I'm hearing from a few clients that their phones are so quiet that they are going into crisis mode. They have asked me what the effects of breaking vendor contracts and leases would be or if they should file for bankruptcy to get out of their contracts.
While bankruptcy may be an acceptable option in other industries, in the mortgage industry, it is a huge problem. After all, if you cannot manage your own finances, how can you advise a borrower which is the best mortgage for him? If you cannot make the rent, what will stop you from dipping into fees that you receive in advance from borrowers?
This is why every license application contains a question as to whether the company or any of its principals have ever filed for bankruptcy. If you file for bankruptcy after you receive your license, you must immediately notify the banking department. The banking departments want to make sure that a licensee has enough financial smarts to know how to weather the tough times, such as we are experiencing right now.
I have been in the mortgage industry for over 15 years. I have seen real estate booms and real estate busts. I have always advised my clients to enjoy the good times but to also set aside savings for the difficult years. I also tell them to watch the overhead. Do not set up multiple branch offices with rent, utilities, and equipment to pay for unless you can sustain these expenses when the applications dry up.
So hoard your cash. And negotiate with your contract vendors, don't break your contracts and open yourself up to lawsuits and bad credit ratings.
Wednesday, March 28, 2007
Thursday, March 22, 2007
Staying in Compliance
I recently had a conversation with one of the state banking department regulators about ongoing compliance with that state's rules. This particular state had a minimum net worth requirement.
I have many clients who ask me about how to comply with a minimum net worth requirement when they first get their license. For example, New Jersey has a $50,000 minimum net worth requirement for first mortgage brokers. The minimum net worth is $150,000 for first and second mortgage brokers. This is a very high hurdle for many companies. Potential clients ask me all the time "do I need to keep that amount in the company name all the time?" They figure that they can put the money in when they apply for the license and immediately pull it out after the license is granted. Unfortunately, that isn't allowed. The rules usually state "must maintain a minimum net worth of $_______" or "shall register all loan orginators."
How do the state regulators find out that a company hasn't been following the rules after the license is granted? It is carelessness that trips up many companies. Many times that carelessness is uncovered when an examination is conducted by the banking department. Mortgage companies hand the examiner a balance sheet with a negative net worth or a file that has a 1003 signed by a loan officer who is not registered. Or a branch office has not been licensed.
The penalties can be huge. That state regulator that I was talking to mentioned that a company that had not maintained the minimum net worth had their license revoked. Other infractions have cost other brokers and lenders thousands of dollars in fines.
Can you afford to pay large fines or lose a license just because you think you won't get caught breaking the rules? The state regulators don't go after just the big fish. They will go after any licensee, no matter how small or large.
I have many clients who ask me about how to comply with a minimum net worth requirement when they first get their license. For example, New Jersey has a $50,000 minimum net worth requirement for first mortgage brokers. The minimum net worth is $150,000 for first and second mortgage brokers. This is a very high hurdle for many companies. Potential clients ask me all the time "do I need to keep that amount in the company name all the time?" They figure that they can put the money in when they apply for the license and immediately pull it out after the license is granted. Unfortunately, that isn't allowed. The rules usually state "must maintain a minimum net worth of $_______" or "shall register all loan orginators."
How do the state regulators find out that a company hasn't been following the rules after the license is granted? It is carelessness that trips up many companies. Many times that carelessness is uncovered when an examination is conducted by the banking department. Mortgage companies hand the examiner a balance sheet with a negative net worth or a file that has a 1003 signed by a loan officer who is not registered. Or a branch office has not been licensed.
The penalties can be huge. That state regulator that I was talking to mentioned that a company that had not maintained the minimum net worth had their license revoked. Other infractions have cost other brokers and lenders thousands of dollars in fines.
Can you afford to pay large fines or lose a license just because you think you won't get caught breaking the rules? The state regulators don't go after just the big fish. They will go after any licensee, no matter how small or large.
Tuesday, March 13, 2007
Why You Should Have More Than One License
Have you ever turned away business because you didn’t have a license to do business in another state? How could that possibly happen?
It happens when a relative calls who lives in another state and asks whether you can originate or broker a loan for him. Or your loan officers tell you about their friends who live in another who would give you their business. Or perhaps you are on the border with another state and your advertising pulls in from your neighboring state. There are many scenarios where you are thinking that you wished you had a license to broker/lend in another state or states.
With each new state, you add thousands to millions of new prospective borrowers to whom you can advertise and market your business. You are not limited to just your home state. And let’s face it, the phones aren’t ringing off the hook in many offices. It’s not like the good old days from a year ago. You don’t want to have to turn away any business.
It happens when a relative calls who lives in another state and asks whether you can originate or broker a loan for him. Or your loan officers tell you about their friends who live in another who would give you their business. Or perhaps you are on the border with another state and your advertising pulls in from your neighboring state. There are many scenarios where you are thinking that you wished you had a license to broker/lend in another state or states.
With each new state, you add thousands to millions of new prospective borrowers to whom you can advertise and market your business. You are not limited to just your home state. And let’s face it, the phones aren’t ringing off the hook in many offices. It’s not like the good old days from a year ago. You don’t want to have to turn away any business.
Friday, March 9, 2007
Challenges of Having More Than One License
Have you ever seen the commercial where the lady says “we intend to go global, right after we go national”? I get many inquiries about getting a “national” license. There is no national license for mortgage brokers or mortgage lenders. You get each state's license one by one.
I have clients that are regional – either in New England or the southeast corner of the United States or along the Pacific coast. It helps if all of your states are in the same time zone. Are there any downsides to having more than one license?
The major challenge that my multi-state licensed clients face is the notion that what one state requires or permits may not be the same in another state. I tell those clients that each state is like a mini-kingdom with its own rules about everything. Some states have required disclosures, other states do not. Some states require that you keep a trust account, others do not. You must be knowledgeable about each state’s rules and regulations and follow them. You can plead ignorance only during the first state examination. After that, the fines and penalties for not following the rules become expensive.
The other major challenge when you have multiple state licenses is that you must keep on top of the license renewals, banking department annual reports and secretary of state annual reports (when those pesky Certificates of Authority?). For one or two states, this is not a big problem, with several states to keep track of, you might need an employee to keep track of all of your requirements. Or you can hire outside help, which I provide for many of my clients who don’t want to be bothered with remembering when it’s time to prepare another filing.
I have clients that are regional – either in New England or the southeast corner of the United States or along the Pacific coast. It helps if all of your states are in the same time zone. Are there any downsides to having more than one license?
The major challenge that my multi-state licensed clients face is the notion that what one state requires or permits may not be the same in another state. I tell those clients that each state is like a mini-kingdom with its own rules about everything. Some states have required disclosures, other states do not. Some states require that you keep a trust account, others do not. You must be knowledgeable about each state’s rules and regulations and follow them. You can plead ignorance only during the first state examination. After that, the fines and penalties for not following the rules become expensive.
The other major challenge when you have multiple state licenses is that you must keep on top of the license renewals, banking department annual reports and secretary of state annual reports (when those pesky Certificates of Authority?). For one or two states, this is not a big problem, with several states to keep track of, you might need an employee to keep track of all of your requirements. Or you can hire outside help, which I provide for many of my clients who don’t want to be bothered with remembering when it’s time to prepare another filing.
Wednesday, March 7, 2007
Examinations (also known as Audits)
You get a letter out of the blue from the state Banking Department. They are coming in about 2-3 weeks to review your books, records and files. What do you do?
Most of my clients first panic. An examination seems to trigger the same reaction as a tax audit. Most people who receive a notice of a tax audit call their accountant. Most of the mortgage brokers/lenders out there never call for help. They figure they will muddle through it. And sometimes they do. But, sometimes the examination costs them serious dollars.
The letter announcing the examination is accompanied by a list of the books and records that they want to examine and a questionnaire to be answered. A point person should be designated for the examination. This person should be someone who is familiar with all aspects of the licensee and familiar with the laws and regulations of the state that is conducting the examination. At this point, outside help should be retained to assist and give expert advice with respect to how to get through an examination. The books and records to be examined should be retrieved from storage immediately and reviewed by the point person. Typically, the examination will look at closed borrower files, files in your pipeline, and files from borrowers that have had their applications denied. All of the files to be examined should have all of the required documents with the appropriate signatures in them. The point person should also collect the company books and records that will be examined and review them in advance to ensure that there are no surprises. If the state requires a minimum net worth, make sure that all financial statements show the required net worth. If the examination requires proof of surety or fidelity bonds, make sure you have your copies in your files and in full force and effect. Have the questionnaire completed well in advance of the examination and if you have retained expert help, have them review the questionnaire before you give it to the examiner.
The examination could take place in your office or in the banking department’s office, with you sending them the files. It will take a few days for the examiner to review all of the books and records that were requested. The point person must make himself/herself available to answer follow-up questions or provide more documentation, if requested.
Make sure the point person and the principal of the company attend the exit interview when the examination is complete. Take notes of what was said and keep the notes. You will be receiving a written report of the results of the examination. Sometimes the findings in the written report differ from the oral exit interview. That is when your notes from the exit interview could be very important. If the examiner found problems with your books and records, you must make the changes that are required. And you must indicate to the banking department that the problems that were found will never happen again.
Most of my clients first panic. An examination seems to trigger the same reaction as a tax audit. Most people who receive a notice of a tax audit call their accountant. Most of the mortgage brokers/lenders out there never call for help. They figure they will muddle through it. And sometimes they do. But, sometimes the examination costs them serious dollars.
The letter announcing the examination is accompanied by a list of the books and records that they want to examine and a questionnaire to be answered. A point person should be designated for the examination. This person should be someone who is familiar with all aspects of the licensee and familiar with the laws and regulations of the state that is conducting the examination. At this point, outside help should be retained to assist and give expert advice with respect to how to get through an examination. The books and records to be examined should be retrieved from storage immediately and reviewed by the point person. Typically, the examination will look at closed borrower files, files in your pipeline, and files from borrowers that have had their applications denied. All of the files to be examined should have all of the required documents with the appropriate signatures in them. The point person should also collect the company books and records that will be examined and review them in advance to ensure that there are no surprises. If the state requires a minimum net worth, make sure that all financial statements show the required net worth. If the examination requires proof of surety or fidelity bonds, make sure you have your copies in your files and in full force and effect. Have the questionnaire completed well in advance of the examination and if you have retained expert help, have them review the questionnaire before you give it to the examiner.
The examination could take place in your office or in the banking department’s office, with you sending them the files. It will take a few days for the examiner to review all of the books and records that were requested. The point person must make himself/herself available to answer follow-up questions or provide more documentation, if requested.
Make sure the point person and the principal of the company attend the exit interview when the examination is complete. Take notes of what was said and keep the notes. You will be receiving a written report of the results of the examination. Sometimes the findings in the written report differ from the oral exit interview. That is when your notes from the exit interview could be very important. If the examiner found problems with your books and records, you must make the changes that are required. And you must indicate to the banking department that the problems that were found will never happen again.
Friday, March 2, 2007
Florida Mortgage Licenses
Many mortgage brokers and lenders on the East Coast find themselves with customers who ask them if they can do their loan for their condo or house in Florida. You can close that loan only if you are licensed in Florida.
Florida is a relatively easy state to get your license. For companies, they offer 3 levels of licensing – broker, correspondent lender, or mortgage lender. Each of the company licenses requires a principal to have taken 24 hours of classroom education and then to have passed a test. This requirement is not as onerous as it sounds. The classroom education is given by various approved schools in Florida. Many of my clients schedule the classroom work the weekend before the test and take the test the following Tuesday. The classroom work is geared totally towards the exam and so far all of my clients have passed the test on the first try. The principal must also have 1 year of mortgage broker experience.
If you don’t want to deal with minimum net worth requirements or surety bonds, you apply for a mortgage broker business license. The major restriction with the mortgage broker business license is that all of your loan officers must be licensed individual mortgage brokers.
If you need to get certified financial statements for another state anyway, go for the correspondent lender license. You get much higher income from your brokering. But you need to maintain a $10,000 surety bond and show the Florida Department of Financial Regulation that you have $25,000 minimum net worth and that is where the certified financial statement comes in. Mortgage lenders must maintain $250,000 net worth.
There is also a fingerprint requirement, but no in-state office required.
Florida is a relatively easy state to get your license. For companies, they offer 3 levels of licensing – broker, correspondent lender, or mortgage lender. Each of the company licenses requires a principal to have taken 24 hours of classroom education and then to have passed a test. This requirement is not as onerous as it sounds. The classroom education is given by various approved schools in Florida. Many of my clients schedule the classroom work the weekend before the test and take the test the following Tuesday. The classroom work is geared totally towards the exam and so far all of my clients have passed the test on the first try. The principal must also have 1 year of mortgage broker experience.
If you don’t want to deal with minimum net worth requirements or surety bonds, you apply for a mortgage broker business license. The major restriction with the mortgage broker business license is that all of your loan officers must be licensed individual mortgage brokers.
If you need to get certified financial statements for another state anyway, go for the correspondent lender license. You get much higher income from your brokering. But you need to maintain a $10,000 surety bond and show the Florida Department of Financial Regulation that you have $25,000 minimum net worth and that is where the certified financial statement comes in. Mortgage lenders must maintain $250,000 net worth.
There is also a fingerprint requirement, but no in-state office required.
Subscribe to:
Posts (Atom)
