The refinance boom is long over. Mortgage brokers are looking for every piece of business they can find. Many are contacting customers with whom they have already done business. Others are looking at different relationships with real estate agents as a source of referrals. After all, in many purchase transactions, the buyers’ real estate agents help their clients find a mortgage by recommending a lender or a mortgage broker that they have worked successfully with. Can a mortgage broker hire a real estate agent to act as a loan officer?
It depends. In many states, this relationship is not prohibited by the banking department or the real estate commission (or whatever the agency that regulates real estate agents is called in your state). No matter what relationship you have with a real estate agent, you must make sure the arrangement is compliant with the U.S. Department of Housing and Urban Development's RESPA (Real Estate Settlement Procedures Act) in regard to fee splitting. What’s key to staying in compliance is that the real estate agents do more than just make a referral to the mortgage company. Among other things, they must be made an employee of the mortgage broker (even if only a part-time employee). Indeed, even if the real estate agent performs actual loan officer functions so that there is no question of whether all fees are properly earned, the customer must sign a disclosure statement so that your company is protected against RESPA violations and the customer understands that the real estate agent is wearing two hats. Texas even has a form on its website for mortgage brokers who are also acting as real estate agents or as an attorney in the transaction.
An important RESPA guideline is that all parties involved with the transaction must actually earn the fees that will be charged to the buyer/borrower. Many real estate agents do some of the work involved in the mortgage transaction to ensure that their transactions close, including tracking the loan. By hiring a real estate agent as a loan officer, you can offer them the loan origination commission on top of the real estate agency fee they have contracted for with their customers and clients. But you will now be assured of getting the referral that might have gone to another mortgage broker with whom they also had some sort of relationship.
In some states, you will have to license the office where the real estate agent is originating loans as a branch location of your company. Additionally, if the real estate agent is not an employee of your company, he or she must have a mortgage broker license or be exempt from the licensing requirements. Finally, because there are potential confidentiality and conflict of interest issues, it is best to address how you will handle those situations before they come up.
Monday, November 26, 2007
Wednesday, November 14, 2007
Staying Alive
Much of the advice that I am seeing in the different publications for mortgage professionals pertains to marketing. After all, without clients, you have no income and will soon be contemplating your next career. But, there is probably nothing more frustrating than getting a loan application in (finally!) and not having a loan program to match it with. During these slow times, you should be doing as much marketing as you can afford but you should also be thinking about the other end of the application process. You must have relationships with lenders with different types of loan programs that you can utilize for your borrowers. Now is a good time to find those programs.
Having new products to offer borrowers means that you will rarely have to turn away business. There are a lot of adjustable mortgages out there that need refinancing. You can get that business if you have loan programs that are more stable for borrowers than the exotic mortgages that were in vogue a few years ago. Borrowers like to know what their expenses will be for the foreseeable future so if you can find a lender with a program that meets this particular need, you’ve got a valuable tool for marketing to a certain segment of the buying/refinance population. Also, if you can find lenders who have programs for borrowers with no documentation or lower FICO scores, that’s another weapon in your marketing arsenal. And make sure you let all of your existing, former and potential clients and referral sources know that you have many ways to get a loan application to closing.
If you are a wholesale lender with innovative programs, make sure you get the word out to mortgage brokers that you can help them close their loans. That is a win-win situation for the lender, the mortgage broker and the borrower.
The days of thinking that a new loan application equals income are gone. You need to use different ways of thinking and marketing to keep yourself in business.
Having new products to offer borrowers means that you will rarely have to turn away business. There are a lot of adjustable mortgages out there that need refinancing. You can get that business if you have loan programs that are more stable for borrowers than the exotic mortgages that were in vogue a few years ago. Borrowers like to know what their expenses will be for the foreseeable future so if you can find a lender with a program that meets this particular need, you’ve got a valuable tool for marketing to a certain segment of the buying/refinance population. Also, if you can find lenders who have programs for borrowers with no documentation or lower FICO scores, that’s another weapon in your marketing arsenal. And make sure you let all of your existing, former and potential clients and referral sources know that you have many ways to get a loan application to closing.
If you are a wholesale lender with innovative programs, make sure you get the word out to mortgage brokers that you can help them close their loans. That is a win-win situation for the lender, the mortgage broker and the borrower.
The days of thinking that a new loan application equals income are gone. You need to use different ways of thinking and marketing to keep yourself in business.
Monday, November 5, 2007
HUD Approval for FHA loans – becoming a Loan Correspondent
With loan programs disappearing each day, many mortgage brokers and lenders are starting to look at FHA loans as a way to get borrowers to a closing. Nothing has been more frustrating in the past few months than getting an application and not being able to close the loan.
Mortgage brokers can only get approval from the Department of Housing and Urban Development (HUD) as a Loan Correspondent (also known as a “mini-eagle”). The requirements are a bit onerous for new companies but not as difficult if you have been in business for a while. The first requirement is that the applicant be an entity, either a corporation, limited liability company or a partnership. No sole proprietorships are allowed. Your company must be licensed in your home state and every state where you maintain a branch office. Part of the application is your company’s certified, audited financial statement showing at least $63,000 in net worth for one office and an additional $25,000 in net worth for each branch office (up to a maximum of $250,000 in net worth). At least 20% of your assets must be liquid (cash or securities that can easily be converted to cash). The financial statement cannot be more than one year old. The owner that is designated to supervise all FHA loan activity must have at least 3 years of mortgage origination experience. Your company cannot share office space with anyone else (you will submit photos of the inside and outside of your offices, including a photo of signage showing your company name). The offices must be staffed by at least 2 employees and must be furnished with typical office furniture and furnishings (chairs, desks, computers, phones, fax machines, etc.). You must have a sponsor who will send a certification letter that it will fund all FHA loans originated by your company. Your company and its principals must have satisfactory credit histories and you will be submitting credit reports as part of the application package. You must also certify on the application that neither the company nor its principals have been restricted, suspended, or otherwise sanctioned by any state or federal licensing department and HUD conducts background checks. And you must send in a HUD-approved Quality Control Plan. The application fee is $1,000.00 which is non-refundable.
FHA loans are more useful in certain parts of the country than others because of their restrictions but you should investigate whether you want to offer FHA loans to your customers and whether you meet the approval requirements.
Mortgage brokers can only get approval from the Department of Housing and Urban Development (HUD) as a Loan Correspondent (also known as a “mini-eagle”). The requirements are a bit onerous for new companies but not as difficult if you have been in business for a while. The first requirement is that the applicant be an entity, either a corporation, limited liability company or a partnership. No sole proprietorships are allowed. Your company must be licensed in your home state and every state where you maintain a branch office. Part of the application is your company’s certified, audited financial statement showing at least $63,000 in net worth for one office and an additional $25,000 in net worth for each branch office (up to a maximum of $250,000 in net worth). At least 20% of your assets must be liquid (cash or securities that can easily be converted to cash). The financial statement cannot be more than one year old. The owner that is designated to supervise all FHA loan activity must have at least 3 years of mortgage origination experience. Your company cannot share office space with anyone else (you will submit photos of the inside and outside of your offices, including a photo of signage showing your company name). The offices must be staffed by at least 2 employees and must be furnished with typical office furniture and furnishings (chairs, desks, computers, phones, fax machines, etc.). You must have a sponsor who will send a certification letter that it will fund all FHA loans originated by your company. Your company and its principals must have satisfactory credit histories and you will be submitting credit reports as part of the application package. You must also certify on the application that neither the company nor its principals have been restricted, suspended, or otherwise sanctioned by any state or federal licensing department and HUD conducts background checks. And you must send in a HUD-approved Quality Control Plan. The application fee is $1,000.00 which is non-refundable.
FHA loans are more useful in certain parts of the country than others because of their restrictions but you should investigate whether you want to offer FHA loans to your customers and whether you meet the approval requirements.
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