What Are You Doing Differently To Stay In Business?

The number of licensed mortgage brokers, lenders, and loan officers is a fraction of what it was five (5) years ago. If you are still working in the mortgage industry, you are serious about your business. But, the industry has changed and is still changing. What worked in the past is not a viable business model anymore. You are (hopefully) doing things differently to stay in business. Do you have a strategic plan for surviving and then growing your business? Can you afford not to?

There is a lot more regulation about licensing. Every state requires that mortgage brokers, lenders and loan officers be licensed. The exceptions to licensing that used to exist if you did only a few loans in a state are largely gone. So, what are you doing to ensure that your new loan officers get licensed?

Fraud played a large enough part in the mortgage meltdown to push states to enact new laws and regulations that require licensees to create fraud prevention programs. What have you done to ensure that your employees are complying with your procedures?

The number of new loan applications is down sharply from even the start of the housing bubble. Do you have a plan that you are following to get a steady stream of real estate agent referrals, other referral partners, past and present customers, and internet leads? Do you track from where you are getting your leads so you can do more of those actions? Do you know which marketing strategies are not working enough to justify spending much time on them?

Are you training your staff so that they know what your vision of your business is and how you want them to implement that vision? In addition to the required continuing education, do you offer in-house education on new laws, new products, the best ways to get iffy borrowers approved for their loans? Those loan officers who are still in the business want to work for the best companies.

Borrowers want their loans approved faster and want to close their loans more conveniently. Is your technology able to provide your customers with the best loan application experience? Do your employees also add to the loan application process or are your borrowers ready to complain to their friends, family, and state regulators how much of a hassle working with your company was? Do you even survey your customers to know what they liked about working with you and what they hated about their loan application process?

What the industry will look like in the next five (5) years is only everyone’s guess. To stay in business, you need to adapt your procedures, work with the current regulatory environment, and use it to your advantage, wherever possible. Make a plan to use the best ideas out there and then keep testing to see what works.

Why You Need a Team of Trusted Advisors to Grow Your Business

Most entrepreneurs start their new businesses with the dream of building a successful business. Many of you who started your new business opened up your business when times were good and mortgage applications were rolling in the door. You weren’t prepared with a business plan, or market research, or entrepreneurial skills. Yet, because there was so much real estate activity going on, your business was thriving. Then everything changed and the phones got very quiet. Most of the mortgage bankers and brokers who couldn’t survive closed their doors. Loan officers left in droves. If you are one of the companies still left standing, you have much less competition than you did five years ago. But, the phones are still not ringing off the hook and you need to be smart to stay alive. If you create a team of advisors, you should be able to find professionals and businesspeople who can help you build a prosperous business.

Who should be on your team? You should have a business lawyer, an accountant who can advise you on taxes and on how to grow your profits, an insurance broker, and a person who has already created a successful business.

Why do you need these advisors and how do you find them? A business lawyer has the knowledge to advise you about how to avoid lawsuits (which are always more expensive than the costs of acting proactively). You want to consult with a business lawyer to help you negotiate with the landlord to get you the best lease terms. A business lawyer will draft your contracts for you to work with vendors, and with independent contractors (so you don’t get into trouble with the IRS or the labor department). You may have a logo to trademark. You may want a non-disclosure agreement so that your loan officers do not take your client lists or creative marketing ideas when they jump ship or you terminate their employment. Your business lawyer will help you with all of these problems or can refer you to another lawyer who has more expertise with these types of law.

Your accountant will help you set up a chart of accounts, prepare your business tax returns and advise you (together with your lawyer) on issues where taxes are involved. Your accountant should also be able to advise you on how to maximize business deductions so that you pay the least amount of taxes that are required.

An accountant or profitability consultant will advise you on how to grow your revenues, help you to focus on your core business and then add new products or services, advise you on setting your pricing strategy, and help you with cash flow problems.

Many businesses carry a wide variety of insurance – or should. These range from liability insurance to business interruption insurance to errors and omissions insurance to surety bonds to auto insurance to commercial property insurance. Do you have an independent insurance broker who will shop your business to several insurance companies? Who will find you the best coverages for the right prices? Who will advise you about risk management so you can keep your premiums as low as possible? That’s why you need an insurance broker on your trusted advisor team.

You should also try to find a business mentor, someone who has created a business that is successful. This person should be available, who will listen to you, who has the knowledge and skills that you want to acquire, and should be willing to give you constructive criticism and feedback. If you can find a mentor who has a successful mortgage company, that’s even better. But all businesses can borrow ideas from each other because certain issues exist in all types of businesses.

Your team of trusted advisors lets you look at your business through fresh eyes. It gives you a group of professionals who have been what you’re going through and have shepherded clients through your challenges. They have expertise that you do not have and should have contacts in other businesses that will help your business (such as technology, marketing, or pricing strategies). They will ask you questions that you haven’t even thought of yet. But, you must be willing to take the advice of your trusted advisors because they will help you build the business of your dreams.

How do you find these trusted advisors? Start with one advisor who you trust and ask them for referrals to the other types of advisors that you want to have. Interview them about their experience and ask yourself whether you would be willing to work with these individuals over an extended period of time. You must be comfortable with your team because they will know you and your business intimately. Only by being open and honest with your advisors can they really help you.

A good team will get you to your goals faster than if you do it on your own. Go find the help and support to get to your business goals faster.

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!

Should You Attend a Mortgage Banker or Mortgage Broker Trade Show?

A mortgage banker or broker trade show is usually held over 3-4 days. That’s a lot of time to be away from your business. You may want to attend a show if you thought you could get something valuable for your business. What can you get from a trade show?

My office is located in New Jersey and next week is the 2010 Regional Conference of MBAs (I believe it’s sponsored by the mortgage bankers associations of New Jersey, New York, Pennsylvania, Connecticut, Washington D.C., Maryland, New Hampshire, Massachusetts, and Rhode Island). I’m debating whether to attend this show. Will it provide me with any benefits that I can translate into new business? What would I like to see at a trade show for mortgage bankers or brokers? Obviously, what I would like to get out of a trade show, as a lawyer who works a great deal with the mortgage industry, is different from what you, a mortgage banker or mortgage broker, would want to get out of such a conference.

I’d look at the programming details first to see if there were any sessions that I would want to attend. Lately, there are a lot of regulatory changes that are raising many questions for mortgage brokers and bankers and there should be sessions addressing these questions. Many of you want to know how to survive in this new business climate and there are hopefully sessions that will speak about these issues. If the speakers are listed, are they regulators that you would like to meet or other successful business owners that you’d like to network with? That would be a good reason to attend.

Check the list of exhibitors. Can you find new vendors for your business? Can you find out if they have a solution for your problem or can they save you money over your existing vendors? Can you form a strategic alliance with any of the exhibitors?

Lastly, a trade show can be a great opportunity to meet other mortgage bankers and mortgage brokers. Meeting and talking to some of these people can help you find out what your competition is doing, how they are dealing with the problems that you are facing, and how you can be better than they are. If you are not in competition with them, you can find mortgage bankers and brokers who are licensed in states that you are not, so you can take advantage of leads that you cannot use and vice versa. When you talk with mortgage bankers and brokers who are not in competition with you, they are more likely to open up with their strategies for solving the same problems you are having.

It may be useful to attend a local trade show or conference so that you can limit your costs, both in travel and hotel expenses and the number of days you are away from your business.

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!

Why You Absolutely Need to Have a Broker Fee Agreement?

What is a broker fee agreement? It is the legal document in which you and the borrowers agree on your fee. By signing a fee agreement, you and the borrowers are memorializing the agreement on the amount of the fee, the circumstances under which it is earned, and other details about the transaction that may be required by state law. Most states not only require a broker fee agreement, but they actually have recommended forms for you to use. If your state does not have a recommended form, review your state’s requirements and have your attorney draft an agreement that complies with that law.

If your state requires a written fee agreement, that is signed by the borrowers, failure to have one in each applicant’s file can expose you to penalties and fines when your files are examined, or if a borrower complains to your banking department about any aspect of the transaction. Even if the complaint has nothing to do with your fee, the banking department will ask you to submit copies a certain documents in the file, always asking for the broker fee agreement.

But even if your state does not require a written broker fee agreement, why should you have the applicant sign one anyway? Because a written agreement protects you. You do a lot of work to find the best loan for your borrowers, you have to keep up-to-date with all of your lenders’ programs, and when you do work, you want to be paid for it. When a borrower signs a broker fee agreement, you now have the basis for enforcing the agreement that you entered into. A court will give great weight to the terms of a written agreement and it is much easier to win a lawsuit or defend yourself against a complaint from a borrower if you have a writing that the borrower has agreed to.

If you are using Calyx or other software to generate your documents, you must review their form and ensure that it complies with your state’s requirements and does not contain any blanks that must be filled in. If there are blanks that must be completed, you must make sure that your loan officers complete the forms properly and keep an original in the file.

It will be very costly for you to not have each loan applicant sign a broker fee agreement. Without a signed agreement, you are not entitled to collect the fee you ask for. Make sure every file has one to protect your interests.

Please feel free to forward this blog post to friends, family, 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!

Is Your Competition Out of Business? Market To Their Referral Sources

I am probably not the only licensing lawyer who has had some of her clients go out of business. In probably every state, the number of licensed mortgage brokers and lenders is down. Many of them have gone out of business or placed their license in “inactive” status until the market turns around.

This is your opportunity to find those referral sources – realtors, builders, buyers, and sellers who no longer have a mortgage professional to whom they will automatically turn if they know of someone who needs a mortgage. This is your chance to contact everyone who you heard was referring business to your competitors and try to get a relationship started.

And of course, stay in contact with everyone who already is a referral source to you. They need to know you are still in business, ready to serve their needs. Don’t forget the borrowers you already have done business with. Although there is little loyalty between mortgage brokers and their customers, you can increase your retention rate if you keep your name in front of people that you have already helped and liked you.

There are business opportunities even in a recession. I hope you take advantage of them and keep yourself in business.

Delaware Loan Originator Licensing Requirements

Delaware has sent out a letter to its licensees informing them of how it will comply with the federal SAFE law in connection with mortgage loan originators.

The first step you would have noticed is that, unlike in prior years, when you renewed your Delaware company license, the application asked for the names and addresses of the loan originators that you employ. In the future, on a quarterly basis, you will be required to report any newly hired mortgage loan originators.

If a loan originator is currently employed by a licensed Delaware lender or broker, the loan originator will be required to submit a license application through the Nationwide Mortgage License System (NMLS) by March 31, 2009. The loan originator will be allowed to keep originating while the license application is pending, once the application is timely submitted.

If you hire a loan originator after January 1, 2009, that originator must first submit a license application through the NMLS immediately upon beginning employment (he/she can’t wait until March 31, 2009). Once the application is submitted, the loan originator may start to originate loans until a decision on his/her license application is made.

If your loan originator is already on the NMLS because of licensing in another state, he/she doesn’t need to create a new record. A simple amendment to the MU4, adding Delaware as a new state, is all that is required. Delaware is not yet requiring fingerprinting, credit reports, education hours or a national test yet. But if your loan officer answers ”yes” to any of the disclosure questions, he/she must send in additional information, giving all of the details about the problem that caused the “yes” answer.

There will be a $280.00 application fee which must be paid through the NMLS with a credit card or through electronic debit from a checking account. Once the loan originator license is approved, another $250.00 license fee will be required. There will also be annual assessment fees and annual NMLS processing fees.

Delaware has not announced when it will transition company licensing to the NMLS. The above information is for the licensing of individual loan officers only.

Hire Talent Now

Although much of the mortgage industry is disappearing, you may be bucking the tide and having a good year. Or you may be holding your own, unlike your competitors who are closing up their shops. If you have any plans to be around at the next up part of the cycle, now is the time to hire the talent that is flooding the streets.

Although wages and commissions may be the most costly part of your overhead, if you don’t have the best people working for you, you will never get ahead. Now you have the time to be choosy. You have time to read the resumes, interview the candidates, and check references. You are not desperate to just get bodies in the office, talking to customers. In addition to the hard skills that you always ask for (ability to bring in lots of new loans or strong processing experience), you can now look at how your newest employees will fit into your organization and how likeable they are.

Don’t hire people who seem desperate to get any job. They will leave you when the good times come. And that will cost you in company morale and training costs. You will uncover some excellent talent in a slow job market so wait until the hidden gems emerge. And snatch them up. They will help you move into the next profitable business cycle.

New Law in North Carolina

There is a new law set to go into effect on October 1, 2008. This new law affects all mortgage companies currently licensed in North Carolina as well as those companies thinking of getting licensed in that state.

The most cutting edge provision of the law is the ban on yield spread premiums on loans that are defined in North Carolina as “rate spread” loans. Basically, yield spread premiums on subprime loans are not permitted in North Carolina as a result of this new law. North Carolina is the first state to eliminate yield spread premiums on any type of loans.

In addition, the new law provides that all branch offices must be located in commercial office space. Home offices are now prohibited. I am aware that many loan officers operate out of their own houses, and no one even thinks of this arrangement as a branch office. But in North Carolina, this pattern on cutting down on office space will not be allowed. And remember that North Carolina is a brick-and-mortar state so that if you are an out-of-state mortgage company thinking of getting licensed in North Carolina, your in-state office cannot be a home office.

If you are a loan officer who is now employed by a North Carolina licensee, you are classified as an employee and must receive a W-2 at the end of each year, showing your wages. There are no loan officer independent contractors in North Carolina.

If you want to apply for a license as a loan officer, you must now take 24 hours of approved pre-licensing education and pass an exam. When you have passed the exam, and are submitting your application, your background check must show a FICO score of at least 600. Moreover, your credit report cannot show any outstanding tax liens or judgments in the past 7 years.

The new law also affects minimum net worth requirements. If you are a mortgage broker, you must maintain a minimum net worth of at least $25,000. Your statement of net worth does not need to be from an accountant but must be certified by an authorized officer or member of the company. Additionally, the mortgage broker must provide the Commissioner of Bank’s office with bank statements or other proof that they have liquid funds of at least $10,000. For mortgage bankers, the net worth requirement is a minimum of $100,000 and that amount must be proven by an audited financial statement. In addition, the mortgage banker must show evidence of a line of credit or other available funds of $1,000,000.

Other provisions of the new law:

1. Reporting about closed loans will now be on a quarterly basis.
2. Renewals will be done at the end of the year as all licenses expire on December
31st.
3. Requires licensing for servicers as of January 1, 2009, however, you do not need an additional license if you are a mortgage banker who will be servicing (you will need to provide notice to the Commissioner of Banks).

If you need further information about the new law, you should look at the Commissioner of Bank’s website at www.nccob.org, place your cursor on Mortgage and then on Legal Compliance References.

Are You Licensed in the Right States?

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.

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.

Indiana Loan Brokers Need to Name a Principal Broker

Over a year ago, the Indiana legislature passed a new law that made several changes to the Indiana Loan Broker Act.

One of the provisions of that law requires a licensed loan broker to name a principal manager for each office in which it conducts brokering activities. The applicants for Principal Manager must submit a completed application, pay a fee of $232.25 (which includes the FBI background check fee), complete 24 hours of approved instruction, pass the originator test, provide proof of 3 years of mortgage industry experience, and must be employed by a licensed loan broker.

The Indiana Secretary of State has advised all loan brokers that if they do not comply with the new law by August 5, 2008, their license could be revoked. Licensees that offer Veterans Administration or Federal Housing Administration loans have until December 5, 2008 to comply.

If you are required to comply with the new law and haven’t done so, you could find that you cannot conduct business as a loan broker after August 5, 2008.

NMLS Participating States

This is just an update of which states are now using the Nationwide Mortgage Licensing System (NMLS), the national database of mortgage lenders, brokers and loan originators.

Currently using the system are Idaho, Iowa, Kentucky, Massachusetts, Mississippi, Nebraska, New Hampshire, New York, North Carolina, Rhode Island, Vermont, and Washington. Some of these states are fully using the NMLS for all licensee information and others are just transitioning to the NMLS, with a date in the future, up to September 1, 2008, to be fully transitioned. If you are licensed in one of the states listed here, you should have been notified by your regulatory agency that you need to input all company and loan originator information into the NMLS database during the transition period. If you have not received such a notice, I suggest that you check with your banking department to get the latest information to keep you in compliance.

Forty-two states have signed up for the NMLS so expect that you will be on the system within the next couple of years.

Lowering Your Chances of Getting Sued

From time to time, clients ask me if they can get sued for this or that. My response is always “yes.” In America, we have a very open system that allows anyone to start a lawsuit. The lawsuit may have no merit and may be quickly dismissed, but in the meantime, you will be spending time and money to get the dismissal.

Are there ways to minimize the likelihood that you will be sued? Yes, there are.
You can be sued by your employees, you can be sued by your customers, and you can be sued by your investors who purchased the loans you underwrote that are now in foreclosure.

You should start by getting all agreements in writing. Nothing will protect you if the arrangement is verbal. Your word against someone else’s word means the lawsuit will be drawn out and expensive. Have your lawyer review the proposed contract before it is signed. The money you spend now to have that review will seem cheap if you are sued and have to pay litigation costs. But also recognize that even having an agreement in writing cannot stop a lawsuit from being started.

Supervise your managers closely. You should have a good idea of what is happening to your employees in terms of how they treat other employees (sexual harassment or discrimination suits) and how they treat your customers. Make sure that employees that are not following your company’s procedures are made aware that they are not following your company’s procedures. Document in writing all employee issues and how you resolve those issues. Consult with an employment law attorney so that you know how to handle these problems in accordance with all relevant laws.

Do not ignore customer complaints or let your managers do so. Customer complaints will result in lawsuits and complaints with the banking department. It may be cheaper to settle a complaint monetarily than to ignore the complaint. Customers hate being ignored or having their concerns ridiculed. If they feel as if they were not heard or were disrespected, then they get angry, and it starts a cycle of animosity that results in the lawsuit (and a difficult case to settle since they want "justice"). And the breakdown in communication may not even be intentional. It can as simple as one side being out of town (unbeknownst to the other side) and not returning a phone call. If you express your willingness to satisfy your customer, this may prevent a costly lawsuit or complaint. If you solve the problem even better than the customer expected, you can turn that angry customer into one who will rave about your customer service and send all of her family and friends to you with their business. Sometimes (actually, many times), it’s not the principle that counts. Many times, you will spend so much time and money on defending the principle that you will damage your company so severely that it may never recover.

Talk to your insurance company about managing risk before you have an inkling about a lawsuit (and you should have liability, professional practices, and errors and omissions insurance). They may suggest various procedures to put in place and strategies to use that help you lower your risk of being sued. Having those procedures in place may also lower your insurance premiums.

The subprime mess and current wave of foreclosures is also leading to lawsuits by borrowers claiming that they were misled about mortgage terms. Cities are suing lenders claiming that their lending policies have led to the cities’ losing tax revenue due to homeowners in foreclosed houses not paying their real estate taxes and trying to recoup their costs of maintaining vacant houses. In turn, the lenders are suing the mortgage brokers alleging that the mortgage brokers supplied fraudulent asset and income information about their borrowers. Homeowners are suing lenders, mortgage brokers, real estate agents, appraisers, and everyone else involved in a mortgage transaction. Some of these lawsuits are the typical “sue everyone in sight” nature of our current litigation practice and difficult to prevent. However, you must know that your loan officers are not engaging in any actions that leave you vulnerable to losing such a lawsuit. Although the focus of a loan officer may be his commission, you must ensure that you have procedures in place to ensure that neither your customers nor your loan officers are engaging in mortgage fraud.

We live in a litigious society and lawsuits are part of the cost of doing business. But there are many steps you can take to make lawsuits a smaller cost than it is now.

Notification of Changes

I hope you are aware that when you change addresses or get a new qualifying person (one whose experience and maybe residency permits the company to get and maintain a license), add or close a branch, or change contact persons for licensing, audits, complaints, etc., you are supposed to notify the banking department. Each state has its own requirements of how much advance notice it requires, but generally the timeframe is thirty days prior written notice. You may be required to send a letter on company letterhead or complete a form that is on the banking department website. Check your state’s regulations so that you are in compliance.

The most radical change is change of control. Most states treat this situation as a new license application, when you notify them. There is usually an extensive form to complete and all new owners, officers, and directors must complete personal biographies, financial statements, and undergo fingerprinting, if it was required with the initial application for the company license. The new owners are not permitted to solicit new business until they receive approval from the banking department of the change in control. The new company owners can only finish out the existing pipeline. Because there is extensive background checking by the regulatory agency, the timeframe for approval is similar to that of a new license application. And approval is not just a rubber stamp. If the new owners would not have been licensed on their own, they will not be approved by the banking department just because they are part of a going concern.

Advertising

Mortgage companies use many different marketing methods to drum up new business. Advertising and direct mail are two common methods. Depending upon where you are licensed, your state may dictate what you can and cannot say in your direct mail piece or in your commercial. Failing to include the required language or using language that has been banned can lead to fines, penalties or licensing problems.

Some states require identification language in every marketing piece such as Alabama’s and Illinois’ requirement that you state your company name (including assumed business names), your license number and whether you are a lender or broker. Other states demand that you include your office address, as well.

Some states require additional language that mortgage brokers must use to indicate that they are brokers and not bankers. In addition, Massachusetts prohibits brokers from stating that they will fund a mortgage loan.

Finally, certain types of language is prohibited. Terms such as “immediate closing” or “immediate approval” are suspect and “bad credit no problem” usually requires extensive disclaimers as to what limitations are placed on borrowers with credit issues.

Finally, there is the common prohibition against “false, misleading or deceptive statements.” What does that mean? If there is any question in your mind as to whether your advertising is misleading or deceptive, then you have a problem with the banking department. Any question will be resolved against you.

You must be in compliance with every state in which you are licensed. If you have ever seen a commercial for Ditech or Lending Tree, you see a full screen of advertising disclosures.

Mortgage lender, correspondent lender, or broker

Some states have different licenses for mortgage lender (or banker), correspondent mortgage lender and mortgage broker. Other states simply require you to check off the appropriate box on their application, although the Uniform Mortgage Lender/Mortgage Broker Form (MU1) does not have a check-off box for correspondent lender.

How do you decide which kind of license you want? In many cases, mortgage brokers have no intention of being lenders. This may be because they cannot qualify or it may be because they do not want the problems that being a lender can create. This makes the decision quite easy.

On the other hand, mortgage lenders will usually apply for a new lender license if they can meet the qualifications of that new state. Sometimes, they don’t have enough net worth or years of experience in the industry. This will typically lead to a lender starting as a broker and eventually switching over to a lender license.

Correspondent lender is a category that does not exist in every state. It is usually an intermediate category between broker and lender. A correspondent lender does not use its own funds to close, may or may not have its name on the loan but does not service the loan. Typically, the requirements to become a correspondent lender are more onerous than those to become a broker. Correspondent lenders do make more money than brokers on each transaction.

In some states, a lender and correspondent lender can also broker loans. In other states, you need to have applied for a lender or correspondent lender and broker license.

If you are a mortgage broker looking to get licensed in a state that has a correspondent lender license, check to see whether you can qualify for that license. It might be a more lucrative proposition than being a mortgage broker.

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.

How to Hire Good Mortgage Professionals

When the 1003s were pouring in and your main concern was getting bodies in your office to get the loans closed, did you pay any attention to who you were hiring?

Unless you are bucking the current trend (and congratulations to you if you are), you probably have plenty of time now to review the qualifications of who you hired and draw up a plan of how to hire the best mortgage professionals as you need them.

Know whom you are hiring. Get written authorization from your prospective employees to conduct extensive checks on them. Check references if you can (although many large companies will not give out any information other than name and dates of employment), do background checks (some states require them, do them even if your state does not require them), do court history checks, regulatory agency checks, and credit checks.

Double verify all information that you receive and document your results. Interview your prospective employees face-to-face. Watch out for body language that contradicts what is being said. Ask pointed questions about knowledge of RESPA, prior office policies regarding statements made to customers, ability to work with supervisors, attitudes, and any prior customer complaints to regulatory agencies and customer lawsuits. Find out about the goals of your prospective employee - do they match your company’s goals?

If you have any hesitation that the prospective employee will meet the highest standards of ethical behavior, do not hire this person. If any reference hesitates before answering any questions about the prospective employee, that is a red flag and should probably disqualify your hiring of this person. Yes, the reference may have a grudge or be stating incorrect information, but unless you have strong indications otherwise, why hire a potential headache? Your prospective employee will inevitably have an explanation for the bad information you are getting about him/her – whom do you believe? Is there a reason to even take a chance on this person? Remember if your guess turns out to be wrong, this person could cost you thousands of dollars in lawsuits or fines from the banking department. Never forget that bad apples move around from company to company, state to state until they are caught. You don’t want them to be caught in your company. Don’t pay attention only to the number of loans they will bring to you. They still can cost more than they earn for you. They can cost you your company.

HUD Approval for FHA loans – becoming a Loan Correspondent

With loan programs disappearing each day, many mortgage brokers and lenders are starting to look at FHA loans as a way to get borrowers to a closing. Nothing has been more frustrating in the past few months than getting an application and not being able to close the loan.

Mortgage brokers can only get approval from the Department of Housing and Urban Development (HUD) as a Loan Correspondent (also known as a “mini-eagle”). The requirements are a bit onerous for new companies but not as difficult if you have been in business for a while. The first requirement is that the applicant be an entity, either a corporation, limited liability company or a partnership. No sole proprietorships are allowed. Your company must be licensed in your home state and every state where you maintain a branch office. Part of the application is your company’s certified, audited financial statement showing at least $63,000 in net worth for one office and an additional $25,000 in net worth for each branch office (up to a maximum of $250,000 in net worth). At least 20% of your assets must be liquid (cash or securities that can easily be converted to cash). The financial statement cannot be more than one year old. The owner that is designated to supervise all FHA loan activity must have at least 3 years of mortgage origination experience. Your company cannot share office space with anyone else (you will submit photos of the inside and outside of your offices, including a photo of signage showing your company name). The offices must be staffed by at least 2 employees and must be furnished with typical office furniture and furnishings (chairs, desks, computers, phones, fax machines, etc.). You must have a sponsor who will send a certification letter that it will fund all FHA loans originated by your company. Your company and its principals must have satisfactory credit histories and you will be submitting credit reports as part of the application package. You must also certify on the application that neither the company nor its principals have been restricted, suspended, or otherwise sanctioned by any state or federal licensing department and HUD conducts background checks. And you must send in a HUD-approved Quality Control Plan. The application fee is $1,000.00 which is non-refundable.

FHA loans are more useful in certain parts of the country than others because of their restrictions but you should investigate whether you want to offer FHA loans to your customers and whether you meet the approval requirements.

File Your Undertaking of Accountability in New York

Many mortgage companies hire their loan officers as independent contractors and not as W-2 employees. Some states require that all persons that work for you be paid as W-2 employees (such as Virginia) and others do not (such as California). New York does not require that you pay everyone as a W-2 employee but it has a requirement that you notify the Banking Department of everyone who is an independent contractor by filing an Undertaking of Accountability. Through this filing, you agree to be responsible for the actions of all of the listed persons even though they are not your employees. When such listed persons are no longer doing work for you, you must notify the New York Banking Department of that fact as well.

What are the repercussions of not filing an Undertaking of Accountability? Since it is a Banking Department regulation, you are in violation if the Undertaking is not filed. This can lead to penalties and fines when the Banking Department finds out about it. The usual circumstances under which the Banking Department discover the omission is during an examination or when the independent contractor applies for his own license.