Licensing in a "Brick and Mortar" State

I periodically receive phone calls and emails from mortgage companies that want to get licensed in all states. Since there is no "national" license, such a company must get 51 licenses (including Washington DC). When they hear that some states require a physical presence in their states, they realize that such licensing will be very expensive.

As of today, the following states require an office in their state for a mortgage broker license: Alabama, Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, and Texas. For mortgage lenders, the states are: Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, Ohio, Oklahoma, Pennsylvania, and Texas.

Even within the requirement of brick and mortar, the different states have different requirements. Some states permit any home office, other states allow the home office if you can prove that the home is zoned for office use and/or there is a separate entrance for the office. Some states permit month-to-month leases on these offices, other states do not and even require leases of at least 6 months to 1 year. In addition to the expense of the rent on these offices, certain states require that the office be staffed by a W-2 employee. Since I am aware that some mortgage companies do not pay branch managers or loan officers as employees but treat them as independent contractors, this can be an additional expense.

I am frequently asked whether my office or some relative’s address can be used as the "office" that is required in brick and mortar states. My office is not used for any client’s needs and I tell clients that a relative’s address can in some situations be used as the office. Again, because each state has a different requirement, I need to know the particular state that someone is inquiring about.

Because a brick and mortar state is a much more expensive state in which to operate, I caution clients that there must be a good reason to go into that state, other than part of a 50-state strategy. If a loan officer has family, friends or a real estate agent who will refer a steady stream of business, the costs of maintaining the office will be offset by the fees you will earn. Likewise, if your clientele are buying second homes in a particular state, that state is a good candidate for spending the money to retain an office. And each year, you should conduct a cost-benefit analysis to determine whether you spent more on the office than you earned in fees to decide whether to renew your license in a brick and mortar state.