Many states require your company to maintain a minimum net worth in order to get licensed and to keep your license. The amounts range from $10,000 to $1,000,000. If you are licensed or want to be licensed in a state that has minimum net worth requirements how do you obtain the capital you need?
There are a number of ways. The most obvious is to transfer money held in your personal bank account into the corporate entity’ bank account. Initially, this is how every new mortgage company gets started.
Beyond that, you could sell equity in the company and bring on a new partner. Your partner would have to buy shares in your corporation or a membership interest in your limited liability company, and the money from the sale of company stock or membership interests becomes part of the capital and net worth of the company.
Although it’s not easy, you may be able to find an investor willing to provide funding without giving up any equity in your business. Typically, this is a family member or a very good friend.
As you commence business operations, you can build net worth through retained earnings. Retained earnings are the profits your company makes that are not paid out to the owners of the company. To increase profits, increase your income (more closings or larger fees per closing) and/or decrease your expenses (go through each expense line-by-line and think of ways that each can be lowered). If the profits are kept in the company’s bank accounts or used to pay for company assets, they are counted as part of the company’s net worth.
Once you have been in business for awhile, you can explore merging with another company whose assets combined with yours will meet the minimum net worth requirements typically required of a mortgage lender. When you are looking to merge with another company, you want to find a company whose strengths complement your strengths. Together, your company and the company you merge with are greater than your two companies individually.
Eventually your plan should be to generate higher earnings by acquiring weaker companies and loan originators displaced by competitors who could not meet the net worth requirements and were forced to close. Your company may then continue to increase net worth as other competitive advantages become available as a larger company with increased production and profitability. Larger companies usually are stronger than smaller companies. They can offer more products, have offices in many locations to serve more borrowers, are licensed in more than one state, and have better management (which is how you became a bigger company).
The other key to the net worth issue is maintaining the net worth. Your company should never go below the minimum net worth required by your licenses. Hoard cash to get you through the lean times (including now) and do not make distributions to the owners if they will jeopardize your company’s net worth. Although you know that when your accountant comes in to audit your financials after each year-end so you make sure that your net worth meets the minimum requirements, you could also be subject to a random and unexpected examination of your records by your state licensing agency. You want to make sure that they find that you met every requirement, including net worth, when they conduct their examination.
Tuesday, August 23, 2011
Monday, July 25, 2011
Compare Your Company to Other Licensed Companies
The Nationwide Mortgage Licensing System & Registry (NMLS) has compiled information regarding licensees nationwide who are licensed in the first quarter of 2011. It can be accessed at http://mortgage.nationwidelicensingsystem.org/about/Documents/Quarter-1-2011-Licensing-Data.pdf
It shows how many licensees are licensed in more than one state, how many loan originators are sponsored by licensees, how many licensees have branch offices, etc. You can use the information for marketing purposes or for strategic planning purposes.
It shows how many licensees are licensed in more than one state, how many loan originators are sponsored by licensees, how many licensees have branch offices, etc. You can use the information for marketing purposes or for strategic planning purposes.
Wednesday, July 20, 2011
The Mortgage Call Report – It’s Back
Were you one of those mortgage company owners who were filing their Mortgage Call Reports late on Sunday, May 15, 2011? I had clients who sent me their information on 5:00 that afternoon and I was inputting information that evening. Don’t leave yourself in that position again. The Mortgage Call Reports for the 2nd quarter of 2011 are due on August 15, 2011. Don’t wait until the last minute to get your information together. As we get closer to the deadline, the NMLS computers work more slowly and it’s more difficult to get the information in. If you are having a fantastically busy summer, then hire outside help to get your Mortgage Call Report done. It’s money well spend because it lets you do what you do best - closing loans.
Tuesday, June 28, 2011
Mergers and Acquisitions – You Need Approval from the Regulators
The mortgage industry has been changing in the past four (4) years. Many mortgage lenders and brokers have closed their doors and stopped doing business entirely. Other companies want to stay in business but don’t want the headache of licensing compliance. Some of these companies are being acquired by other, larger companies who have compliance departments and who simply want to grow.
Most state licensing laws require that before one company can acquire or merge with another company their state banking department must approve the change. The statutes usually refer to a “change of control.” Most of these statutes require that, if there is an acquisition or merger, the acquiring company or companies being merged must notify the state regulatory agency and receive agency approval before the acquisition or merger is finalized. This means that if you are buying a company, the buy-sell agreement should have a contingency clause that the acquisition will not close until after all necessary regulatory approvals are received. If the company being acquired or merged is licensed in more than one state, the company that is buying must submit notification and approval paperwork to each regulatory agency in each state in which the company being bought or merged is licensed.
The company being acquired needs to close all loans in its pipeline and stop originating new loans while the approval is pending.
Do not jump the gun and start acting as if the acquisition or merger has gone through before the regulatory agency has given approval. You could be subject to fines, penalties and other disciplinary action that can affect your license and therefore your ability to originate loans.
Most state licensing laws require that before one company can acquire or merge with another company their state banking department must approve the change. The statutes usually refer to a “change of control.” Most of these statutes require that, if there is an acquisition or merger, the acquiring company or companies being merged must notify the state regulatory agency and receive agency approval before the acquisition or merger is finalized. This means that if you are buying a company, the buy-sell agreement should have a contingency clause that the acquisition will not close until after all necessary regulatory approvals are received. If the company being acquired or merged is licensed in more than one state, the company that is buying must submit notification and approval paperwork to each regulatory agency in each state in which the company being bought or merged is licensed.
The company being acquired needs to close all loans in its pipeline and stop originating new loans while the approval is pending.
Do not jump the gun and start acting as if the acquisition or merger has gone through before the regulatory agency has given approval. You could be subject to fines, penalties and other disciplinary action that can affect your license and therefore your ability to originate loans.
Tuesday, June 21, 2011
Are You Keeping Your State Regulators Notified About Changes in Your Company?
Have you moved your offices? Has a loan originator been terminated or left your company? Do you have a new branch manager? Has a state or federal agency instituted a cease and desist order or have you entered into a consent agreement?
When any piece of information changes from what is listed in your company MU1, or a branch office MU3 or your loan originators’ MU4 records, you must notify your state banking department. Each state has slightly different requirements about the notification – some states require 30 days’ prior notice, others require 15 days prior notice, other states will allow notice after a situation changes.
Each state has different requirements about the timing but the SAFE Act requires that you update your NMLS records to reflect all changes in your company that pertain to the information that is maintained in the NMLS database. Remember, when you attest to your record (whenever that is required), you are attesting to the fact that all of the information in your company record is still current. Therefore, if you have sponsored a loan originator, and he is no longer working for you, you must change your NMLS record to terminate the sponsorship. If you have moved your office, you must change your MU1. In some cases, you will need to surrender a paper license to get a new one with your new address. Make sure your loan originators update their MU4 records when any information of theirs changes – if they change their residence address or employment address.
It is a good practice to check your NMLS records (all of the company, branch office and loan originator records) on a regular basis so that you remember to make the necessary changes and notify your state regulator. Add this to the list of proactive steps to take so you are always in compliance.
When any piece of information changes from what is listed in your company MU1, or a branch office MU3 or your loan originators’ MU4 records, you must notify your state banking department. Each state has slightly different requirements about the notification – some states require 30 days’ prior notice, others require 15 days prior notice, other states will allow notice after a situation changes.
Each state has different requirements about the timing but the SAFE Act requires that you update your NMLS records to reflect all changes in your company that pertain to the information that is maintained in the NMLS database. Remember, when you attest to your record (whenever that is required), you are attesting to the fact that all of the information in your company record is still current. Therefore, if you have sponsored a loan originator, and he is no longer working for you, you must change your NMLS record to terminate the sponsorship. If you have moved your office, you must change your MU1. In some cases, you will need to surrender a paper license to get a new one with your new address. Make sure your loan originators update their MU4 records when any information of theirs changes – if they change their residence address or employment address.
It is a good practice to check your NMLS records (all of the company, branch office and loan originator records) on a regular basis so that you remember to make the necessary changes and notify your state regulator. Add this to the list of proactive steps to take so you are always in compliance.
Wednesday, June 15, 2011
The Mortgage Call Report – A Problem If You Didn’t File
The Nationwide Mortgage Licensing System opened up the Mortgage Call Report for the first filing in May, 2011. All mortgage broker and mortgage lender/banker licensees must file quarterly reports regarding their loan applications and their closed loans. I have clients that are licensed in multiple states and both originate and broker loans. For this type of licensee, there are about 38 questions to answer, for each state report. That was a lot of information to compile and submit. You even had to file a report if you had no loan activity. What are the consequences of not filing a Mortgage Call Report?
Starting June 16, 2011, your state regulator will place a deficiency on your license if you did not file the Mortgage Call Report. Although it has not been spelled out as to the exact issues that you will face, it is possible that you will not be able to originate loans until you clear the deficiency. If you did not file your first Mortgage Call Report because you were too busy closing loans, I would be happy to help you file your Report. Don’t forget, this is a quarterly obligation and the next Mortgage Call Report is due August 14, 2011 for data from April 1, 2011 through June 30, 2011.
Starting June 16, 2011, your state regulator will place a deficiency on your license if you did not file the Mortgage Call Report. Although it has not been spelled out as to the exact issues that you will face, it is possible that you will not be able to originate loans until you clear the deficiency. If you did not file your first Mortgage Call Report because you were too busy closing loans, I would be happy to help you file your Report. Don’t forget, this is a quarterly obligation and the next Mortgage Call Report is due August 14, 2011 for data from April 1, 2011 through June 30, 2011.
Monday, May 2, 2011
The Mortgage Call Report – Are You Ready to File Your First One?
The Nationwide Mortgage Licensing System has just opened up the Mortgage Call Report for the first filing. I just finished filing New Jersey Annual Reports on Friday so I know my clients are not going to be happy to be putting together the information needed for this new requirement. What is a Mortgage Call Report and what does it require?
All mortgage broker and mortgage lender/banker state licensees must file quarterly reports regarding their loan applications and their closed loans. I have clients that are licensed in multiple states and both originate and broker loans. For this type of licensee, there are about 38 questions to answer, for each state report. That’s a lot of information to compile and submit. You even have to file a report if you had no loan activity.
If you cannot submit your Mortgage Call Report because you are too busy closing loans, I will be happy to help you file your Report. Don’t forget, this is a quarterly obligation.
All mortgage broker and mortgage lender/banker state licensees must file quarterly reports regarding their loan applications and their closed loans. I have clients that are licensed in multiple states and both originate and broker loans. For this type of licensee, there are about 38 questions to answer, for each state report. That’s a lot of information to compile and submit. You even have to file a report if you had no loan activity.
If you cannot submit your Mortgage Call Report because you are too busy closing loans, I will be happy to help you file your Report. Don’t forget, this is a quarterly obligation.
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