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.
Showing posts with label mortgage lender. Show all posts
Showing posts with label mortgage lender. Show all posts
Tuesday, February 22, 2011
Monday, May 24, 2010
Why You Should Tell Your Potential Customers About Your Licensing Requirements
Many of the mortgage brokers and lenders that I have been talking to in the past few months have been complaining about the need to get licensed. Most of the griping stems from the costs involved. A few mortgage brokers have pointed why licensing is better for the industry. You should be telling your potential and past customers why the licensing of loan originators is beneficial to them and how it differentiates the mortgage loan originators from bank loan officers.
You should be pointing out in all of your marketing materials that licensing means that your loan originators are more educated about federal and state laws because of the pre-licensing requirements. You should also emphasize how the testing requirement weeds out those loan originators who don’t take the courses very seriously. And don’t forget to tell everyone how your loan originators needed to go through criminal background checks to ensure that you and the state regulators evaluate whether any criminal convictions could impact their ability to act as honest loan originators.
You should call attention to the fact that borrowers have no idea who their bank loan officer is, yet they can find out pertinent information about your loan originators on the NMLS Consumer Access database. All of your marketing channels should be stressing these reasons why they should be using you, a licensed mortgage loan originator, rather than the unknown quantity that is a bank loan officer. Start shouting it from the rooftops right now.
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!
You should be pointing out in all of your marketing materials that licensing means that your loan originators are more educated about federal and state laws because of the pre-licensing requirements. You should also emphasize how the testing requirement weeds out those loan originators who don’t take the courses very seriously. And don’t forget to tell everyone how your loan originators needed to go through criminal background checks to ensure that you and the state regulators evaluate whether any criminal convictions could impact their ability to act as honest loan originators.
You should call attention to the fact that borrowers have no idea who their bank loan officer is, yet they can find out pertinent information about your loan originators on the NMLS Consumer Access database. All of your marketing channels should be stressing these reasons why they should be using you, a licensed mortgage loan originator, rather than the unknown quantity that is a bank loan officer. Start shouting it from the rooftops right now.
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!
Thursday, January 8, 2009
It's Annual Reports Season Again
I’ve already received my first annual report form and I know from my calendar system that other states have early annual reporting requirements. Most states require an annual report to be filed, some states require semi-annual reports. The vast majority of the annual reports require information about loans that you closed in the previous year. There are also reporting requirements in some states requesting information about the loan officers that you hired and fired in the last quarter or last year.
If this is your first year filing an annual report in a particular state, it may take you awhile to gather the information that the report asks for. So don’t wait until the last minute to review the report to see what information you need to find. If you have filed a report in prior years, you should have your computers and files stored in such a way that you can access the needed data in minutes (if you don’t, maybe you want to update your technology).
Some of the annual reports require financial information in their format, not your accountants’ format, which means that you are spending a lot of time manipulating the numbers to conform to the categories that your state has on its form. If this is not your area of expertise, hire an outside specialist to handle it for you. Your time is better spent closing loans than puzzling how to complete a form.
If this is your first year filing an annual report in a particular state, it may take you awhile to gather the information that the report asks for. So don’t wait until the last minute to review the report to see what information you need to find. If you have filed a report in prior years, you should have your computers and files stored in such a way that you can access the needed data in minutes (if you don’t, maybe you want to update your technology).
Some of the annual reports require financial information in their format, not your accountants’ format, which means that you are spending a lot of time manipulating the numbers to conform to the categories that your state has on its form. If this is not your area of expertise, hire an outside specialist to handle it for you. Your time is better spent closing loans than puzzling how to complete a form.
Monday, December 15, 2008
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.
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.
Monday, August 18, 2008
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.
Times are different now and the “hot” states are experiencing very high rates of foreclosures. This means a slow sales climate and selling prices that are plummeting. It is much more difficult now to make money in these states.
If you are licensed in a state that is not your home state, you should do some market research for that state. How much business are you doing in this state and how much profit are you making? Are there any very active markets in that state (not every city is experiencing the same level of sales meltdown)? Have sales prices fallen or risen? Do you have contacts in those active markets or can you create referral relationships?
Do the same market research in states that you are not licensed in now but could be if the conditions were favorable for you to make money. First, find the cities and states where sales levels are greater than the national average. Do you have any contacts in these cities? Can you find referral sources through your contacts? Don’t forget to use your business and social contacts to reach out to others who are living and working in other states and can lead you to those referral sources (the six degrees of separation phenomenon). If you join LinkedIn or Facebook or other internet social media, can you locate possible referral sources or borrowers?
You want to be one of the survivors in this very difficult market. This means changing strategies to take advantage of changes in the lending environment. Use the ability to be licensed in more than one state strategically to make more money.
Monday, August 11, 2008
Surety bonds
Mortgage brokers and mortgage lenders are frequently required to submit a surety bond as part of the licensing process. The bond guarantees that the mortgage broker/lender will obey the laws and regulations of the state in which it is licensed. In the event that the state banking department finds a violation of its laws or regulations, it can impose a fine or require the company to issue refunds to its customers. If the company does not make the required payments, the surety bond will be used to make the payments. When the bonding company makes the payment to the banking department, it then requires the mortgage company to reimburse the bonding company for all amounts it paid out under the bond.
Each state has its own language and required amount for its surety bond. Based on the language and amount of the bond, certain bond companies will not write surety bonds in certain states or will make the premiums to buy the bond very high. In the boom years that ended in 2006, it was very easy to get a surety bond. Underwriting was simple and premiums were low. But in the last two years, mortgage companies have gone out of business or filed for bankruptcy, leaving the bond companies to pay the claims that the mortgage companies should have. Since the risk has gone up to the bond underwriters, the costs of getting a surety bond have gone up for mortgage companies. Additionally, as the net worths of mortgage companies have gone down, it becomes harder for them to qualify to obtain or renew their surety bonds. Moreover a surge in litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. Start-up companies are being especially hard-hit by the new underwriting climate. Many of the surety bond companies refuse to underwrite surety bonds to new companies.
If you need a surety bond, you will have to expect to pay more than you have in the past. You can also anticipate that you may not qualify for as many bonds as you did in the past. This is the time to do your cost benefit analysis of each state in which you are licensed. Are the costs of maintaining your license in each state less than the fees you are making in each state? If not, get out of that state (follow each state’s rules for inactivating or surrendering a license) and cancel your registered agent and surety bond. If you intend to stay in the business, keep your financials looking healthy by putting earnings back into the business. Individual loan officers should be cognizant that in some states, their credit report must be submitted. You should also be aware that part of the underwriting process requires personal guarantees from the owners of the mortgage broker and lender companies. Even if the company goes out of business, the surety bond companies reserve the right to go after the owners to pay the claims from the banking departments.
It’s a difficult climate to be in the mortgage business and the state regulation will get tighter. Stay on top of the licensing requirements to ensure that your business stays in business.
Each state has its own language and required amount for its surety bond. Based on the language and amount of the bond, certain bond companies will not write surety bonds in certain states or will make the premiums to buy the bond very high. In the boom years that ended in 2006, it was very easy to get a surety bond. Underwriting was simple and premiums were low. But in the last two years, mortgage companies have gone out of business or filed for bankruptcy, leaving the bond companies to pay the claims that the mortgage companies should have. Since the risk has gone up to the bond underwriters, the costs of getting a surety bond have gone up for mortgage companies. Additionally, as the net worths of mortgage companies have gone down, it becomes harder for them to qualify to obtain or renew their surety bonds. Moreover a surge in litigation against mortgage brokers and lenders has made it more difficult to get approval for a surety bond. Start-up companies are being especially hard-hit by the new underwriting climate. Many of the surety bond companies refuse to underwrite surety bonds to new companies.
If you need a surety bond, you will have to expect to pay more than you have in the past. You can also anticipate that you may not qualify for as many bonds as you did in the past. This is the time to do your cost benefit analysis of each state in which you are licensed. Are the costs of maintaining your license in each state less than the fees you are making in each state? If not, get out of that state (follow each state’s rules for inactivating or surrendering a license) and cancel your registered agent and surety bond. If you intend to stay in the business, keep your financials looking healthy by putting earnings back into the business. Individual loan officers should be cognizant that in some states, their credit report must be submitted. You should also be aware that part of the underwriting process requires personal guarantees from the owners of the mortgage broker and lender companies. Even if the company goes out of business, the surety bond companies reserve the right to go after the owners to pay the claims from the banking departments.
It’s a difficult climate to be in the mortgage business and the state regulation will get tighter. Stay on top of the licensing requirements to ensure that your business stays in business.
Monday, April 7, 2008
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.
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.
Tuesday, March 25, 2008
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.
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.
Monday, March 17, 2008
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.
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.
Tuesday, March 11, 2008
Audited financial statements
An audited financial statement is one that is prepared by a certified public accountant and certified by that accountant that it has been prepared in accordance with generally accepted accounting principles.
It is typically needed when a state or the FHA requires a minimum net worth in order to get and keep a license. Accountants who are willing to prepare audited financials are getting scarce and they are not cheap. I've heard of start-up companies being charged $5,000 and existing companies being charged twice that amount.
Why so expensive? Accountants can be sued when the company for whom they prepared audited financials lose a lot of money or go out of business, leaving unhappy investors and creditors. To compensate accountants for the risk of a lawsuit, many charge very high fees. Some accountants feel they don't want the risk and will not prepare audited financial statements at all.
I have been asked what to do if a mortgage company cannot find an accountant who will prepare an audited financial statement. My recommendation is to ask your family and friends, every accountant that you know, and every accountant all of those accountants know. Your accountant does not have to be local. One client of mine has his accountant in New Jersey, even though he is located in Maryland. Another client is located in Colorado, his accountant is in Florida. So, if your brother, best friend, or wife's cousin has a great accountant in another state, find out if that accountant does audited financials or knows of an accountant that does. In addition to finding an accountant that you can work with, you might find that he/she charges less than your local accountant does. Go with someone who is recommended and who you feel comfortable with. You will be working with that someone for many years.
It is typically needed when a state or the FHA requires a minimum net worth in order to get and keep a license. Accountants who are willing to prepare audited financials are getting scarce and they are not cheap. I've heard of start-up companies being charged $5,000 and existing companies being charged twice that amount.
Why so expensive? Accountants can be sued when the company for whom they prepared audited financials lose a lot of money or go out of business, leaving unhappy investors and creditors. To compensate accountants for the risk of a lawsuit, many charge very high fees. Some accountants feel they don't want the risk and will not prepare audited financial statements at all.
I have been asked what to do if a mortgage company cannot find an accountant who will prepare an audited financial statement. My recommendation is to ask your family and friends, every accountant that you know, and every accountant all of those accountants know. Your accountant does not have to be local. One client of mine has his accountant in New Jersey, even though he is located in Maryland. Another client is located in Colorado, his accountant is in Florida. So, if your brother, best friend, or wife's cousin has a great accountant in another state, find out if that accountant does audited financials or knows of an accountant that does. In addition to finding an accountant that you can work with, you might find that he/she charges less than your local accountant does. Go with someone who is recommended and who you feel comfortable with. You will be working with that someone for many years.
Thursday, December 20, 2007
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.
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.
Thursday, December 13, 2007
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.
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.
Monday, November 5, 2007
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.
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.
Thursday, October 25, 2007
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.
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.
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.
Friday, June 22, 2007
License Expiration Dates
If your company has more than one license, someone needs to keep track of your license expiration dates so that you do not let any license lapse. A very few states have licenses that never expire so you only have to keep track of other compliance issues such as annual reports.
If you are in a large mortgage company, you probably have a compliance department and it is their job to keep track of all expiration dates. But if you don't have a compliance department, you need a compliance person. In a very small company, that person might be the owner. Or it might be an administrative assistant. You might even outsource the function to a law firm or company that provides compliance services. I have several clients that just send me all of the compliance paperwork that they receive from the various banking departments and secretaries of state.
I have a calendar marked with all my clients' license expiration dates and also marked about 2-1/2 months before each license expiration date. At 2-1/2 months before each expiration date, I send emails to my clients reminding them that they should be receiving renewal materials from the banking department and that they should forward them to me as soon as they receive them. I start the renewal process as soon as the state permits so that I can get any additional information that is required from the client. For example, in states that require continuing education, the license renewal application asks for details about what courses were taken and who the education provider was.
If you are keeping track of your own license expiration dates, you need to set up your own system so that you get the renewal process completed before the expiration date. In some states, going past the deadline means you pay a late fee. In other states, you might need to start all over with the application process and that can take several weeks, time that you cannot take in any new applications in that state.And who can afford that?
Friday, January 19, 2007
Licensing your loan officers
The trend in licensing is towards more regulation rather than less regulation. As the real estate market stabilizes or declines, foreclosures are starting to increase. This alarms consumer advocates and legislators who clamor that bad mortgage originators are steering borrowers to mortgage loans that they cannot afford. The cure, to them, is registering or licensing loan officers.
Colorado is the latest state to require licensing. It doesn't even license mortgage lender or broker businesses - it only licenses the loan officers.
Registration of loan officers, in the states that require them, such as New Jersey, Connecticut, Arkansas and Wisconsin, merely require the filing of the application and the payment of a fee.
The licensing states, such as Utah, Illinois, North Carolina, and Texas, require passing an exam, background checks, a certain number of years of mortgage industry experience, or continuing education.
By requiring your loan officers to be licensed in the states that require it, you are ensuring that they are knowledgeable about the laws and regulation that govern the industry.
Colorado is the latest state to require licensing. It doesn't even license mortgage lender or broker businesses - it only licenses the loan officers.
Registration of loan officers, in the states that require them, such as New Jersey, Connecticut, Arkansas and Wisconsin, merely require the filing of the application and the payment of a fee.
The licensing states, such as Utah, Illinois, North Carolina, and Texas, require passing an exam, background checks, a certain number of years of mortgage industry experience, or continuing education.
By requiring your loan officers to be licensed in the states that require it, you are ensuring that they are knowledgeable about the laws and regulation that govern the industry.
Thursday, January 4, 2007
Mortgage Industry Experience Requirements
One of the reasons that the states require that mortgage brokers and lenders be licensed is to ensure that a person who has no experience cannot just open a mortgage business and start originating loans.
Many states require that before you can be licensed, either as a company or as an individual loan officer, you have a certain amount of loan origination experience. For example, New York requires 2 years of full-time mortgage industry experience for mortgage brokers and 5 years of underwriting experience for mortgage lenders. And the experience must be in loan origination. Arizona requires 3 years of industry experience, but loan processing only counts as half the equivalent time of loan origination. For example, if the president of the mortgage broker company has 2 years of loan processing experience and 1 year of loan origination experience, that will not be sufficent to satisfy the 3 year requirement. The loan processing experience will count as 1 year, not 2, plus the 1 year of loan origination experience equals 2 years of mortgage industry experience.
The states that have mortgage industry experience requirements have different ways for how you prove that you have the needed experience. Georgia and Arizona, for example, require letters from previous employers. This can be problematic when the company you worked for is no longer in business. In those cases, you need to track down your supervisors and have them write letters about your experience with the defunct company. Other states, such as Florida, will allow a letter from an industry professional who has knowledge of your work experience to confirm that they have known you as a mortgage broker or underwriter for the requisite period of time. Still other states contact your past supervisors and request that they complete a verification form and send it to the banking department.
As tempting as it may be to fudge this requirement, remember that if you do not have the experience to originate loans and do not know what the laws and regulations are in the state in which you want to be licensed, you will make mistakes that will cost you a great deal of money.
Many states require that before you can be licensed, either as a company or as an individual loan officer, you have a certain amount of loan origination experience. For example, New York requires 2 years of full-time mortgage industry experience for mortgage brokers and 5 years of underwriting experience for mortgage lenders. And the experience must be in loan origination. Arizona requires 3 years of industry experience, but loan processing only counts as half the equivalent time of loan origination. For example, if the president of the mortgage broker company has 2 years of loan processing experience and 1 year of loan origination experience, that will not be sufficent to satisfy the 3 year requirement. The loan processing experience will count as 1 year, not 2, plus the 1 year of loan origination experience equals 2 years of mortgage industry experience.
The states that have mortgage industry experience requirements have different ways for how you prove that you have the needed experience. Georgia and Arizona, for example, require letters from previous employers. This can be problematic when the company you worked for is no longer in business. In those cases, you need to track down your supervisors and have them write letters about your experience with the defunct company. Other states, such as Florida, will allow a letter from an industry professional who has knowledge of your work experience to confirm that they have known you as a mortgage broker or underwriter for the requisite period of time. Still other states contact your past supervisors and request that they complete a verification form and send it to the banking department.
As tempting as it may be to fudge this requirement, remember that if you do not have the experience to originate loans and do not know what the laws and regulations are in the state in which you want to be licensed, you will make mistakes that will cost you a great deal of money.
Friday, December 29, 2006
Pre-licensing education and exams
Some of the states, such as Florida, require a certain number of hours of classroom education before you can take a required exam. Other states, such as New Jersey, require you to pass the exam but do not require any licensing education. Should you take a course even if it is not required? Should you take an online course or a classroom course? What are they testing about anyway?
Prelicensing education and passing a test has been required in some states to ensure that a licensed mortgage broker can't just open up an office and start working with borrowers when they have no idea what they are required to do or know. There are state laws and federal laws that apply to each mortgage transaction and a mortgage broker must know all of the laws that pertain to each transaction. Does your state require certain disclosure forms that must be given to each borrower at the beginning of the process? Do you know how long to keep information in the borrrower files? Do you know what documents must be retained in the borrower file? Does RESPA, 1003, GFE mean anything to you? If you are intending to be a mortgage broker or mortgage lender, you are expected to know the answers to these questions for each state in which you are licensed.
If the state requires classroom education, there is no choice about the matter. The only question is from whom you should take the coursework. If the state schedules all test takers for a particular location, then you should take the coursework right before the exam, in the city in which the exam will be given. An example is Florida. Florida reqires 24 hours of classroom education. The exam is given monthly, generally on the 4th Tuesday of the month (but that schedules changes in November and December). If you are an out-of-state applicant, you will be scheduled to take the exam in Fort Lauderdale. I advise my clients to take the classes in Fort Lauderdale on the weekend before they are scheduled to take the exam. This way they are already where they need to be for the exam and by taking the courses right before the test, they will have the best chance to remember what they were taught. My clients have all passed the Florida test.
Other states, like Georgia, require either a certain number of years of full-time mortgage industry experience or a required number of hours of hours of education which must be given by an approved provider. For example, Georgia requires either 2 years of full-time mortgage industry experience or 40 hours of education from a n approved provider (who are listed on the Georgia Department of Banking website). If you live or vacation in Georgia, you can either take classroom education or online courses. You have to know whether you will have the discipline to really learn the material if you use an online course package or whether you need to have a teacher in front of you to answer questions in order to master the laws and regulations that you will be expected to know once you get your license.
Finally, there are states that don't require prelicensing education but do require that you pass a test. Examples of these states are New Jersey and Illinois. Should you take any courses if they are not required? If you have been a loan officer for a number of years in the state in which you will be taking the test, you may already know the material that will be tested. For those license applicants, a course is not necessary. But if you are a new loan officer in that state, or have never closed a loan in that state, take a preparation course. The time and effort it takes to learn the material in the course will help you to pass the exam. Better to be safe than sorry. If you don't pass the test, you will never get your license.
Prelicensing education and passing a test has been required in some states to ensure that a licensed mortgage broker can't just open up an office and start working with borrowers when they have no idea what they are required to do or know. There are state laws and federal laws that apply to each mortgage transaction and a mortgage broker must know all of the laws that pertain to each transaction. Does your state require certain disclosure forms that must be given to each borrower at the beginning of the process? Do you know how long to keep information in the borrrower files? Do you know what documents must be retained in the borrower file? Does RESPA, 1003, GFE mean anything to you? If you are intending to be a mortgage broker or mortgage lender, you are expected to know the answers to these questions for each state in which you are licensed.
If the state requires classroom education, there is no choice about the matter. The only question is from whom you should take the coursework. If the state schedules all test takers for a particular location, then you should take the coursework right before the exam, in the city in which the exam will be given. An example is Florida. Florida reqires 24 hours of classroom education. The exam is given monthly, generally on the 4th Tuesday of the month (but that schedules changes in November and December). If you are an out-of-state applicant, you will be scheduled to take the exam in Fort Lauderdale. I advise my clients to take the classes in Fort Lauderdale on the weekend before they are scheduled to take the exam. This way they are already where they need to be for the exam and by taking the courses right before the test, they will have the best chance to remember what they were taught. My clients have all passed the Florida test.
Other states, like Georgia, require either a certain number of years of full-time mortgage industry experience or a required number of hours of hours of education which must be given by an approved provider. For example, Georgia requires either 2 years of full-time mortgage industry experience or 40 hours of education from a n approved provider (who are listed on the Georgia Department of Banking website). If you live or vacation in Georgia, you can either take classroom education or online courses. You have to know whether you will have the discipline to really learn the material if you use an online course package or whether you need to have a teacher in front of you to answer questions in order to master the laws and regulations that you will be expected to know once you get your license.
Finally, there are states that don't require prelicensing education but do require that you pass a test. Examples of these states are New Jersey and Illinois. Should you take any courses if they are not required? If you have been a loan officer for a number of years in the state in which you will be taking the test, you may already know the material that will be tested. For those license applicants, a course is not necessary. But if you are a new loan officer in that state, or have never closed a loan in that state, take a preparation course. The time and effort it takes to learn the material in the course will help you to pass the exam. Better to be safe than sorry. If you don't pass the test, you will never get your license.
Tuesday, December 26, 2006
Arrests or Convictions
Just about every license application asks whether any of the principals have been arrested or has criminal convictions . Before I prepare an application for a mortgage broker or mortgage banker client, I ask whether there are any arrests or convictions that need to be disclosed. I also counsel them that if they unsure whether to disclose, then they should answer the question "yes."
Many times, the client will tell me that there are no arrests or convictions and I check the "no" box on the application. Then, the FBI and state criminal background search is done and shows an arrest. So, I get a phone call or letter from the Banking Department asking me about the discrepancy between the criminal background search and the response on the application. When I talk to the client about the criminal bckground search results, I learn that the arrest was 25 years ago and they thought it was too old to be disclosed or was dismissed or the records were closed 20 years ago.
Unless the question on the license application specifically states a time limit (i.e., were you arrested in the last 10 years), you must answer "yes" if you were arrested. It makes no difference to the Banking Department if the arrest was 25 or 30 years ago or whether the case was dismissed. When the criminal background check comes back with an arrest, you will need to write a letter of explanation and produce copies of court records.
The discrepancy between the response on the license application and the results of the criminal background check raises questions in the mind of the reviewer at the Banking Department as to whether the applicant is run by honest people or whether someone who is managing the company will lie or cheat to borrowers. Every response in the application will now be scrutinized more closely with a bias against the applicant.
When in doubt about which response to make about arrests or convictions, check the "yes" box and explain the circumstances of the arrest or conviction. Unless it has to do with a matter involving honesty, theft, embezzlement, or fraud, the fact that a principal of the applicant company has been arrested or convicted (of maybe possession of drugs or driving while intoxicated) will not be a critical factor when the Banking Department makes its decision about the license application. If the conviction is for a crime that involves dishonesty, fraud, theft or embezzlement, it will be difficult to get that application approved. That person should not be a principal of the applicant.
Many times, the client will tell me that there are no arrests or convictions and I check the "no" box on the application. Then, the FBI and state criminal background search is done and shows an arrest. So, I get a phone call or letter from the Banking Department asking me about the discrepancy between the criminal background search and the response on the application. When I talk to the client about the criminal bckground search results, I learn that the arrest was 25 years ago and they thought it was too old to be disclosed or was dismissed or the records were closed 20 years ago.
Unless the question on the license application specifically states a time limit (i.e., were you arrested in the last 10 years), you must answer "yes" if you were arrested. It makes no difference to the Banking Department if the arrest was 25 or 30 years ago or whether the case was dismissed. When the criminal background check comes back with an arrest, you will need to write a letter of explanation and produce copies of court records.
The discrepancy between the response on the license application and the results of the criminal background check raises questions in the mind of the reviewer at the Banking Department as to whether the applicant is run by honest people or whether someone who is managing the company will lie or cheat to borrowers. Every response in the application will now be scrutinized more closely with a bias against the applicant.
When in doubt about which response to make about arrests or convictions, check the "yes" box and explain the circumstances of the arrest or conviction. Unless it has to do with a matter involving honesty, theft, embezzlement, or fraud, the fact that a principal of the applicant company has been arrested or convicted (of maybe possession of drugs or driving while intoxicated) will not be a critical factor when the Banking Department makes its decision about the license application. If the conviction is for a crime that involves dishonesty, fraud, theft or embezzlement, it will be difficult to get that application approved. That person should not be a principal of the applicant.
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