Don’t Wait for the Last Minute to Take Your Pre-Licensing Education

Each state is passing legislation to implement the federal SAFE Act. The legislation requires 20 hours of pre-licensing education and then passing two tests, one is a national component and the second test is a state component. Each state is setting its own deadline for when you need to complete the 20 hours and pass the exams. Don’t wait until the last minute to take the education and sit for the exams.

I have been in the business of helping mortgage lenders and brokers obtain and renew licenses for more than 10 years. Some of my clients are more on top of their licensing needs and I get the signed paper applications or information that I need to renew through the NMLS a few days after I request the information or send the applications for signature. Since I submit paperwork that I get back from clients within 48 hours of my receiving it, for some clients, this can mean that they get their renewals processed by the state banking department before the reviewers get hit by a deluge of renewals. I also have clients who do not respond as promptly and I cannot submit the renewals until maybe a day or two before the deadline. For these clients, the renewal process is very slow and may create a problem with closing loans because their license has expired. Some states are kind enough to send me a letter that states that the licensee can still close loans while the renewal is in processing. But other states are too busy to send me such a letter and my mortgage broker clients are sitting tight with their borrowers because their lenders will not let them close without a renewal license.

Don’t wait until the last minute. The NMLS system is new and you don’t want to learn what you need to know just before your license expires. Take a few minutes to find out what your deadlines are and get the pre-licensing education and exams done weeks ahead of schedule. You’ll be the one closing loans while the procrastinators are still waiting for their license approval.

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Examinations – the Most Common Issues Leading to Enforcement

The vast majority of mortgage brokers and lenders come through their banking department examination with a few problems to resolve. However, there are always some companies that have a major issue that is brought to light during the examination and leads to an enforcement action. You don't want to be one of them.

Which are the most common issues that lead to an enforcement action?

1. Unlicensed activity;
2. Material misstatements in loan documents;
3. Failure to produce documents;
4. GFEs that do not disclose all of the fees;
5. GFEs that are not consistent with HUD-1s;
6. APRs not attempted or seriously different from the required calculation.

Make a New Year’s resolution to look through your files to make sure you don’t find these errors. It could cost you plenty.

Staying in Compliance

I recently had a conversation with one of the state banking department regulators about ongoing compliance with that state's rules. This particular state had a minimum net worth requirement.

I have many clients who ask me about how to comply with a minimum net worth requirement when they first get their license. For example, New Jersey has a $50,000 minimum net worth requirement for first mortgage brokers. The minimum net worth is $150,000 for first and second mortgage brokers. This is a very high hurdle for many companies. Potential clients ask me all the time "do I need to keep that amount in the company name all the time?" They figure that they can put the money in when they apply for the license and immediately pull it out after the license is granted. Unfortunately, that isn't allowed. The rules usually state "must maintain a minimum net worth of $_______" or "shall register all loan orginators."

How do the state regulators find out that a company hasn't been following the rules after the license is granted? It is carelessness that trips up many companies. Many times that carelessness is uncovered when an examination is conducted by the banking department. Mortgage companies hand the examiner a balance sheet with a negative net worth or a file that has a 1003 signed by a loan officer who is not registered. Or a branch office has not been licensed.

The penalties can be huge. That state regulator that I was talking to mentioned that a company that had not maintained the minimum net worth had their license revoked. Other infractions have cost other brokers and lenders thousands of dollars in fines.

Can you afford to pay large fines or lose a license just because you think you won't get caught breaking the rules? The state regulators don't go after just the big fish. They will go after any licensee, no matter how small or large.