Many mortgage brokers consider the benefits of net branching when licensing and compliance issues arise. A net branch is an office at which a lender or mortgage broker allows a separate company that does not hold a valid lender or broker license in a particular state to originate loans under the lender’s or mortgage broker’s license. The net branch arrangement usually is set up so that a branch office rents its own space, hires its own employees, contracts with its own vendors and gets a part of the profits from that branch office. It uses the licensee’s name so that it has the appearance of being a branch but is typically a separate company.
The Federal Housing Administration prohibits net branching. The states that specifically prohibit this practice include Arizona, New York, Rhode Island, Georgia, and Florida. But remember all states prohibit unlicensed entities from brokering or lending. If your branch payments for closed loans are made to your corporation or limited liability company you have just violated the law.
Penalties for violating the laws against net branching or unlicensed lending or brokering can include fines, license suspension or revocation for the licensee and fines and possible criminal charges filed against the unlicensed entity. Even if you are not discovered by a state’s banking department or FHA, mortgage brokers can be left without their promised payments from the licensee if the licensee closes its doors or files bankruptcy before your company has been paid. There are also many licensees that are slow to pay even if they are still open for business.
Thursday, September 6, 2007
Wednesday, August 29, 2007
Changes to Texas Mortgage Broker Licensing Law
Texas has a new licensing statute that takes effect for applications received on and after September 1, 2007. One of the changes is higher fees to license loan officers: the application fee is $275, $20 is for the recovery fund fee, and $39 is for the background check, for a total of $334.
A mortgage broker company principal will need to have 36 months of origination experience and 90 hours of classroom education taken within the last 2 years if the principal was not previously licensed as a broker or loan officer or 30 hours of classroom education if the principal was licensed as a loan broker. Loan officers must have 18 months of loan origination experience and 30 hours of classroom education taken within the past 2 years or 60 hours of classroom education if the loan officer does not have any origination experience.
Starting January 1, 2008, mortgage broker companies will have to be licensed (unless the company is a sole proprietorship) as well as having the loan officers licensed. The company will have to designate a principal as the company representative and that principal must be a licensed mortgage broker. The company will have to pay a $175 fee for the company license. There are no forms for the company license application created yet.
Additional parts of the changes to the law will take effect on November 1, 2007, however, the regulations to implement those parts have not been finalized.
A mortgage broker company principal will need to have 36 months of origination experience and 90 hours of classroom education taken within the last 2 years if the principal was not previously licensed as a broker or loan officer or 30 hours of classroom education if the principal was licensed as a loan broker. Loan officers must have 18 months of loan origination experience and 30 hours of classroom education taken within the past 2 years or 60 hours of classroom education if the loan officer does not have any origination experience.
Starting January 1, 2008, mortgage broker companies will have to be licensed (unless the company is a sole proprietorship) as well as having the loan officers licensed. The company will have to designate a principal as the company representative and that principal must be a licensed mortgage broker. The company will have to pay a $175 fee for the company license. There are no forms for the company license application created yet.
Additional parts of the changes to the law will take effect on November 1, 2007, however, the regulations to implement those parts have not been finalized.
Wednesday, August 22, 2007
You Really Need a Shareholder/Operating Agreement
If you are an owner in a corporation or limited liability company with at least one other person, you should have a shareholder (for corporations)/operating (for LLCs) agreement.
Why do you need one? Do you want to spend thousands of dollars in legal fees if one of the owners wants to get out and sell his/her interest in the business or disagrees with your ideas of how to run the company? Litigation is always more expensive than drawing up an agreement before the fighting starts. The ideal time to draw up a shareholder/operating agreement is before the company is formed. But even if you have been in business for a number of years, it is never too late to put everything in writing in advance of problems occurring.
A basic agreement should include sections about how to distribute profits and losses (this may not be done evenly depending on each owner’s contributions and time spent in the business), how to bring in new owners, how each owner will be allowed to sell his interest in the business, what happens in case of the death of an owner, how to resolve business disagreements, how much of a commitment to the business is required, and what could trigger a dissolution of the business.
It is imperative that you consult a business lawyer who has drafted these types of agreements before to help you with your agreement. You may also need to consult with your accountant and an insurance agent (typically a company buys life insurance to cover the buyout of a deceased owner). In discussing the different points of the agreement, you will discover that your partners may have very different views than you do. If relations are still friendly between you and the other owners, coming to an understanding about how the company will proceed in the future is more likely than if all of the owners are hostile.
A shareholder/operating agreement can be changed after it is drafted and signed but at least it serves as a starting point for how to decide questions that are very likely to arise in the life of a company. Business is like a marriage in some ways but most participants do not expect it to be for life. At some point, you will want to get out. If you do not have a shareholder/operating agreement, you could wind up in court, like a divorce action. And we all know that divorce isn’t pretty or cheap.
Why do you need one? Do you want to spend thousands of dollars in legal fees if one of the owners wants to get out and sell his/her interest in the business or disagrees with your ideas of how to run the company? Litigation is always more expensive than drawing up an agreement before the fighting starts. The ideal time to draw up a shareholder/operating agreement is before the company is formed. But even if you have been in business for a number of years, it is never too late to put everything in writing in advance of problems occurring.
A basic agreement should include sections about how to distribute profits and losses (this may not be done evenly depending on each owner’s contributions and time spent in the business), how to bring in new owners, how each owner will be allowed to sell his interest in the business, what happens in case of the death of an owner, how to resolve business disagreements, how much of a commitment to the business is required, and what could trigger a dissolution of the business.
It is imperative that you consult a business lawyer who has drafted these types of agreements before to help you with your agreement. You may also need to consult with your accountant and an insurance agent (typically a company buys life insurance to cover the buyout of a deceased owner). In discussing the different points of the agreement, you will discover that your partners may have very different views than you do. If relations are still friendly between you and the other owners, coming to an understanding about how the company will proceed in the future is more likely than if all of the owners are hostile.
A shareholder/operating agreement can be changed after it is drafted and signed but at least it serves as a starting point for how to decide questions that are very likely to arise in the life of a company. Business is like a marriage in some ways but most participants do not expect it to be for life. At some point, you will want to get out. If you do not have a shareholder/operating agreement, you could wind up in court, like a divorce action. And we all know that divorce isn’t pretty or cheap.
Tuesday, August 14, 2007
How Will You Survive the Subprime Mortgage Mess?
I'm sure you are no different than all of the other mortgage companies who are finding their investor sources drying up. I read something new about the subprime mortgage mess in the newspaper every day as do your customers. This is the time to let them know that you are still around and that you still have options for their varying needs.
I know that volume is down and some of you may even be wondering how you will stay in business. In down cycles, you must work harder to keep the phones ringing. If you have been keeping a stash of tips on marketing for when you "have the time" this is the time to get that stash out and start implementing those ideas that sound good to you. Some of them will work and some won't but you will not know which is which until you experiment. Most of the marketing suggestions that you hear about have something to do with customer contact, either existing customers or potential customers. In the current climate, most potential borrowers, especially those with more difficult credit histories, are anxious to know that there is a mortgage out there for them. Although many lenders and investors are tightening up or eliminating programs, if you can find those lenders and investors that are still offering mortgages to your types of customers, then you must educate your customers and potential customers that you are the one who will help them buy a house or refinance their current mortgage.
Only those mortgage brokers and lenders who can weather the difficult times will be around when the upcycle comes again.
I know that volume is down and some of you may even be wondering how you will stay in business. In down cycles, you must work harder to keep the phones ringing. If you have been keeping a stash of tips on marketing for when you "have the time" this is the time to get that stash out and start implementing those ideas that sound good to you. Some of them will work and some won't but you will not know which is which until you experiment. Most of the marketing suggestions that you hear about have something to do with customer contact, either existing customers or potential customers. In the current climate, most potential borrowers, especially those with more difficult credit histories, are anxious to know that there is a mortgage out there for them. Although many lenders and investors are tightening up or eliminating programs, if you can find those lenders and investors that are still offering mortgages to your types of customers, then you must educate your customers and potential customers that you are the one who will help them buy a house or refinance their current mortgage.
Only those mortgage brokers and lenders who can weather the difficult times will be around when the upcycle comes again.
Monday, August 6, 2007
Licensing in a "Brick and Mortar" State
I periodically receive phone calls and emails from mortgage companies that want to get licensed in all states. Since there is no "national" license, such a company must get 51 licenses (including Washington DC). When they hear that some states require a physical presence in their states, they realize that such licensing will be very expensive.
As of today, the following states require an office in their state for a mortgage broker license: Alabama, Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, and Texas. For mortgage lenders, the states are: Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, Ohio, Oklahoma, Pennsylvania, and Texas.
Even within the requirement of brick and mortar, the different states have different requirements. Some states permit any home office, other states allow the home office if you can prove that the home is zoned for office use and/or there is a separate entrance for the office. Some states permit month-to-month leases on these offices, other states do not and even require leases of at least 6 months to 1 year. In addition to the expense of the rent on these offices, certain states require that the office be staffed by a W-2 employee. Since I am aware that some mortgage companies do not pay branch managers or loan officers as employees but treat them as independent contractors, this can be an additional expense.
I am frequently asked whether my office or some relative’s address can be used as the "office" that is required in brick and mortar states. My office is not used for any client’s needs and I tell clients that a relative’s address can in some situations be used as the office. Again, because each state has a different requirement, I need to know the particular state that someone is inquiring about.
Because a brick and mortar state is a much more expensive state in which to operate, I caution clients that there must be a good reason to go into that state, other than part of a 50-state strategy. If a loan officer has family, friends or a real estate agent who will refer a steady stream of business, the costs of maintaining the office will be offset by the fees you will earn. Likewise, if your clientele are buying second homes in a particular state, that state is a good candidate for spending the money to retain an office. And each year, you should conduct a cost-benefit analysis to determine whether you spent more on the office than you earned in fees to decide whether to renew your license in a brick and mortar state.
As of today, the following states require an office in their state for a mortgage broker license: Alabama, Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, and Texas. For mortgage lenders, the states are: Arizona, Hawaii, Missouri, Montana, Nevada, New Jersey, Ohio, Oklahoma, Pennsylvania, and Texas.
Even within the requirement of brick and mortar, the different states have different requirements. Some states permit any home office, other states allow the home office if you can prove that the home is zoned for office use and/or there is a separate entrance for the office. Some states permit month-to-month leases on these offices, other states do not and even require leases of at least 6 months to 1 year. In addition to the expense of the rent on these offices, certain states require that the office be staffed by a W-2 employee. Since I am aware that some mortgage companies do not pay branch managers or loan officers as employees but treat them as independent contractors, this can be an additional expense.
I am frequently asked whether my office or some relative’s address can be used as the "office" that is required in brick and mortar states. My office is not used for any client’s needs and I tell clients that a relative’s address can in some situations be used as the office. Again, because each state has a different requirement, I need to know the particular state that someone is inquiring about.
Because a brick and mortar state is a much more expensive state in which to operate, I caution clients that there must be a good reason to go into that state, other than part of a 50-state strategy. If a loan officer has family, friends or a real estate agent who will refer a steady stream of business, the costs of maintaining the office will be offset by the fees you will earn. Likewise, if your clientele are buying second homes in a particular state, that state is a good candidate for spending the money to retain an office. And each year, you should conduct a cost-benefit analysis to determine whether you spent more on the office than you earned in fees to decide whether to renew your license in a brick and mortar state.
Monday, July 30, 2007
5 Tips to Keep Your Company out of Legal Trouble
Litigation is very expensive and can even cost you your business. Here are some pointers on
staying out of court.
1. Many business owners sign agreements without legal assistance, but it’s very important
to have an attorney review the contract beforehand. Why is that?
Every business owner looking at a contract must realize that the contract has been drafted to protect the party that has prepared the contract. So, if you are looking for office space and the landlord gives you a lease to sign, remember that the lease favors the landlord. The same is true for any contracts for goods or services that you are buying or if you are having someone perform any type of service for you. An attorney who reviews the contract for you before you sign it can point out the contract provisions that are detrimental to your interests and can negotiate changes in the contract or suggest negotiation strategies for you to try against
the other party. Once a contract is signed by both parties, you are bound by the terms of the contract as it was signed.
2. How can a company avoid one owner leaving the other with all of the company's
debts and problems?
This is such a common situation when two friends start a business together. They figure that their friendship will overcome any questions that come up about how to handle company business. Every limited liability company or corporation should have an operating or shareholders' agreement.
3. What’s the basic information to include in an operating or shareholders' agreement?
All operating or shareholders' agreements should discuss how much and what each owner will invest in the business, how much time each partner will invest in the business, whether full-time or part-time, how the profits and losses will be divided (which may or may not correspond exactly to percentage ownership interests), and what will happen when one owner wants to leave the business or dies.
4. There are all types of liabilities that undermine a business, especially when a company isn’t insured. What type of insurance does a mortgage company need?
A mortgage company will need property and casualty insurance to protect business equipment, furniture, and files, workers’ compensation if they have employees at the workplace, and automobile insurance on all of the company cars. They will also need something called errors and omissions insurance which will protect your company when a loan officer or processor makes a mistake or does something he/she shouldn't have. A mortgage company should consult an insurance agent to find out the types of insurance that it will need for its business.
5. What should a business owner look for in an attorney when searching for one to provide general business advice?
Just like doctors have become specialists, attorneys have also become specialists. A business owner wants to find an attorney who specializes in business law. And if that business owner has a small business, he or she wants to find an attorney who is knowledgeable about small business, not large corporations. Business owners should start with the lawyers they know or ask the businesses they admire who they use as their business attorney. Also use a specialist when having mortgage-related problems. They know your industry better than a general-practitioner.
staying out of court.
1. Many business owners sign agreements without legal assistance, but it’s very important
to have an attorney review the contract beforehand. Why is that?
Every business owner looking at a contract must realize that the contract has been drafted to protect the party that has prepared the contract. So, if you are looking for office space and the landlord gives you a lease to sign, remember that the lease favors the landlord. The same is true for any contracts for goods or services that you are buying or if you are having someone perform any type of service for you. An attorney who reviews the contract for you before you sign it can point out the contract provisions that are detrimental to your interests and can negotiate changes in the contract or suggest negotiation strategies for you to try against
the other party. Once a contract is signed by both parties, you are bound by the terms of the contract as it was signed.
2. How can a company avoid one owner leaving the other with all of the company's
debts and problems?
This is such a common situation when two friends start a business together. They figure that their friendship will overcome any questions that come up about how to handle company business. Every limited liability company or corporation should have an operating or shareholders' agreement.
3. What’s the basic information to include in an operating or shareholders' agreement?
All operating or shareholders' agreements should discuss how much and what each owner will invest in the business, how much time each partner will invest in the business, whether full-time or part-time, how the profits and losses will be divided (which may or may not correspond exactly to percentage ownership interests), and what will happen when one owner wants to leave the business or dies.
4. There are all types of liabilities that undermine a business, especially when a company isn’t insured. What type of insurance does a mortgage company need?
A mortgage company will need property and casualty insurance to protect business equipment, furniture, and files, workers’ compensation if they have employees at the workplace, and automobile insurance on all of the company cars. They will also need something called errors and omissions insurance which will protect your company when a loan officer or processor makes a mistake or does something he/she shouldn't have. A mortgage company should consult an insurance agent to find out the types of insurance that it will need for its business.
5. What should a business owner look for in an attorney when searching for one to provide general business advice?
Just like doctors have become specialists, attorneys have also become specialists. A business owner wants to find an attorney who specializes in business law. And if that business owner has a small business, he or she wants to find an attorney who is knowledgeable about small business, not large corporations. Business owners should start with the lawyers they know or ask the businesses they admire who they use as their business attorney. Also use a specialist when having mortgage-related problems. They know your industry better than a general-practitioner.
Monday, July 23, 2007
Changes to Massachusetts Licensing Regulations
Massachusetts' regulations regarding industry experience have changed.
Previously, there was no explicit standard about industry experience requirements. The Division of Banks evaluated each applicant's experience and decided whether the applicant could be trusted to comply with state and federal statutes and regulations concerning the mortgage process.
Now, mortgage brokers must show 3 years of full-time or the equivalent in part-time mortgage industry experience. The experience can be gained by working as a mortgage broker in another state, or working for another mortgage broker or lender or bank in Massachusetts. You don't get any credit for working for an unlicensed broker or in an unlicensed branch office.
An applicant for a mortgage lender license must show 5 years of full-time mortgage industry experience, likewise gained by working as a mortgage broker in another state, or working for another mortgage broker or lender or bank in Massachusetts.
Branch managers must show 3 years of full-time mortgage industry experience.
Previously, there was no explicit standard about industry experience requirements. The Division of Banks evaluated each applicant's experience and decided whether the applicant could be trusted to comply with state and federal statutes and regulations concerning the mortgage process.
Now, mortgage brokers must show 3 years of full-time or the equivalent in part-time mortgage industry experience. The experience can be gained by working as a mortgage broker in another state, or working for another mortgage broker or lender or bank in Massachusetts. You don't get any credit for working for an unlicensed broker or in an unlicensed branch office.
An applicant for a mortgage lender license must show 5 years of full-time mortgage industry experience, likewise gained by working as a mortgage broker in another state, or working for another mortgage broker or lender or bank in Massachusetts.
Branch managers must show 3 years of full-time mortgage industry experience.
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