During the height of the real estate boom, mortgage companies were getting licensed in the states that had the most active selling climate. Assuming you could meet the brick and mortar and other licensing requirements, Nevada and Arizona were on everyone’s “hot” list. So were California and Florida.
Times are different now and the “hot” states are experiencing very high rates of foreclosures. This means a slow sales climate and selling prices that are plummeting. It is much more difficult now to make money in these states.
If you are licensed in a state that is not your home state, you should do some market research for that state. How much business are you doing in this state and how much profit are you making? Are there any very active markets in that state (not every city is experiencing the same level of sales meltdown)? Have sales prices fallen or risen? Do you have contacts in those active markets or can you create referral relationships?
Do the same market research in states that you are not licensed in now but could be if the conditions were favorable for you to make money. First, find the cities and states where sales levels are greater than the national average. Do you have any contacts in these cities? Can you find referral sources through your contacts? Don’t forget to use your business and social contacts to reach out to others who are living and working in other states and can lead you to those referral sources (the six degrees of separation phenomenon). If you join LinkedIn or Facebook or other internet social media, can you locate possible referral sources or borrowers?
You want to be one of the survivors in this very difficult market. This means changing strategies to take advantage of changes in the lending environment. Use the ability to be licensed in more than one state strategically to make more money.
Monday, August 18, 2008
Monday, August 11, 2008
Surety bonds
Mortgage brokers and mortgage lenders are frequently required to submit a surety bond as part of the licensing process. The bond guarantees that the mortgage broker/lender will obey the laws and regulations of the state in which it is licensed. In the event that the state banking department finds a violation of its laws or regulations, it can impose a fine or require the company to issue refunds to its customers. If the company does not make the required payments, the surety bond will be used to make the payments. When the bonding company makes the payment to the banking department, it then requires the mortgage company to reimburse the bonding company for all amounts it paid out under the bond.
Each state has its own language and required amount for its surety bond. Based on the language and amount of the bond, certain bond companies will not write surety bonds in certain states or will make the premiums to buy the bond very high. In the boom years that ended in 2006, it was very easy to get a surety bond. Underwriting was simple and premiums were low. But in the last two years, mortgage companies have gone out of business or filed for bankruptcy, leaving the bond companies to pay the claims that the mortgage companies should have. Since the risk has gone up to the bond underwriters, the costs of getting a surety bond have gone up for mortgage companies. Additionally, as the net worths of mortgage companies have gone down, it becomes harder for them to qualify to obtain or renew their surety bonds. Moreover a surge in litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. Start-up companies are being especially hard-hit by the new underwriting climate. Many of the surety bond companies refuse to underwrite surety bonds to new companies.
If you need a surety bond, you will have to expect to pay more than you have in the past. You can also anticipate that you may not qualify for as many bonds as you did in the past. This is the time to do your cost benefit analysis of each state in which you are licensed. Are the costs of maintaining your license in each state less than the fees you are making in each state? If not, get out of that state (follow each state’s rules for inactivating or surrendering a license) and cancel your registered agent and surety bond. If you intend to stay in the business, keep your financials looking healthy by putting earnings back into the business. Individual loan officers should be cognizant that in some states, their credit report must be submitted. You should also be aware that part of the underwriting process requires personal guarantees from the owners of the mortgage broker and lender companies. Even if the company goes out of business, the surety bond companies reserve the right to go after the owners to pay the claims from the banking departments.
It’s a difficult climate to be in the mortgage business and the state regulation will get tighter. Stay on top of the licensing requirements to ensure that your business stays in business.
Each state has its own language and required amount for its surety bond. Based on the language and amount of the bond, certain bond companies will not write surety bonds in certain states or will make the premiums to buy the bond very high. In the boom years that ended in 2006, it was very easy to get a surety bond. Underwriting was simple and premiums were low. But in the last two years, mortgage companies have gone out of business or filed for bankruptcy, leaving the bond companies to pay the claims that the mortgage companies should have. Since the risk has gone up to the bond underwriters, the costs of getting a surety bond have gone up for mortgage companies. Additionally, as the net worths of mortgage companies have gone down, it becomes harder for them to qualify to obtain or renew their surety bonds. Moreover a surge in litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. Start-up companies are being especially hard-hit by the new underwriting climate. Many of the surety bond companies refuse to underwrite surety bonds to new companies.
If you need a surety bond, you will have to expect to pay more than you have in the past. You can also anticipate that you may not qualify for as many bonds as you did in the past. This is the time to do your cost benefit analysis of each state in which you are licensed. Are the costs of maintaining your license in each state less than the fees you are making in each state? If not, get out of that state (follow each state’s rules for inactivating or surrendering a license) and cancel your registered agent and surety bond. If you intend to stay in the business, keep your financials looking healthy by putting earnings back into the business. Individual loan officers should be cognizant that in some states, their credit report must be submitted. You should also be aware that part of the underwriting process requires personal guarantees from the owners of the mortgage broker and lender companies. Even if the company goes out of business, the surety bond companies reserve the right to go after the owners to pay the claims from the banking departments.
It’s a difficult climate to be in the mortgage business and the state regulation will get tighter. Stay on top of the licensing requirements to ensure that your business stays in business.
Monday, August 4, 2008
New Federal Law Affects Loan Originators
On July 30, 2008, President Bush signed into law the S.A.F.E. Mortgage Licensing Act of 2008. It was part of the Housing and Economic Recovery Act which is designed to help homeowners caught in the foreclosure mess. The S.A.F.E. Mortgage Licensing Act is designed to regulate loan originators and start a nationwide scheme of loan officer licensing.
Some of the provisions of the new law are:
1. All loan officers will be part of the Nationwide Mortgage License System (NMLS);
2. The NMLS will create a unique identifying number for each loan officer that permanently identifies the loan officer;
3. All loan officers will have to be registered or licensed in their states and maintain their registration or license in order to originate mortgages;
4. All independent contractor loan officers must be registered or licensed;
5. In order to get licensed, loan officers must submit to the NMLS fingerprints, a personal history and experience report;
6. The NMLS will run criminal background and credit history checks on each loan officer;
7. In order to get a state license, a loan officer must:
a. never have had a license revoked in any jurisdiction, have had no convictions, pled guilty or no contest to a felony in any court for the past 7 years or at any time in the past if the felony involved fraud, dishonesty, money laundering or breach of trust;
b. show good character an financial responsibility;
c. completed 20 hours of pre-licensing education;
d. passed a written test;
e. met a net worth requirement, paid into a state fund or obtained a surety bond.
8. In order to renew a license, loan officers will need to complete at least 8 hours of continuing education credits.
All states are going to have to create new procedures to comply with the new federal law. Stay tuned for more information as the states roll out their implementation requirements.
Some of the provisions of the new law are:
1. All loan officers will be part of the Nationwide Mortgage License System (NMLS);
2. The NMLS will create a unique identifying number for each loan officer that permanently identifies the loan officer;
3. All loan officers will have to be registered or licensed in their states and maintain their registration or license in order to originate mortgages;
4. All independent contractor loan officers must be registered or licensed;
5. In order to get licensed, loan officers must submit to the NMLS fingerprints, a personal history and experience report;
6. The NMLS will run criminal background and credit history checks on each loan officer;
7. In order to get a state license, a loan officer must:
a. never have had a license revoked in any jurisdiction, have had no convictions, pled guilty or no contest to a felony in any court for the past 7 years or at any time in the past if the felony involved fraud, dishonesty, money laundering or breach of trust;
b. show good character an financial responsibility;
c. completed 20 hours of pre-licensing education;
d. passed a written test;
e. met a net worth requirement, paid into a state fund or obtained a surety bond.
8. In order to renew a license, loan officers will need to complete at least 8 hours of continuing education credits.
All states are going to have to create new procedures to comply with the new federal law. Stay tuned for more information as the states roll out their implementation requirements.
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