Many states require your company to maintain a minimum net worth in order to get licensed and to keep your license. The amounts range from $10,000 to $1,000,000. If you are licensed or want to be licensed in a state that has minimum net worth requirements how do you obtain the capital you need?
There are a number of ways. The most obvious is to transfer money held in your personal bank account into the corporate entity’ bank account. Initially, this is how every new mortgage company gets started.
Beyond that, you could sell equity in the company and bring on a new partner. Your partner would have to buy shares in your corporation or a membership interest in your limited liability company, and the money from the sale of company stock or membership interests becomes part of the capital and net worth of the company.
Although it’s not easy, you may be able to find an investor willing to provide funding without giving up any equity in your business. Typically, this is a family member or a very good friend.
As you commence business operations, you can build net worth through retained earnings. Retained earnings are the profits your company makes that are not paid out to the owners of the company. To increase profits, increase your income (more closings or larger fees per closing) and/or decrease your expenses (go through each expense line-by-line and think of ways that each can be lowered). If the profits are kept in the company’s bank accounts or used to pay for company assets, they are counted as part of the company’s net worth.
Once you have been in business for awhile, you can explore merging with another company whose assets combined with yours will meet the minimum net worth requirements typically required of a mortgage lender. When you are looking to merge with another company, you want to find a company whose strengths complement your strengths. Together, your company and the company you merge with are greater than your two companies individually.
Eventually your plan should be to generate higher earnings by acquiring weaker companies and loan originators displaced by competitors who could not meet the net worth requirements and were forced to close. Your company may then continue to increase net worth as other competitive advantages become available as a larger company with increased production and profitability. Larger companies usually are stronger than smaller companies. They can offer more products, have offices in many locations to serve more borrowers, are licensed in more than one state, and have better management (which is how you became a bigger company).
The other key to the net worth issue is maintaining the net worth. Your company should never go below the minimum net worth required by your licenses. Hoard cash to get you through the lean times (including now) and do not make distributions to the owners if they will jeopardize your company’s net worth. Although you know that when your accountant comes in to audit your financials after each year-end so you make sure that your net worth meets the minimum requirements, you could also be subject to a random and unexpected examination of your records by your state licensing agency. You want to make sure that they find that you met every requirement, including net worth, when they conduct their examination.
Showing posts with label mortgage banker license. Show all posts
Showing posts with label mortgage banker license. Show all posts
Tuesday, August 23, 2011
Tuesday, April 19, 2011
The Rules Keep Changing – A New Opportunity For You?
The SAFE Act required every state to create laws that governed the licensing of mortgage bankers, mortgage brokers and their employees. While creating the new laws that were compliant with the SAFE Act, many states changed their requirements for licensing.
Many states that had previously required that you maintain a physical office in their state eliminated that requirement (i.e., New Jersey and Pennsylvania). If you had ever thought of doing business in a state but were reluctant to spend the money on office rent and staff, re-check the new requirements in that state. You may find that the brick and mortar requirement doesn’t exist anymore and you can now get licensed there.
You should also check minimum net worth requirements. In some states they went up or were created where they had never existed, and in other states, because certain categories of licenses were changed, the minimum net worth requirements were changed.
Lastly, most states do not require audited financial statements, where they once may have been part of the licensing process. I know many mortgage brokers who did not want to spend the money to get an audited financial statement so they did not get FHA approval (FHA approval for the “mini-eagle” for loan correspondents does not exist anymore) or get licensed in a particular state.
My advice is to check the current licensing requirements for any state in which you may have in the past wished to do business. If you don’t have the time or inclination, hire outside counsel who can check it for you. You may find a new source of business in another state.
Many states that had previously required that you maintain a physical office in their state eliminated that requirement (i.e., New Jersey and Pennsylvania). If you had ever thought of doing business in a state but were reluctant to spend the money on office rent and staff, re-check the new requirements in that state. You may find that the brick and mortar requirement doesn’t exist anymore and you can now get licensed there.
You should also check minimum net worth requirements. In some states they went up or were created where they had never existed, and in other states, because certain categories of licenses were changed, the minimum net worth requirements were changed.
Lastly, most states do not require audited financial statements, where they once may have been part of the licensing process. I know many mortgage brokers who did not want to spend the money to get an audited financial statement so they did not get FHA approval (FHA approval for the “mini-eagle” for loan correspondents does not exist anymore) or get licensed in a particular state.
My advice is to check the current licensing requirements for any state in which you may have in the past wished to do business. If you don’t have the time or inclination, hire outside counsel who can check it for you. You may find a new source of business in another state.
Monday, January 24, 2011
What Do You Do If an Investor Asks For a Copy of Your License?
Many times in the past (especially just after renewal season), I have received calls from my clients asking for copies of their licenses because an investor had asked for it. Most states have stopped sending out paper licenses.
If an investor needs proof that you are licensed in a particular state, you can either send that person to the NMLS Consumer Access database, at http://www.nmlsconsumeraccess.org/ or you can go to your own company record in the NMLS, click on Composite View, click on View Company, (or Branch if a branch license is needed), click on View License/Registration list (on left side of screen) and then print out the list. You can do the same with any loan originator. For some states, this is the only record they will have for you; many states do not send out paper licenses or keep a database on their state agency website.
This is the new normal.
If an investor needs proof that you are licensed in a particular state, you can either send that person to the NMLS Consumer Access database, at http://www.nmlsconsumeraccess.org/ or you can go to your own company record in the NMLS, click on Composite View, click on View Company, (or Branch if a branch license is needed), click on View License/Registration list (on left side of screen) and then print out the list. You can do the same with any loan originator. For some states, this is the only record they will have for you; many states do not send out paper licenses or keep a database on their state agency website.
This is the new normal.
Monday, January 3, 2011
Here’s Some Possible Help if You Missed the December 31st Renewal Period Deadline – The Reinstatement Period
December 31st was the deadline for renewing your company and loan originator licenses. A number of my clients were very busy at the end of December trying to close loans. I was calling them every week to see whether they had renewed their licenses, or to find out whether their cash flow was sufficient for me to renew their licenses and charge the renewal fees to their credit cards. If you didn’t have someone calling you to remind you to start the renewal process by December 31st, are you sure you renewed all of your licenses?
The Nationwide Mortgage Licensing System (NMLS) has been sending out emails to all company administrators informing them of any licenses that were not renewed. If you received one of these emails, you are now aware that you messed up if you had intentions of renewing a particular license (although I’m sure that many of the “failure to renew licenses” were deliberate decisions not to renew a license). Even if you did not receive that email yet, you may now be realizing that you missed a renewal or one of your loan officers may have forgotten to renew his/her license. What can you do now?
Some states allow its licensees to renew late. It is a state by state decision and the time periods for getting in a “late” renewal vary by state. You can have only 15 days up to 2 months, depending on which state’s license you need. In most cases, you will need to pay a late fee but it’s much cheaper than starting a new license application from the beginning. You can see if your state is accepting late renewals by going to http://mortgage.nationwidelicensingsystem.org/SLR/COMMON/RENEWALS/Pages/default.aspx
and clicking on the Renewals Deadline Chart in step 3 for the chart of all states.
What if your state does not accept a reinstatement of your license (since it has technically expired as of December 31, 2010)? Call your state regulatory agency and speak to the reviewers in the licensing division and find out whether you need to submit an entire new application. Make that call immediately if you need to reinstate any of your licenses or those of your loan officers.
If you do need to reinstate a license, plan now for the renewals period that starts November, 2011. Set firm deadlines on your calendar to assess which licenses you will want to renew (are you making enough money from every branch office and every loan officer?). If your company NMLS administrator is you and you are usually too busy at the end of the year to handle this job, delegate it to an employee or hire an outside company that will take care of it for you. After all, if you don't have a license, you cannot make any money at all.
The Nationwide Mortgage Licensing System (NMLS) has been sending out emails to all company administrators informing them of any licenses that were not renewed. If you received one of these emails, you are now aware that you messed up if you had intentions of renewing a particular license (although I’m sure that many of the “failure to renew licenses” were deliberate decisions not to renew a license). Even if you did not receive that email yet, you may now be realizing that you missed a renewal or one of your loan officers may have forgotten to renew his/her license. What can you do now?
Some states allow its licensees to renew late. It is a state by state decision and the time periods for getting in a “late” renewal vary by state. You can have only 15 days up to 2 months, depending on which state’s license you need. In most cases, you will need to pay a late fee but it’s much cheaper than starting a new license application from the beginning. You can see if your state is accepting late renewals by going to http://mortgage.nationwidelicensingsystem.org/SLR/COMMON/RENEWALS/Pages/default.aspx
and clicking on the Renewals Deadline Chart in step 3 for the chart of all states.
What if your state does not accept a reinstatement of your license (since it has technically expired as of December 31, 2010)? Call your state regulatory agency and speak to the reviewers in the licensing division and find out whether you need to submit an entire new application. Make that call immediately if you need to reinstate any of your licenses or those of your loan officers.
If you do need to reinstate a license, plan now for the renewals period that starts November, 2011. Set firm deadlines on your calendar to assess which licenses you will want to renew (are you making enough money from every branch office and every loan officer?). If your company NMLS administrator is you and you are usually too busy at the end of the year to handle this job, delegate it to an employee or hire an outside company that will take care of it for you. After all, if you don't have a license, you cannot make any money at all.
Tuesday, September 7, 2010
What Should You Do If You Want to Surrender a License?
A number of mortgage brokers and lenders obtained licenses in multiple states for varying reasons. Lately, a number of clients have decided that those reasons are no longer valid (usually it has to do with not getting enough income from that state) and I get asked what they need to do to surrender the license.
Each state has its own procedures for surrendering a license and you must comply with that state’s procedure. To find out what that procedure is, check with the regulatory agency that issued your license. It may be on their website or it may involve a telephone call. If the state has already transitioned to the Nationwide Mortgage Licensing System (NMLS), the requirements will be there.
If the state is already on the NMLS, you must surrender through the NMLS. There may be additional requirements that appear on a checklist once the surrender request has been submitted through the NMLS. You may need to send in the original wall license. You may need to give prior written notice of your intention to surrender. You may need to file your final annual report within a set number of days after surrender.
Lastly, you must clear out your pipeline. Some states require you to immediately cease all activity once you surrender your license and other states may give you 30 days or so to close all loans in your pipeline. When you surrender your license, you must stop originating new loans.
Lastly, don’t forget that when you entered a new state, you had to file with the Secretary of State (or whichever agency regulates new and foreign corporations and LLCs). When you surrender your license, you need to also withdraw your authority to conduct business in that state. If you forget to do this last step, you could be liable for hundreds of dollars of annual registration fees.
Contact Robin Gronsky at Robin@Mortgagelicensesolutions.com if you need help with the NMLS or with your licensing applications (company or loan originator). I’ll keep what you tell me confidential but I cannot give you any specific legal advice until you become a client of the firm. This is done by written agreement only.
Each state has its own procedures for surrendering a license and you must comply with that state’s procedure. To find out what that procedure is, check with the regulatory agency that issued your license. It may be on their website or it may involve a telephone call. If the state has already transitioned to the Nationwide Mortgage Licensing System (NMLS), the requirements will be there.
If the state is already on the NMLS, you must surrender through the NMLS. There may be additional requirements that appear on a checklist once the surrender request has been submitted through the NMLS. You may need to send in the original wall license. You may need to give prior written notice of your intention to surrender. You may need to file your final annual report within a set number of days after surrender.
Lastly, you must clear out your pipeline. Some states require you to immediately cease all activity once you surrender your license and other states may give you 30 days or so to close all loans in your pipeline. When you surrender your license, you must stop originating new loans.
Lastly, don’t forget that when you entered a new state, you had to file with the Secretary of State (or whichever agency regulates new and foreign corporations and LLCs). When you surrender your license, you need to also withdraw your authority to conduct business in that state. If you forget to do this last step, you could be liable for hundreds of dollars of annual registration fees.
Contact Robin Gronsky at Robin@Mortgagelicensesolutions.com if you need help with the NMLS or with your licensing applications (company or loan originator). I’ll keep what you tell me confidential but I cannot give you any specific legal advice until you become a client of the firm. This is done by written agreement only.
Monday, August 23, 2010
If You Make These Advertising Mistakes, It Could Cost You Plenty
Advertising plays a prominent role in many mortgage companies’ efforts to find new borrowers. As your customers get bombarded by more and more advertising messages, the urge to create an advertising piece that will stand out from the crowd becomes more urgent. This sense of desperation leads many mortgage lenders and brokers to create promotion pieces that cross the lines of permissible advertising. Make sure you don’t make these mistakes that can lead to costly penalties.
1. Don’t lead consumers to believe the government or their existing lender is sending them mail. Many mortgage brokers use direct mail to solicit new business. Companies have distributed solicitations that use names of mortgage lenders in such a way that consumers believe it was sent to them by their lender, leading consumers to also believe, based on these solicitations, that their private financial information has been shared with another entity. These actions are a violation of the regulations of HUD and of the various states that regulate mortgage brokers and lenders. In addition, they can lead to consumer complaints to the regulatory agencies. The number of complaints the agency receives about you impacts how often you will be examined.
2. Do not omit the APR when advertising an interest rate. No matter what state you are conducting mortgage activity, all lenders and brokers are subject to the application of federal Truth-in-Lending laws, specifically Regulation Z. The statute requires, among other things, that if a lender or broker advertises a particular interest rate, they must also quote the Annual Percentage Rate, or APR. The APR is correctly defined as the "cost of money borrowed, expressed as an annual rate." The APR takes into account the note rate, which is the rate a borrower’s monthly payment is based on and any and all lender fees and finance charges. Yes, most borrowers don’t understand APR but you are still required to use it in your advertising and be able to explain it to a potential customer.
3. Do not use terms that indicate unlimited access to credit. Advertisements that contain terms such as "bad credit no problem" (or similar phrases) or language that implies that an applicant will have total access to credit without clearly and conspicuously disclosing the material limitations on the availability of credit are prohibited under many state laws. In most states, lenders and brokers need to list any limitations to getting the advertised mortgage, including income requirements, limitations for consumers with bad credit (such as a higher rate), and that restrictions as to the maximum principal amount of the loan offered may apply.
4. All states require NMLS unique identification numbers in advertising. This one is easy to comply with. You have to add your company and mortgage loan originator NMLS unique identification number to all of your advertising materials, including websites and business cards. In addition, some states require company addresses and specific language that must be used on all advertising materials. You must check with each state in which you are licensed to find out the specific requirements and you must fully comply with all such requirements.
5. Be aware of the catch-all “fraudulent, deceptive or misleading” prohibitions. Both the Federal Trade Commission and different state regulatory agencies have statutes that prohibit an “unfair or deceptive act or practice for a mortgage broker or lender to make any representation or statement of fact in an advertisement if the representation or statement is false or misleading or has the tendency or capacity to be misleading” or variations of this phraseology. Lately, the regulators are cracking down on advertisements regarding low interest rate loans that fail to mention that there may be negative amortization. If you think, but are not sure that your advertising contains inaccurate or misleading language, change the advertisement.
If you violate an advertising statute or regulation, at best, you will be asked to “cease and desist” the prohibited advertising and be subjected to increased scrutiny of all of your business activities. At worst, you could lose your licenses and pay heavy fines. This could also impact your premiums with your surety bond underwriter.
1. Don’t lead consumers to believe the government or their existing lender is sending them mail. Many mortgage brokers use direct mail to solicit new business. Companies have distributed solicitations that use names of mortgage lenders in such a way that consumers believe it was sent to them by their lender, leading consumers to also believe, based on these solicitations, that their private financial information has been shared with another entity. These actions are a violation of the regulations of HUD and of the various states that regulate mortgage brokers and lenders. In addition, they can lead to consumer complaints to the regulatory agencies. The number of complaints the agency receives about you impacts how often you will be examined.
2. Do not omit the APR when advertising an interest rate. No matter what state you are conducting mortgage activity, all lenders and brokers are subject to the application of federal Truth-in-Lending laws, specifically Regulation Z. The statute requires, among other things, that if a lender or broker advertises a particular interest rate, they must also quote the Annual Percentage Rate, or APR. The APR is correctly defined as the "cost of money borrowed, expressed as an annual rate." The APR takes into account the note rate, which is the rate a borrower’s monthly payment is based on and any and all lender fees and finance charges. Yes, most borrowers don’t understand APR but you are still required to use it in your advertising and be able to explain it to a potential customer.
3. Do not use terms that indicate unlimited access to credit. Advertisements that contain terms such as "bad credit no problem" (or similar phrases) or language that implies that an applicant will have total access to credit without clearly and conspicuously disclosing the material limitations on the availability of credit are prohibited under many state laws. In most states, lenders and brokers need to list any limitations to getting the advertised mortgage, including income requirements, limitations for consumers with bad credit (such as a higher rate), and that restrictions as to the maximum principal amount of the loan offered may apply.
4. All states require NMLS unique identification numbers in advertising. This one is easy to comply with. You have to add your company and mortgage loan originator NMLS unique identification number to all of your advertising materials, including websites and business cards. In addition, some states require company addresses and specific language that must be used on all advertising materials. You must check with each state in which you are licensed to find out the specific requirements and you must fully comply with all such requirements.
5. Be aware of the catch-all “fraudulent, deceptive or misleading” prohibitions. Both the Federal Trade Commission and different state regulatory agencies have statutes that prohibit an “unfair or deceptive act or practice for a mortgage broker or lender to make any representation or statement of fact in an advertisement if the representation or statement is false or misleading or has the tendency or capacity to be misleading” or variations of this phraseology. Lately, the regulators are cracking down on advertisements regarding low interest rate loans that fail to mention that there may be negative amortization. If you think, but are not sure that your advertising contains inaccurate or misleading language, change the advertisement.
If you violate an advertising statute or regulation, at best, you will be asked to “cease and desist” the prohibited advertising and be subjected to increased scrutiny of all of your business activities. At worst, you could lose your licenses and pay heavy fines. This could also impact your premiums with your surety bond underwriter.
Monday, August 9, 2010
Extensions to the July 31st Deadline – Are You in One of These States?
July 31st was supposed to have been the deadline for completing the licensing requirements in certain states. Some states have decided to extend these deadlines to allow their reviewers additional time to review all of the transition applications. If you are a licensee in New Jersey, Maryland, or South Carolina, you have been granted the right to originate loans until September 30, 2010 (Maryland), October 1, 2010 (New Jersey), or October 31, 2010 (South Carolina Board of Financial Institutions) even if your application is still pending. You should make sure that you have completed all of your licensing requirements as soon as possible to ensure that you are unable to close your loans when this extended deadline passes. The reviewers are finding that many applications are incomplete and rather than denying these companies and loan originators the right to originate, they have given you more time. You should be checking your task lists on the NMLS to see what requirements you still need to comply with. When your application has been approved, the designation on your MU-4 record is usually “approved – conditional.” This is because the required credit check has not been reviewed yet (and won’t be until starting October 1, 2010).
If you missed the July 31, 2010 deadline, you are not covered by an extension. You need to submit a new application (not a transition application) and you cannot originate loans until your application has been approved.
Contact Robin Gronsky at Robin@Mortgagelicensesolutions.com if you want to explore expanding into new states or need help with your licensing applications (company or loan originator). I’ll keep what you tell me confidential but I cannot give you any specific legal advice until you become a client of the firm. This is done by written agreement only.
If you missed the July 31, 2010 deadline, you are not covered by an extension. You need to submit a new application (not a transition application) and you cannot originate loans until your application has been approved.
Contact Robin Gronsky at Robin@Mortgagelicensesolutions.com if you want to explore expanding into new states or need help with your licensing applications (company or loan originator). I’ll keep what you tell me confidential but I cannot give you any specific legal advice until you become a client of the firm. This is done by written agreement only.
Tuesday, June 15, 2010
Where the Rich People Are Moving and Why You Should Care
A recent article in Forbes magazine analyzed IRS data to find where the rich people are moving. The analysis is by county and the number one county was Collier County, Florida, where Naples is situated. The second place county was Greene County, Georgia, between Atlanta and Augusta.
What can you do with data like this? If you are deciding where to relocate to start up your mortgage origination business, you want to pick a place where there are plenty of people who can afford to buy houses. You also want buyers who have more expensive houses, because those houses have larger mortgages. The same thought process should be used if you are not relocating but looking to expand your business. Which states are the most lucrative? Which states have the cheapest level of entry? If the state you are considering does not require a brick-and-mortar presence, that will save you a ton of money in start-up costs. Can you meet the other licensing requirements – number of years in the industry, surety bonds, passing another exam?
If you are not moving to your new states, how will you get new business? Networking, of course. Do you know anyone in those states who can introduce you to real estate agents, builders, accountants, and other referral sources? Can you use LinkedIn or Plaxo to find referral sources? How much would traditional advertising cost you? Can you form a strategic alliance with other mortgage professionals and community banks in the new states in which you want to do business?
If you have never thought about originating mortgages outside of your home state, this may be a good time to start investigating your options. The mortgage world is changing and you must change with it or it will leave you behind.
Contact Robin Gronsky at Rgronsky@Gronskylaw.com if you want to explore expanding into new states. I’ll keep what you tell me confidential but I cannot give you any specific legal advice until you become a client of the firm. This is done by written agreement only.
What can you do with data like this? If you are deciding where to relocate to start up your mortgage origination business, you want to pick a place where there are plenty of people who can afford to buy houses. You also want buyers who have more expensive houses, because those houses have larger mortgages. The same thought process should be used if you are not relocating but looking to expand your business. Which states are the most lucrative? Which states have the cheapest level of entry? If the state you are considering does not require a brick-and-mortar presence, that will save you a ton of money in start-up costs. Can you meet the other licensing requirements – number of years in the industry, surety bonds, passing another exam?
If you are not moving to your new states, how will you get new business? Networking, of course. Do you know anyone in those states who can introduce you to real estate agents, builders, accountants, and other referral sources? Can you use LinkedIn or Plaxo to find referral sources? How much would traditional advertising cost you? Can you form a strategic alliance with other mortgage professionals and community banks in the new states in which you want to do business?
If you have never thought about originating mortgages outside of your home state, this may be a good time to start investigating your options. The mortgage world is changing and you must change with it or it will leave you behind.
Contact Robin Gronsky at Rgronsky@Gronskylaw.com if you want to explore expanding into new states. I’ll keep what you tell me confidential but I cannot give you any specific legal advice until you become a client of the firm. This is done by written agreement only.
Tuesday, April 20, 2010
Managing Multiple Licenses
The transition to the Nationwide Mortgage Licensing System (NMLS) has many mortgage banker and broker companies who hold licenses in more than one state frustrated over the need to keep track of many new license requirements with different deadlines. Many owners had grown used to the different licensing requirements that the different banking departments used to require but now the rules have all changed.
The SAFE Act was the catalyst to get the state legislators to look at their licensing statutes and tweaking their existing requirements on top of adding the requirements necessitated by the SAFE Act. Some of the states did change their requirements, adding new categories of licensees, eliminating categories of licensees, or changing the qualifications. Even if you had completed some of the requirements, you had to again get your fingerprints taken, provide credit reports, and obtain larger surety bonds. In addition, you now had to license all of your loan officers (not previously required in every state). Each state set its own deadline for when all licensing conditions needed to be completed.
How do you ensure that not only you, but all of your loan officers are in compliance with all licensing requirements? If you run a small company or branch office, you may be the one person who wears all the hats other than originating loans. Therefore, you may be the one who must keep track of all of the requirements, all of the loan officers, and all of the deadlines. Or perhaps you have an administrative assistant who can juggle this task along with her other job responsibilities. It is probably better if one person coordinates for your entire office. You don’t want each loan officer to wing it on his own. You should have that one person in charge of this task create a spreadsheet of loan originators, states in which they must be licensed, requirements of licensing, dates by which each requirement must be completed and dates by which each requirement is completed. The spreadsheet should be reviewed maybe once a week to ensure that action is being taken on a timely basis. None of the loan officers should be allowed to wait until the last minute to complete their requirements as this can leave you with half of your staff taking the 20 hours of pre-licensing education when you need them to help clear stipulations. This once a week review must be mandatory, otherwise you will find that you are getting to it whenever you can get around to it. And that, of course, means that it will be left to the last minute.
If you do not have time to do it yourself and there is no one in your office who can do it, outsource this job. Let an outside company do the tracking of the requirements and the deadlines. You won’t have to spend the time on this detail-oriented task so you can concentrate on the activities that make you money.
Please feel free to forward this blog post to your colleagues, listserv members or favorite bloggers. Or if you would like to run it (in whole or in part) in any publication or quote from it, simply include my name and URL: http://www.mortgagelicensesolutions.com. No prior permission needed. To inquire about joining my list to receive my blog posts or my availability to speak to your group or write an article for your publication, please email me at Robin@Mortgagelicensesolutions.com. Thank you!
The SAFE Act was the catalyst to get the state legislators to look at their licensing statutes and tweaking their existing requirements on top of adding the requirements necessitated by the SAFE Act. Some of the states did change their requirements, adding new categories of licensees, eliminating categories of licensees, or changing the qualifications. Even if you had completed some of the requirements, you had to again get your fingerprints taken, provide credit reports, and obtain larger surety bonds. In addition, you now had to license all of your loan officers (not previously required in every state). Each state set its own deadline for when all licensing conditions needed to be completed.
How do you ensure that not only you, but all of your loan officers are in compliance with all licensing requirements? If you run a small company or branch office, you may be the one person who wears all the hats other than originating loans. Therefore, you may be the one who must keep track of all of the requirements, all of the loan officers, and all of the deadlines. Or perhaps you have an administrative assistant who can juggle this task along with her other job responsibilities. It is probably better if one person coordinates for your entire office. You don’t want each loan officer to wing it on his own. You should have that one person in charge of this task create a spreadsheet of loan originators, states in which they must be licensed, requirements of licensing, dates by which each requirement must be completed and dates by which each requirement is completed. The spreadsheet should be reviewed maybe once a week to ensure that action is being taken on a timely basis. None of the loan officers should be allowed to wait until the last minute to complete their requirements as this can leave you with half of your staff taking the 20 hours of pre-licensing education when you need them to help clear stipulations. This once a week review must be mandatory, otherwise you will find that you are getting to it whenever you can get around to it. And that, of course, means that it will be left to the last minute.
If you do not have time to do it yourself and there is no one in your office who can do it, outsource this job. Let an outside company do the tracking of the requirements and the deadlines. You won’t have to spend the time on this detail-oriented task so you can concentrate on the activities that make you money.
Please feel free to forward this blog post to your colleagues, listserv members or favorite bloggers. Or if you would like to run it (in whole or in part) in any publication or quote from it, simply include my name and URL: http://www.mortgagelicensesolutions.com. No prior permission needed. To inquire about joining my list to receive my blog posts or my availability to speak to your group or write an article for your publication, please email me at Robin@Mortgagelicensesolutions.com. Thank you!
Monday, March 15, 2010
What Does It Cost To Get a Mortgage Broker/Banker License?
If you are thinking of starting your own mortgage broker or banker company or expanding your existing business into a new state, you need to put together your budget. One of your start-up or expansion costs is the cost of licensing. How do you calculate that? The costs vary by state but there are similar requirements in most states.
The calculation starts with whether you are creating a new corporation or limited liability corporation (LLC). There are fees to incorporate or register your LLC in your home state. If you are expanding into a new state, you must file a document that authorizes your to conduct business outside of your home state (usually called a Certificate of Authority to Transact Business). Once you are incorporated or have authority to do business, you apply for the mortgage broker or banker license. In just about every state that means starting with the Nationwide Mortgage Licensing System (NMLS). You complete an application called an MU1 about the company, an MU2 about the owners, and an MU4 for each mortgage loan originator. There is an administrative fee just to get your company onto the NMLS plus the license fee that each state charges. Each state has its own additional requirements that may require you to spend more to get your license. Those requirements may be a surety bond (so you pay an insurance premium), a financial statement prepared by an accountant (add in an accountant’s fee), credit reports for the owners and officers of the company, background checks and fingerprint cards, and required licensing of one of the owners who is responsible for day-to-day operations. There are also still some states that require a physical presence in their state so you need to rent an office.
When you add up all the fees, you could be looking at anything from $2,000 to
$4,000. That does not include the costs for getting your loan officers licensed (and you must have at least one person licensed as a loan originator, even in a one-man shop). If you are getting a new license as part of an expansion, you must do a cost benefit analysis to evaluate whether the costs of getting the license are less than the revenues that you expect to earn in that state.
Please feel free to forward this blog post to your colleagues, listserv members or favorite bloggers. Or if you would like to run it (in whole or in part) in any publication or quote from it, simply include my name and URL: http://www.mortgagelicensesolutions.com. No prior permission needed. To inquire about joining my list to receive my blog posts or my availability to speak to your group or write an article for your publication, please email me at Robin@Mortgagelicensesolutions.com. Thank you!
The calculation starts with whether you are creating a new corporation or limited liability corporation (LLC). There are fees to incorporate or register your LLC in your home state. If you are expanding into a new state, you must file a document that authorizes your to conduct business outside of your home state (usually called a Certificate of Authority to Transact Business). Once you are incorporated or have authority to do business, you apply for the mortgage broker or banker license. In just about every state that means starting with the Nationwide Mortgage Licensing System (NMLS). You complete an application called an MU1 about the company, an MU2 about the owners, and an MU4 for each mortgage loan originator. There is an administrative fee just to get your company onto the NMLS plus the license fee that each state charges. Each state has its own additional requirements that may require you to spend more to get your license. Those requirements may be a surety bond (so you pay an insurance premium), a financial statement prepared by an accountant (add in an accountant’s fee), credit reports for the owners and officers of the company, background checks and fingerprint cards, and required licensing of one of the owners who is responsible for day-to-day operations. There are also still some states that require a physical presence in their state so you need to rent an office.
When you add up all the fees, you could be looking at anything from $2,000 to
$4,000. That does not include the costs for getting your loan officers licensed (and you must have at least one person licensed as a loan originator, even in a one-man shop). If you are getting a new license as part of an expansion, you must do a cost benefit analysis to evaluate whether the costs of getting the license are less than the revenues that you expect to earn in that state.
Please feel free to forward this blog post to your colleagues, listserv members or favorite bloggers. Or if you would like to run it (in whole or in part) in any publication or quote from it, simply include my name and URL: http://www.mortgagelicensesolutions.com. No prior permission needed. To inquire about joining my list to receive my blog posts or my availability to speak to your group or write an article for your publication, please email me at Robin@Mortgagelicensesolutions.com. Thank you!
Friday, August 28, 2009
Do You Need a License?
I periodically get calls and emails, asking me if a certain person needs a license for the activities he is doing. Maybe it’s mortgage loan lead generation, sometimes it’s hard money lending or commercial mortgage brokering. My answer is always to read the statutes in your state (or any state in which you wwant to do business)regarding residential mortgage licensing to see if the activity that you are proposing to do fit within the description of a mortgage broker or mortgage lender. Also read the exemptions from licensing. If your activities fit within the definition of “mortgage broker” or “mortgage lender” and you don’t fit within any of the exemptions, you need a license. If your activity is not residential mortgages, also check the statutes for commercial mortgages to see if any such statute exists, whether your activity falls within the definition of mortgage broker or lender and whether you fall within the exemptions. It’s that simple. If you don't understand the language in the statutes, you need to hire someone like me who can explain the statutes to you.
Please feel free to forward this blog post to your colleagues, listserv members or favorite bloggers. Or if you would like to run it (in whole or in part) in any publication or quote from it, simply include my name and URL: http://www.mortgagelicensesolutions.com. No prior permission needed. To inquire about joining my list to receive my blog posts or my availability to speak to your group or write an article for your publication, please email me at Robin@Mortgagelicensesolutions.com. Thank you!
Please feel free to forward this blog post to your colleagues, listserv members or favorite bloggers. Or if you would like to run it (in whole or in part) in any publication or quote from it, simply include my name and URL: http://www.mortgagelicensesolutions.com. No prior permission needed. To inquire about joining my list to receive my blog posts or my availability to speak to your group or write an article for your publication, please email me at Robin@Mortgagelicensesolutions.com. Thank you!
Tuesday, May 6, 2008
Inactive status
Maybe I never noticed during the busy years of the real estate bubble, but I am aware now that some states let you put your license in an “inactive” status. What does this mean and why would you want to do this?
Inactive status means that you have notified the state banking department that you are not actively conducting business in their state but you do not wish to relinquish your license. For those states that have an inactive status for licensees, notification may mean sending a letter or completing and submitting a specific form. Arizona, Florida, Montana, New Jersey, New York, Oklahoma, Texas, and Washington are some of the states that have a formal inactive status.
However, other states do not have such a category and if you do not wish to maintain the license and all of its requirements, you must surrender the license.
For states that allow you to go inactive, it is an excellent way to temporarily suspend your expenses in that state and wait until the market comes back. It permits you to postpone making a decision about your current business plan until the subprime mess shakes itself out and you can jump back into the newest trends. You will not need to go through the time and expense of getting a license when you wish to go back into that state. You only have to re-file for active license status.
What if your state does not have a category called inactive licensee? Then you must make a cost-benefit analysis of keeping your license. Is the reason that you obtained the license still valid but market conditions are not permitting you to earn enough in fees to justify the expense of surety bonds, accountants’ fees, renewal fees, and registered agent fees? Then, bolster your marketing dollars so that the license does become profitable. If you feel that you misjudged the market in a particular state, then surrender the license and cut your losses. Not every business proposition is a winner. Know when to hold ‘em and know when to fold ‘em.
Inactive status means that you have notified the state banking department that you are not actively conducting business in their state but you do not wish to relinquish your license. For those states that have an inactive status for licensees, notification may mean sending a letter or completing and submitting a specific form. Arizona, Florida, Montana, New Jersey, New York, Oklahoma, Texas, and Washington are some of the states that have a formal inactive status.
However, other states do not have such a category and if you do not wish to maintain the license and all of its requirements, you must surrender the license.
For states that allow you to go inactive, it is an excellent way to temporarily suspend your expenses in that state and wait until the market comes back. It permits you to postpone making a decision about your current business plan until the subprime mess shakes itself out and you can jump back into the newest trends. You will not need to go through the time and expense of getting a license when you wish to go back into that state. You only have to re-file for active license status.
What if your state does not have a category called inactive licensee? Then you must make a cost-benefit analysis of keeping your license. Is the reason that you obtained the license still valid but market conditions are not permitting you to earn enough in fees to justify the expense of surety bonds, accountants’ fees, renewal fees, and registered agent fees? Then, bolster your marketing dollars so that the license does become profitable. If you feel that you misjudged the market in a particular state, then surrender the license and cut your losses. Not every business proposition is a winner. Know when to hold ‘em and know when to fold ‘em.
Wednesday, October 17, 2007
Should You Renew All of Your Licenses?
The mortgage business is still very quiet and predicted to stay that way for at least another year. Those mortgage companies that hold licenses in multiple states may be wondering whether it is economically feasible to maintain all of the licenses it holds.
I recommend that every license should undergo an analysis of whether the costs of keeping the license are justified by the fees and commissions earned in each state. How much do you earn in each state? Then you must calculate how much the renewal fee for each license is, add in the fees to file the company annual report with the Secretary of State, the premiums for surety bonds, whether you must maintain a certain minimum net worth that is greater than you would normally retain in your business account, and the cost of any brick and mortar offices and employees in each state. Don’t forget to subtract any taxes you must pay on the income that you earn from each state. The resulting number should determine whether you want to renew that state’s license.
If the income you earn from any state is outweighed by the costs of sustaining the license, you must determine whether there are other factors that could tip the scales in favor of renewing the license. Do you have a great referral source for that state that you do not want to lose? Do your customers have second homes in that state and use you for the mortgages on both homes?
Maybe there is no good reason to keep the license. In that case, you may want to inquire as to whether the license can be made inactive. Some of the states that permit inactive status are Arizona, Florida, Montana, New Jersey, New York, Oklahoma, Texas, and Washington. When a license is inactive, you cannot broker or originate mortgages in that state. However, you do not have to go through the licensing process again when the market turns and you want to go back into business in that state. All that you must typically do is apply for re-activation and pay a re-activation fee. It is quicker and much less difficult than re-applying for a new license even if you had perfect examinations in years past.
If your marketing plan has drastically changed for the next few years and the state in which you don’t want to be licensed does not have inactive status, then it makes sense to surrender the license.
I recommend that every license should undergo an analysis of whether the costs of keeping the license are justified by the fees and commissions earned in each state. How much do you earn in each state? Then you must calculate how much the renewal fee for each license is, add in the fees to file the company annual report with the Secretary of State, the premiums for surety bonds, whether you must maintain a certain minimum net worth that is greater than you would normally retain in your business account, and the cost of any brick and mortar offices and employees in each state. Don’t forget to subtract any taxes you must pay on the income that you earn from each state. The resulting number should determine whether you want to renew that state’s license.
If the income you earn from any state is outweighed by the costs of sustaining the license, you must determine whether there are other factors that could tip the scales in favor of renewing the license. Do you have a great referral source for that state that you do not want to lose? Do your customers have second homes in that state and use you for the mortgages on both homes?
Maybe there is no good reason to keep the license. In that case, you may want to inquire as to whether the license can be made inactive. Some of the states that permit inactive status are Arizona, Florida, Montana, New Jersey, New York, Oklahoma, Texas, and Washington. When a license is inactive, you cannot broker or originate mortgages in that state. However, you do not have to go through the licensing process again when the market turns and you want to go back into business in that state. All that you must typically do is apply for re-activation and pay a re-activation fee. It is quicker and much less difficult than re-applying for a new license even if you had perfect examinations in years past.
If your marketing plan has drastically changed for the next few years and the state in which you don’t want to be licensed does not have inactive status, then it makes sense to surrender the license.
Thursday, October 11, 2007
Starting Your New Business (Part II)
Before you even open your doors, you must have a marketing plan in place. This requires you to sit down and assess your competition and decide how you will be different from your competitors. Are you going to specialize in one segment of the population? Are you going to specialize in only a few products? How will you find your customers? What will be the budget for your marketing and how will it be spent? The more you write down about the research you have done and the specific plans you have for the first year, first three year and first five years of operations, the more likely your chances are that you will succeed. The climate for new mortgage companies is very difficult right now. All over the country existing mortgage businesses are shutting down. You must have a strategy for getting new business.
You must also plan for how loans will be processed and closed once you or your loan officers bring the new business in the door. Will this function be done in-house or will it be outsourced? Do you have the knowledge to do everything yourself in order to keep costs down? Do you know which software to buy? Do you have a source for credit reports, appraisers, relationships with title companies, and real estate lawyers? It is imperative that you do your research before you start your business. Otherwise, you will be throwing your money away as you learn on the fly.
When you have done your research, set up your systems and your license has been approved, you are ready to open for business. Good luck and I hope you reach your goals.
You must also plan for how loans will be processed and closed once you or your loan officers bring the new business in the door. Will this function be done in-house or will it be outsourced? Do you have the knowledge to do everything yourself in order to keep costs down? Do you know which software to buy? Do you have a source for credit reports, appraisers, relationships with title companies, and real estate lawyers? It is imperative that you do your research before you start your business. Otherwise, you will be throwing your money away as you learn on the fly.
When you have done your research, set up your systems and your license has been approved, you are ready to open for business. Good luck and I hope you reach your goals.
Thursday, October 4, 2007
Starting Your New Business (Part I)
Although there are plenty of companies out there that are shutting down, I am still getting phone calls from people wanting to start their own company. What should the owner of a new company do to ensure a successful beginning?
First, create a corporation or limited liability company because of the liability protection it provides. You will run into lawsuit-happy clients or unknown amounts of fines levied by the banking department. You do not want to put your personal assets at risk. Consult a lawyer and accountant for advice on the best entity to create for your personal circumstances. After you have the entity created, you must get a federal taxpayer identification number for your company.
You must decide whether you need office space. Some states allow home-based mortgage companies. If you have no employees, this can be a great way to cut your overhead significantly. If your state requires an office, then concentrate on finding the cheapest office space that will work for your business plan. If you do not intend to have clients come to your office, you do not need to pay top dollar for rent and furnish your space expensively. Find out if your town or county require a business license or permit.
Make sure you have enough cash in the bank to run the business for several months even if you do not show a profit. Some states require a certain minimum net worth to ensure that you properly capitalize your business. Even if your state does not have a minimum, you should have a good-sized balance in your company’s checking account.
If you are a mortgage broker, find lenders to whom you will broker your loans. If you are a mortgage banker, know to whom you will sell your closed loans. Get your broker or banker license from your home state and any other states where you think you can find borrowers. Create a marketing plan.
Buy insurance. Every business needs several types of insurance. Even if you are a home-based business, you will need separate insurance from your homeowners’ insurance (which will typically exclude coverage for business activities in the home). You will need property and casualty insurance, business interruption insurance, workers’ compensation, if you have employees, and errors and omissions insurance. Error and omissions insurance covers your company in the event a client holds your company liable for something you did or did not do that you were supposed to do. It will cover you when you get sued for something a loan officer said or did that he wasn’t supposed to say or do, or when the outcome of a loan application displeased the borrower and he holds your company responsible for the bad outcome. Even if you win the lawsuit, the costs of defending your company will cost thousands of dollars. Errors and omissions insurance will pay for your defense and any judgment that your company is found liable for.
This is just the very start of what you should do before you open the doors to your new mortgae company. I will use my next few blog entries to outline the rest of the steps that need to be taken.
First, create a corporation or limited liability company because of the liability protection it provides. You will run into lawsuit-happy clients or unknown amounts of fines levied by the banking department. You do not want to put your personal assets at risk. Consult a lawyer and accountant for advice on the best entity to create for your personal circumstances. After you have the entity created, you must get a federal taxpayer identification number for your company.
You must decide whether you need office space. Some states allow home-based mortgage companies. If you have no employees, this can be a great way to cut your overhead significantly. If your state requires an office, then concentrate on finding the cheapest office space that will work for your business plan. If you do not intend to have clients come to your office, you do not need to pay top dollar for rent and furnish your space expensively. Find out if your town or county require a business license or permit.
Make sure you have enough cash in the bank to run the business for several months even if you do not show a profit. Some states require a certain minimum net worth to ensure that you properly capitalize your business. Even if your state does not have a minimum, you should have a good-sized balance in your company’s checking account.
If you are a mortgage broker, find lenders to whom you will broker your loans. If you are a mortgage banker, know to whom you will sell your closed loans. Get your broker or banker license from your home state and any other states where you think you can find borrowers. Create a marketing plan.
Buy insurance. Every business needs several types of insurance. Even if you are a home-based business, you will need separate insurance from your homeowners’ insurance (which will typically exclude coverage for business activities in the home). You will need property and casualty insurance, business interruption insurance, workers’ compensation, if you have employees, and errors and omissions insurance. Error and omissions insurance covers your company in the event a client holds your company liable for something you did or did not do that you were supposed to do. It will cover you when you get sued for something a loan officer said or did that he wasn’t supposed to say or do, or when the outcome of a loan application displeased the borrower and he holds your company responsible for the bad outcome. Even if you win the lawsuit, the costs of defending your company will cost thousands of dollars. Errors and omissions insurance will pay for your defense and any judgment that your company is found liable for.
This is just the very start of what you should do before you open the doors to your new mortgae company. I will use my next few blog entries to outline the rest of the steps that need to be taken.
Wednesday, September 26, 2007
The Nationwide Mortgage License System
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).
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).
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.
Tuesday, August 14, 2007
How Will You Survive the Subprime Mortgage Mess?
I'm sure you are no different than all of the other mortgage companies who are finding their investor sources drying up. I read something new about the subprime mortgage mess in the newspaper every day as do your customers. This is the time to let them know that you are still around and that you still have options for their varying needs.
I know that volume is down and some of you may even be wondering how you will stay in business. In down cycles, you must work harder to keep the phones ringing. If you have been keeping a stash of tips on marketing for when you "have the time" this is the time to get that stash out and start implementing those ideas that sound good to you. Some of them will work and some won't but you will not know which is which until you experiment. Most of the marketing suggestions that you hear about have something to do with customer contact, either existing customers or potential customers. In the current climate, most potential borrowers, especially those with more difficult credit histories, are anxious to know that there is a mortgage out there for them. Although many lenders and investors are tightening up or eliminating programs, if you can find those lenders and investors that are still offering mortgages to your types of customers, then you must educate your customers and potential customers that you are the one who will help them buy a house or refinance their current mortgage.
Only those mortgage brokers and lenders who can weather the difficult times will be around when the upcycle comes again.
I know that volume is down and some of you may even be wondering how you will stay in business. In down cycles, you must work harder to keep the phones ringing. If you have been keeping a stash of tips on marketing for when you "have the time" this is the time to get that stash out and start implementing those ideas that sound good to you. Some of them will work and some won't but you will not know which is which until you experiment. Most of the marketing suggestions that you hear about have something to do with customer contact, either existing customers or potential customers. In the current climate, most potential borrowers, especially those with more difficult credit histories, are anxious to know that there is a mortgage out there for them. Although many lenders and investors are tightening up or eliminating programs, if you can find those lenders and investors that are still offering mortgages to your types of customers, then you must educate your customers and potential customers that you are the one who will help them buy a house or refinance their current mortgage.
Only those mortgage brokers and lenders who can weather the difficult times will be around when the upcycle comes again.
Monday, August 6, 2007
Licensing in a "Brick and Mortar" State
I periodically receive phone calls and emails from mortgage companies that want to get licensed in all states. Since there is no "national" license, such a company must get 51 licenses (including Washington DC). When they hear that some states require a physical presence in their states, they realize that such licensing will be very expensive.
As of today, the following states require an office in their state for a mortgage broker license: Alabama, Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, and Texas. For mortgage lenders, the states are: Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, Ohio, Oklahoma, Pennsylvania, and Texas.
Even within the requirement of brick and mortar, the different states have different requirements. Some states permit any home office, other states allow the home office if you can prove that the home is zoned for office use and/or there is a separate entrance for the office. Some states permit month-to-month leases on these offices, other states do not and even require leases of at least 6 months to 1 year. In addition to the expense of the rent on these offices, certain states require that the office be staffed by a W-2 employee. Since I am aware that some mortgage companies do not pay branch managers or loan officers as employees but treat them as independent contractors, this can be an additional expense.
I am frequently asked whether my office or some relative’s address can be used as the "office" that is required in brick and mortar states. My office is not used for any client’s needs and I tell clients that a relative’s address can in some situations be used as the office. Again, because each state has a different requirement, I need to know the particular state that someone is inquiring about.
Because a brick and mortar state is a much more expensive state in which to operate, I caution clients that there must be a good reason to go into that state, other than part of a 50-state strategy. If a loan officer has family, friends or a real estate agent who will refer a steady stream of business, the costs of maintaining the office will be offset by the fees you will earn. Likewise, if your clientele are buying second homes in a particular state, that state is a good candidate for spending the money to retain an office. And each year, you should conduct a cost-benefit analysis to determine whether you spent more on the office than you earned in fees to decide whether to renew your license in a brick and mortar state.
As of today, the following states require an office in their state for a mortgage broker license: Alabama, Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, and Texas. For mortgage lenders, the states are: Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, Ohio, Oklahoma, Pennsylvania, and Texas.
Even within the requirement of brick and mortar, the different states have different requirements. Some states permit any home office, other states allow the home office if you can prove that the home is zoned for office use and/or there is a separate entrance for the office. Some states permit month-to-month leases on these offices, other states do not and even require leases of at least 6 months to 1 year. In addition to the expense of the rent on these offices, certain states require that the office be staffed by a W-2 employee. Since I am aware that some mortgage companies do not pay branch managers or loan officers as employees but treat them as independent contractors, this can be an additional expense.
I am frequently asked whether my office or some relative’s address can be used as the "office" that is required in brick and mortar states. My office is not used for any client’s needs and I tell clients that a relative’s address can in some situations be used as the office. Again, because each state has a different requirement, I need to know the particular state that someone is inquiring about.
Because a brick and mortar state is a much more expensive state in which to operate, I caution clients that there must be a good reason to go into that state, other than part of a 50-state strategy. If a loan officer has family, friends or a real estate agent who will refer a steady stream of business, the costs of maintaining the office will be offset by the fees you will earn. Likewise, if your clientele are buying second homes in a particular state, that state is a good candidate for spending the money to retain an office. And each year, you should conduct a cost-benefit analysis to determine whether you spent more on the office than you earned in fees to decide whether to renew your license in a brick and mortar state.
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