about 2-3 weeks to get the approval.
Completing the application is where most of my clients stop cold. The personal questionnaire is 7 pages long and asks about your spouse, parents, dependents, professional references, personal references, military history, and 15 years of employment history in detail. It asks about your initial contribution to the company, outstanding debts in excess of $10,000, and your income sources.
New York requires 2 years of mortgage industry experience and the principal who has it must draft an affidavit detailing each company he/she has worked for, its address and telephone number, the supervisor that the principal worked for, and job duties.
New York also requires fingerprint cards and credit reports from all owners of more than 10% of the shares. Lately, reviewers have been requesting leases and subleases for the office address, copies of licenses from other states, if applicable, copies of passports, and authentication from the county clerk confirming that the notary public that is used to notarize signatures on the application has a valid notary commission.
When you first submit the application, it goes through a preliminary review. If the application is deficient, the entire application is returned with a letter listing the deficiencies. When the application is re-submitted, it may be accepted for 90 day processing or it may be returned with another list of deficiencies. The first goal is to get the application accepted for 90 day review. The 90 days is not hard and fast and the applicant may be asked for additional documentation or clarification of documentation that is already part of the application. When you are asked to submit the $10,000 surety bond, you know you are near the end of the process.
If your application is approved, you must pick up the license in person at the Banking Department, even if you are from out-of-state. The Banking Department assigns you a date and time for the pick up and there is a meeting to explain certain requirements of maintaining your status as a licensee.
All together, the application process takes about 7-8 months from start to finish. Luckily, the license never expires.
The lengthy process starts with word approval from the Banking Department if you are a corporation or limited liability company (LLC). Even if your company is from out-of-state, you need the Banking Department approval to use certain words in your company name. "Mortgage" is one of the words that require approval. If another company has a similar name, you will need to use a different name in New York. It takes about 2-3 weeks to get the approval.
Completing the application is where most of my clients stop cold. The personal questionnaire is 7 pages long and asks about your spouse, parents, dependents, professional references, personal references, military history, and 15 years of employment history in detail. It asks about your initial contribution to the company, outstanding debts in excess of $10,000, and your income sources.
New York requires 2 years of mortgage industry experience and the principal who has it must draft an affidavit detailing each company he/she has worked for, its address and telephone number, the supervisor that the principal worked for, and job duties.
New York also requires fingerprint cards and credit reports from all owners of more than 10% of the shares. Lately, reviewers have been requesting leases and subleases for the office address, copies of licenses from other states, if applicable, copies of passports, and authentication from the county clerk confirming that the notary public that is used to notarize signatures on the application has a valid notary commission.
When you first submit the application, it goes through a preliminary review. If the application is deficient, the entire application is returned with a letter listing the deficiencies. When the application is re-submitted, it may be accepted for 90 day processing or it may be returned with another list of deficiencies. The first goal is to get the application accepted for 90 day review. The 90 days is not hard and fast and the applicant may be asked for additional documentation or clarification of documentation that is already part of the application. When you are asked to submit the $10,000 surety bond, you know you are near the end of the process.
If your application is approved, you must pick up the license in person at the Banking Department, even if you are from out-of-state. The Banking Department assigns you a date and time for the pick up and there is a meeting to explain certain requirements of maintaining your status as a licensee.
All together, the application process takes about 7-8 months from start to finish. Luckily, the license never expires.
Friday, February 2, 2007
Surety bonds
Most of the states require surety bonds as part of the licensing process. What is a surety bond? A surety bond is a contract with an insurance underwriter, which ensures that the Banking Departments can collect unpaid fees from the licensee.
The surety bond requirement varies from state to state. It can range from $10,000 for a New York mortgage broker license to $150,000 for a New Jersey 1st and 2nd mortgage broker license. Mortgage lenders tend to have higher requirements than mortgage brokers although some states don't require the surety bond at all because they require higher net worths or proof of a certain dollar amount in the bank.
From where do you get a surety bond? I use a company that specializes in surety bonds for the mortgage industry. There are a few out there. I like the fact that they know what the requirements are for each state and what form of surety bond each state requires. That saves me a lot of time. If you go to the insurance agent who sold you your business insurance, he will probably ask you for a copy of the surety bond language. It is available on the banking department web site.
Most insurance companies require you to complete an application and for you to submit both company and personal financial statements. And they will pull the credit reports of the owners to ensure that you are a good credit risk. Because you are taking most of the risk. Most underwriters require a personal indemnity from the owners of the mortgage company.
It can take a few weeks to several weeks to get the surety bond so don't wait until the last minute to get yours. It will hold up the application process.
The surety bond requirement varies from state to state. It can range from $10,000 for a New York mortgage broker license to $150,000 for a New Jersey 1st and 2nd mortgage broker license. Mortgage lenders tend to have higher requirements than mortgage brokers although some states don't require the surety bond at all because they require higher net worths or proof of a certain dollar amount in the bank.
From where do you get a surety bond? I use a company that specializes in surety bonds for the mortgage industry. There are a few out there. I like the fact that they know what the requirements are for each state and what form of surety bond each state requires. That saves me a lot of time. If you go to the insurance agent who sold you your business insurance, he will probably ask you for a copy of the surety bond language. It is available on the banking department web site.
Most insurance companies require you to complete an application and for you to submit both company and personal financial statements. And they will pull the credit reports of the owners to ensure that you are a good credit risk. Because you are taking most of the risk. Most underwriters require a personal indemnity from the owners of the mortgage company.
It can take a few weeks to several weeks to get the surety bond so don't wait until the last minute to get yours. It will hold up the application process.
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