Do You Know Whether You Need A Certified Financial Statement?

A certified financial statement is one that has been reviewed by a certified public accountant (CPA) to ensure that the numbers reported in the statement are accurate and are not subject to material errors or omissions. Because the accountant is attaching a certification to the financial statement that he has reviewed the figures and found them to be accurate, he may incur liability if the figures in the financial statement turn out to be wrong. Because of the possible liability, many CPAs do not certify financial statements anymore. Those that do charge a large fee. For this reason, mortgage brokers and mortgage lenders are looking for reasons not to need a certified financial statement. There are two grounds for needing one: the state in which you are licensed requires them (for proving your net worth) or you want to originate FHA loans.

Although the SAFE Act changed many requirements for licensing, there are still a number of states (i.e., New Jersey for mortgage lenders, Illinois Residential Mortgage Licensees, California Residential Mortgage Lender Licensees) that require certified financial statements. You must provide such a statement as of the end of the most recent fiscal year. Some states do require a minimum net worth, other states do not. No matter in how many states you are licensed, you only need one certified financial statement. The statement must be in .pdf format and must be uploaded through the NMLS.

The ability to broker or originate FHA loans also comes with the requirement that you get a certified financial statement. If you are an FHA Loan Correspondent (also known as a “mini-eagle”), you should be aware that 2010 is the last year that FHA is approving your Loan Correspondent status. Starting in 2011, the investors to whom you will broker your loans will be responsible for the approval and oversight of you. Therefore, it is possible that each lender will have its own set of requirements. It is likely that many lenders will insist on certified financials so that they are more assured that you are not under-capitalized.

It is still required by the FHA that mortgage lenders who are originating FHA loans have a required minimum net worth that must be corroborated by the submission of a certified financial statement.

Since government loans are a large percentage of the loans that are being originated these days, it is likely that the need for (and expense of) a certified financial statement is not going away any time soon.