Effective June 1, 2008, Maryland licensed lenders (and that includes brokers) must meet new net worth requirements in order to get approved and renew their license. Remember, net worth equals assets minus liabilities. If you are a broker or table –funding a loan (but your name is not on the mortgage), the minimum net worth that is required is $25,000. For lenders, the minimum net worth is a sliding scale, based on the amount of lending you did in the previous 12 months. If your loans totaled $1,000,000, your minimum net worth must be at least $25,000. If you lent between $1,000,000 and $5,000,000, your minimum net worth must be at least $50,000. And, if you lent more than $5,000,000, you need a minimum net worth of $100,000. As of January 1, 2009, if you are a lender with mortgages of more than $10,000,000, your minimum net worth requirement increases to $250,000.00.
You can satisfy the requirement with cash, a line of credit (brokers cannot use a line of credit), or other assets. A line of credit cannot be used for more than 75% of the net worth. You can show proof of your net worth by submitting a certified financial statement, certified by a principal of the licensee and compiled, reviewed, or audited by a certified public accountant. If cash is used as the sole qualifying asset, you can submit a letter from your bank. If a line of credit is used, you must submit a copy of the line of credit agreement.
Monday, June 30, 2008
Tuesday, June 24, 2008
Alaska Joins the Licensing Club
The Alaska Mortgage Lending Regulation Act (AMLRA), AS 06.60, requires mortgage lenders, mortgage brokers, and originators operating in Alaska to become licensed, starting July 1, 2008. This new law does not permit anyone to be grandfathered so everyone who is doing mortgage lending or brokering in Alaska needs to get a license.
If you are already doing business as a lender or broker in Alaska (as evidenced by your current business license), you have until March 1, 2009 to get your license. But, if you want to start doing business in Alaska after June 30, 2008, you must be licensed.
The new law does not require a brick-and-mortar presence in Alaska so you can do all of your solicitation of business through the internet, mail, or telephone. Companies get a company license and loan officers each get their own licenses. Loan officers must undergo a background check, pass a test, and will be required to get 24 hours of continuing education every 2 years. A company owner who also originates loans must be licensed as an originator as well as getting the company license. The license fee for originators is $150.
The company must submit the license application, a $25,000 surety bond, and a $250 investigation fee and $500 license fee. All control persons of the mortgage company will have to undergo fingerprinting.
Applications are already available at the Alaska Banking Department website.
If you are already doing business as a lender or broker in Alaska (as evidenced by your current business license), you have until March 1, 2009 to get your license. But, if you want to start doing business in Alaska after June 30, 2008, you must be licensed.
The new law does not require a brick-and-mortar presence in Alaska so you can do all of your solicitation of business through the internet, mail, or telephone. Companies get a company license and loan officers each get their own licenses. Loan officers must undergo a background check, pass a test, and will be required to get 24 hours of continuing education every 2 years. A company owner who also originates loans must be licensed as an originator as well as getting the company license. The license fee for originators is $150.
The company must submit the license application, a $25,000 surety bond, and a $250 investigation fee and $500 license fee. All control persons of the mortgage company will have to undergo fingerprinting.
Applications are already available at the Alaska Banking Department website.
Tuesday, June 17, 2008
Loan Officer Licensing
The mortgage meltdown has led to a re-examination of whether a loan officer has a duty to protect customers from “risky” mortgages. Many in the regulatory agencies believe that licensing all loan officers would help avoid a re-occurrence of the recent subprime mess. To that end, there is a pronounced trend toward requiring loan officers working for non-depository lenders and brokers to be licensed.
Licensing typically requires some education, maybe passing a test and undergoing a criminal background search to ensure that the applicant has not been arrested or convicted of any crime. There may also be continuing education requirements. It’s not terribly rigorous. And there is no way to regulate integrity. There are plenty of rogue loan officers out there who jump from company to company, state to state.
Right now, the states that require licensing or registration of loan officers are: Arkansas, California (if licensed through the Department of Real Estate), Colorado, Connecticut, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, and Wisconsin. If you are an Alaskan loan officer, your licensing requirement starts July 1, 2008.
You are in violation of your state’s licensing law if you have licensed or registered one loan officer and funnel all applications through that one person. You are in violation if an unlicensed or unregistered loan officer is originating mortgages with consumers. You are in violation if you are co-brokering with another broker that is not licensed. Violations can be expensive if you are caught. Think thousands of dollars in penalties and fines.
Obviously, my recommendation is to register or license every loan officer in all of your offices for every state in which they will solicit business. If you have a branch that is located in New York and they do business in New York only, you’re fine. Once that branch starts talking to consumers in New Jersey or Connecticut, you need to get them registered in those other states.
Licensing typically requires some education, maybe passing a test and undergoing a criminal background search to ensure that the applicant has not been arrested or convicted of any crime. There may also be continuing education requirements. It’s not terribly rigorous. And there is no way to regulate integrity. There are plenty of rogue loan officers out there who jump from company to company, state to state.
Right now, the states that require licensing or registration of loan officers are: Arkansas, California (if licensed through the Department of Real Estate), Colorado, Connecticut, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, and Wisconsin. If you are an Alaskan loan officer, your licensing requirement starts July 1, 2008.
You are in violation of your state’s licensing law if you have licensed or registered one loan officer and funnel all applications through that one person. You are in violation if an unlicensed or unregistered loan officer is originating mortgages with consumers. You are in violation if you are co-brokering with another broker that is not licensed. Violations can be expensive if you are caught. Think thousands of dollars in penalties and fines.
Obviously, my recommendation is to register or license every loan officer in all of your offices for every state in which they will solicit business. If you have a branch that is located in New York and they do business in New York only, you’re fine. Once that branch starts talking to consumers in New Jersey or Connecticut, you need to get them registered in those other states.
Monday, June 9, 2008
New Oregon Annual Report Rule
Oregon has just sent out notice of its new requirement regarding annual reports. The rule is OAR 441-865-0022 and can be read in its entirety on the internet at http://arcweb.sos.state.or.us/rules/OARS_400/OAR_441/441_865.html.
The rule details what information will be required to be on the annual report. In addition to the standard totals for number and dollar amount for 1st mortgages, there are questions about loans insured or guaranteed by a federal agency, totals for negative amortization mortgages, and loans with a loan-to-value ratio of less than 80% but to a borrower with a FICO score of 620 and above. In all, there are 17 sections with some sections having more than 1 question.
The annual report is due on or before August 30, 2008 for loans made in 2007. There are no forms available yet. However, I would suggest that all mortgage bankers and brokers who are licensed in Oregon read the rule and start gathering the necessary information.
The rule details what information will be required to be on the annual report. In addition to the standard totals for number and dollar amount for 1st mortgages, there are questions about loans insured or guaranteed by a federal agency, totals for negative amortization mortgages, and loans with a loan-to-value ratio of less than 80% but to a borrower with a FICO score of 620 and above. In all, there are 17 sections with some sections having more than 1 question.
The annual report is due on or before August 30, 2008 for loans made in 2007. There are no forms available yet. However, I would suggest that all mortgage bankers and brokers who are licensed in Oregon read the rule and start gathering the necessary information.
Tuesday, June 3, 2008
NMLS Participating States
This is just an update of which states are now using the Nationwide Mortgage Licensing System (NMLS), the national database of mortgage lenders, brokers and loan originators.
Currently using the system are Idaho, Iowa, Kentucky, Massachusetts, Mississippi, Nebraska, New Hampshire, New York, North Carolina, Rhode Island, Vermont, and Washington. Some of these states are fully using the NMLS for all licensee information and others are just transitioning to the NMLS, with a date in the future, up to September 1, 2008, to be fully transitioned. If you are licensed in one of the states listed here, you should have been notified by your regulatory agency that you need to input all company and loan originator information into the NMLS database during the transition period. If you have not received such a notice, I suggest that you check with your banking department to get the latest information to keep you in compliance.
Forty-two states have signed up for the NMLS so expect that you will be on the system within the next couple of years.
Currently using the system are Idaho, Iowa, Kentucky, Massachusetts, Mississippi, Nebraska, New Hampshire, New York, North Carolina, Rhode Island, Vermont, and Washington. Some of these states are fully using the NMLS for all licensee information and others are just transitioning to the NMLS, with a date in the future, up to September 1, 2008, to be fully transitioned. If you are licensed in one of the states listed here, you should have been notified by your regulatory agency that you need to input all company and loan originator information into the NMLS database during the transition period. If you have not received such a notice, I suggest that you check with your banking department to get the latest information to keep you in compliance.
Forty-two states have signed up for the NMLS so expect that you will be on the system within the next couple of years.
Tuesday, May 27, 2008
New York Licensing Timeframe
I just received the news that a client’s application for a New York mortgage broker license was just approved (if he submits his surety bond). I originally submitted his application over a year ago. Although there were delays by him in responding to requests for additional information that increased the timeline for an approval, I have other clients whose applications are also pending for over 10 months.
I am trying to make 2 points: it doesn’t help you to dawdle about submitting the information that a licensing reviewer has requested and New York takes many months to approve an application.
If your goal is to get a new license because you need the new business, you must make the time to respond to a reviewer’s questions about anything you have submitted or to get new documentation that has been asked for. If you show the reviewer that you do not care about the application (and to a reviewer, there is no other explanation for why you are not jumping when they contact you), they will put your file aside and get to it when they aren’t busy (which is almost never).
Yes, I know that it is very frustrating to hear that a license application will take many months to get approved. Some unscrupulous companies, in order to get your business, may tell you they can get it for you in a matter of weeks or that they know someone who will fast-track your application. When asked questions about approval timelines, I try to be as honest as I can within the framework of my experience. Even though I know many of the reviewers in the state banking departments, I can’t get a “rush” on every application that I send in. I use my relationship with the reviewers to help move applications through the process but I don’t beg a favor with every application. After awhile, the reviewers will stop responding. If you are checking around to find someone to handle your license applications, ask each of them about approval timeframes. If someone tells you something radically different from the others, find out why. It may be an unusual situation, or more likely, someone is telling you what they think you want to hear. Be realistic about the time it takes to get a license and start now.
I am trying to make 2 points: it doesn’t help you to dawdle about submitting the information that a licensing reviewer has requested and New York takes many months to approve an application.
If your goal is to get a new license because you need the new business, you must make the time to respond to a reviewer’s questions about anything you have submitted or to get new documentation that has been asked for. If you show the reviewer that you do not care about the application (and to a reviewer, there is no other explanation for why you are not jumping when they contact you), they will put your file aside and get to it when they aren’t busy (which is almost never).
Yes, I know that it is very frustrating to hear that a license application will take many months to get approved. Some unscrupulous companies, in order to get your business, may tell you they can get it for you in a matter of weeks or that they know someone who will fast-track your application. When asked questions about approval timelines, I try to be as honest as I can within the framework of my experience. Even though I know many of the reviewers in the state banking departments, I can’t get a “rush” on every application that I send in. I use my relationship with the reviewers to help move applications through the process but I don’t beg a favor with every application. After awhile, the reviewers will stop responding. If you are checking around to find someone to handle your license applications, ask each of them about approval timeframes. If someone tells you something radically different from the others, find out why. It may be an unusual situation, or more likely, someone is telling you what they think you want to hear. Be realistic about the time it takes to get a license and start now.
Monday, May 19, 2008
Lowering Your Chances of Getting Sued
From time to time, clients ask me if they can get sued for this or that. My response is always “yes.” In America, we have a very open system that allows anyone to start a lawsuit. The lawsuit may have no merit and may be quickly dismissed, but in the meantime, you will be spending time and money to get the dismissal.
Are there ways to minimize the likelihood that you will be sued? Yes, there are.
You can be sued by your employees, you can be sued by your customers, and you can be sued by your investors who purchased the loans you underwrote that are now in foreclosure.
You should start by getting all agreements in writing. Nothing will protect you if the arrangement is verbal. Your word against someone else’s word means the lawsuit will be drawn out and expensive. Have your lawyer review the proposed contract before it is signed. The money you spend now to have that review will seem cheap if you are sued and have to pay litigation costs. But also recognize that even having an agreement in writing cannot stop a lawsuit from being started.
Supervise your managers closely. You should have a good idea of what is happening to your employees in terms of how they treat other employees (sexual harassment or discrimination suits) and how they treat your customers. Make sure that employees that are not following your company’s procedures are made aware that they are not following your company’s procedures. Document in writing all employee issues and how you resolve those issues. Consult with an employment law attorney so that you know how to handle these problems in accordance with all relevant laws.
Do not ignore customer complaints or let your managers do so. Customer complaints will result in lawsuits and complaints with the banking department. It may be cheaper to settle a complaint monetarily than to ignore the complaint. Customers hate being ignored or having their concerns ridiculed. If they feel as if they were not heard or were disrespected, then they get angry, and it starts a cycle of animosity that results in the lawsuit (and a difficult case to settle since they want "justice"). And the breakdown in communication may not even be intentional. It can as simple as one side being out of town (unbeknownst to the other side) and not returning a phone call. If you express your willingness to satisfy your customer, this may prevent a costly lawsuit or complaint. If you solve the problem even better than the customer expected, you can turn that angry customer into one who will rave about your customer service and send all of her family and friends to you with their business. Sometimes (actually, many times), it’s not the principle that counts. Many times, you will spend so much time and money on defending the principle that you will damage your company so severely that it may never recover.
Talk to your insurance company about managing risk before you have an inkling about a lawsuit (and you should have liability, professional practices, and errors and omissions insurance). They may suggest various procedures to put in place and strategies to use that help you lower your risk of being sued. Having those procedures in place may also lower your insurance premiums.
The subprime mess and current wave of foreclosures is also leading to lawsuits by borrowers claiming that they were misled about mortgage terms. Cities are suing lenders claiming that their lending policies have led to the cities’ losing tax revenue due to homeowners in foreclosed houses not paying their real estate taxes and trying to recoup their costs of maintaining vacant houses. In turn, the lenders are suing the mortgage brokers alleging that the mortgage brokers supplied fraudulent asset and income information about their borrowers. Homeowners are suing lenders, mortgage brokers, real estate agents, appraisers, and everyone else involved in a mortgage transaction. Some of these lawsuits are the typical “sue everyone in sight” nature of our current litigation practice and difficult to prevent. However, you must know that your loan officers are not engaging in any actions that leave you vulnerable to losing such a lawsuit. Although the focus of a loan officer may be his commission, you must ensure that you have procedures in place to ensure that neither your customers nor your loan officers are engaging in mortgage fraud.
We live in a litigious society and lawsuits are part of the cost of doing business. But there are many steps you can take to make lawsuits a smaller cost than it is now.
Are there ways to minimize the likelihood that you will be sued? Yes, there are.
You can be sued by your employees, you can be sued by your customers, and you can be sued by your investors who purchased the loans you underwrote that are now in foreclosure.
You should start by getting all agreements in writing. Nothing will protect you if the arrangement is verbal. Your word against someone else’s word means the lawsuit will be drawn out and expensive. Have your lawyer review the proposed contract before it is signed. The money you spend now to have that review will seem cheap if you are sued and have to pay litigation costs. But also recognize that even having an agreement in writing cannot stop a lawsuit from being started.
Supervise your managers closely. You should have a good idea of what is happening to your employees in terms of how they treat other employees (sexual harassment or discrimination suits) and how they treat your customers. Make sure that employees that are not following your company’s procedures are made aware that they are not following your company’s procedures. Document in writing all employee issues and how you resolve those issues. Consult with an employment law attorney so that you know how to handle these problems in accordance with all relevant laws.
Do not ignore customer complaints or let your managers do so. Customer complaints will result in lawsuits and complaints with the banking department. It may be cheaper to settle a complaint monetarily than to ignore the complaint. Customers hate being ignored or having their concerns ridiculed. If they feel as if they were not heard or were disrespected, then they get angry, and it starts a cycle of animosity that results in the lawsuit (and a difficult case to settle since they want "justice"). And the breakdown in communication may not even be intentional. It can as simple as one side being out of town (unbeknownst to the other side) and not returning a phone call. If you express your willingness to satisfy your customer, this may prevent a costly lawsuit or complaint. If you solve the problem even better than the customer expected, you can turn that angry customer into one who will rave about your customer service and send all of her family and friends to you with their business. Sometimes (actually, many times), it’s not the principle that counts. Many times, you will spend so much time and money on defending the principle that you will damage your company so severely that it may never recover.
Talk to your insurance company about managing risk before you have an inkling about a lawsuit (and you should have liability, professional practices, and errors and omissions insurance). They may suggest various procedures to put in place and strategies to use that help you lower your risk of being sued. Having those procedures in place may also lower your insurance premiums.
The subprime mess and current wave of foreclosures is also leading to lawsuits by borrowers claiming that they were misled about mortgage terms. Cities are suing lenders claiming that their lending policies have led to the cities’ losing tax revenue due to homeowners in foreclosed houses not paying their real estate taxes and trying to recoup their costs of maintaining vacant houses. In turn, the lenders are suing the mortgage brokers alleging that the mortgage brokers supplied fraudulent asset and income information about their borrowers. Homeowners are suing lenders, mortgage brokers, real estate agents, appraisers, and everyone else involved in a mortgage transaction. Some of these lawsuits are the typical “sue everyone in sight” nature of our current litigation practice and difficult to prevent. However, you must know that your loan officers are not engaging in any actions that leave you vulnerable to losing such a lawsuit. Although the focus of a loan officer may be his commission, you must ensure that you have procedures in place to ensure that neither your customers nor your loan officers are engaging in mortgage fraud.
We live in a litigious society and lawsuits are part of the cost of doing business. But there are many steps you can take to make lawsuits a smaller cost than it is now.
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