There is more regulatory activity to report. Although there has been talk for a few years about a nationwide database of mortgage brokers, Massachusetts, Kentucky, and Nebraska are among the first states to start implementing a new system that has been agreed to by 38 states.
All current licensees (if you're licensed in any of the participating states) will need to register through their state banking department (or whatever your state equivalent is called) web site. The Nationwide Mortgage Licensing System ("NMLS") is a web-based system that will allow state licensed mortgage lenders and mortgage brokers to apply for, amend, update or renew a license online in their state as well as in other participating states. Only one registration is required for as many licenses as the mortgage lender or broker has. Additionally, the NLMS has created one set of license applications that all participating states will use.
Although the system will not be up and running until January 2, 2008, some states are requiring preliminary registration right now (i.e. Massachusetts).
Wednesday, September 26, 2007
Thursday, September 20, 2007
New Massachusetts Licensing Requirements
There are more new regulations that have taken effect in Massachusetts as of September 7, 2007.
All mortgage lender and mortgage broker license applicants now submitting applications must comply with new net worth and surety bond requirements. Mortgage broker applicants must submit recent financial statements that have been audited or reviewed by a certified public accountant with their application. Additionally, the Division of Banks requires mortgage lenders to maintain a net worth of not less than $200,000. The net worth requirement must be proved by the submission of company financial statements, at the time of initial application and on an annual basis, which have been audited in accordance with generally accepted auditing principals (GAAP) by an independent certified public accountant. The Division of Banks requires mortgage brokers to maintain a net worth of not less than $25,000 and mortgage brokers must submit company financial statements, at the time of initial application and on an annual basis, which have been audited or reviewed by an independent certified public accountant.
There are also new surety bond requirements that are now in effect. Mortgage lenders must maintain a surety bond in a sum to be based on the amount of the Applicant's aggregate mortgage loans, as determined by the Division of Banks, but in no event shall the sum of the bond be less than $100,000, up to a maximum of $500,000. Mortgage brokers must maintain a bond of $75,000.
All mortgage lender and mortgage broker license applicants now submitting applications must comply with new net worth and surety bond requirements. Mortgage broker applicants must submit recent financial statements that have been audited or reviewed by a certified public accountant with their application. Additionally, the Division of Banks requires mortgage lenders to maintain a net worth of not less than $200,000. The net worth requirement must be proved by the submission of company financial statements, at the time of initial application and on an annual basis, which have been audited in accordance with generally accepted auditing principals (GAAP) by an independent certified public accountant. The Division of Banks requires mortgage brokers to maintain a net worth of not less than $25,000 and mortgage brokers must submit company financial statements, at the time of initial application and on an annual basis, which have been audited or reviewed by an independent certified public accountant.
There are also new surety bond requirements that are now in effect. Mortgage lenders must maintain a surety bond in a sum to be based on the amount of the Applicant's aggregate mortgage loans, as determined by the Division of Banks, but in no event shall the sum of the bond be less than $100,000, up to a maximum of $500,000. Mortgage brokers must maintain a bond of $75,000.
Wednesday, September 12, 2007
Rogue loan officers
"Rogue" loan officer is the term for a loan originator who does not behave ethically. The rogue behavior can include copying customer lists and customer information just before leaving to move on to another company. It can include putting customers in loan programs that are not suitable for them. Or they do not follow your company's rules and procedures.
Rogue loan officers are very costly to your company and to the business of mortgage origination in general. Every time a rogue loan officer acts in a way that is detrimental to your company, it may cost you money. You may be sued by an unhappy customer, investigated by your state banking department or "requested" by an investor to buy back a loan. Even if you can placate the banking department or settle the lawsuit, it costs you money and puts your insurance company on notice (you do have errors and omissions insurance, don't you?). The larger the number of complaints about rogue loan officers, the more likely there will be further regulation of loan officers. And regulation always costs money, either licensing the loan officer or paying for continuing education or paying for an increased number of banking department examinations because your company is on their watch list. Moreover, regulation doesn't seem to stem the tide of rogue loan officers.
The only way to ensure that rogue loan officers don't hurt you is to supervise all of your loan officers very closely. Check loan files, watch what your loan officers are doing, especially after normal business hours, make sure your branch managers are supervising closely as well. Most rogue loan officers do not have a criminal background or even a regulatory problem with any state banking department. They skip out before they are found out. The last thing you need in these difficult times is one or two rogue loan officers putting you out of business.
Rogue loan officers are very costly to your company and to the business of mortgage origination in general. Every time a rogue loan officer acts in a way that is detrimental to your company, it may cost you money. You may be sued by an unhappy customer, investigated by your state banking department or "requested" by an investor to buy back a loan. Even if you can placate the banking department or settle the lawsuit, it costs you money and puts your insurance company on notice (you do have errors and omissions insurance, don't you?). The larger the number of complaints about rogue loan officers, the more likely there will be further regulation of loan officers. And regulation always costs money, either licensing the loan officer or paying for continuing education or paying for an increased number of banking department examinations because your company is on their watch list. Moreover, regulation doesn't seem to stem the tide of rogue loan officers.
The only way to ensure that rogue loan officers don't hurt you is to supervise all of your loan officers very closely. Check loan files, watch what your loan officers are doing, especially after normal business hours, make sure your branch managers are supervising closely as well. Most rogue loan officers do not have a criminal background or even a regulatory problem with any state banking department. They skip out before they are found out. The last thing you need in these difficult times is one or two rogue loan officers putting you out of business.
Thursday, September 6, 2007
Watch out for net branching
Many mortgage brokers consider the benefits of net branching when licensing and compliance issues arise. A net branch is an office at which a lender or mortgage broker allows a separate company that does not hold a valid lender or broker license in a particular state to originate loans under the lender’s or mortgage broker’s license. The net branch arrangement usually is set up so that a branch office rents its own space, hires its own employees, contracts with its own vendors and gets a part of the profits from that branch office. It uses the licensee’s name so that it has the appearance of being a branch but is typically a separate company.
The Federal Housing Administration prohibits net branching. The states that specifically prohibit this practice include Arizona, New York, Rhode Island, Georgia, and Florida. But remember all states prohibit unlicensed entities from brokering or lending. If your branch payments for closed loans are made to your corporation or limited liability company you have just violated the law.
Penalties for violating the laws against net branching or unlicensed lending or brokering can include fines, license suspension or revocation for the licensee and fines and possible criminal charges filed against the unlicensed entity. Even if you are not discovered by a state’s banking department or FHA, mortgage brokers can be left without their promised payments from the licensee if the licensee closes its doors or files bankruptcy before your company has been paid. There are also many licensees that are slow to pay even if they are still open for business.
The Federal Housing Administration prohibits net branching. The states that specifically prohibit this practice include Arizona, New York, Rhode Island, Georgia, and Florida. But remember all states prohibit unlicensed entities from brokering or lending. If your branch payments for closed loans are made to your corporation or limited liability company you have just violated the law.
Penalties for violating the laws against net branching or unlicensed lending or brokering can include fines, license suspension or revocation for the licensee and fines and possible criminal charges filed against the unlicensed entity. Even if you are not discovered by a state’s banking department or FHA, mortgage brokers can be left without their promised payments from the licensee if the licensee closes its doors or files bankruptcy before your company has been paid. There are also many licensees that are slow to pay even if they are still open for business.
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