January 2008 Mortgage Licensing Update

There have been a lot of changes in 2007, and we can expect even more in 2008. With the state legislators gathering together and the current market conditions influencing their legislative decision-making power, we can expect numerous new laws relating to the mortgage industry from each state. Especially if the US Congress decides to pass legislation requiring minimum levels of licensing in each state, which is likely to pass early this year.



The updates for January are as follows:

• FHA Licensing Update • Massachusetts Bond Form Released • Colorado E&O Requirement Postponed • Alaska Licensing by 7/1/08 • Nationwide Mortgage Licensing System Released

FHA Licensing Update

With legislation recently passing by the US House and the US Senate, many changes are expected to happen in 2008. The Senate bill that just passed was much more conservative than the House bill and did not include items such as the surety bond in lieu of audited financials, a dramatic increase in the FHA Loan Limit, and risk-based pricing. It did, however, include some major changes to the HECM loan (Reverse Mortgage) that many people are excited about. Now the two bills have been sent to committee for the House and Senate to come to a compromise on differences in the bills. I would expect the Senate to hold their ground and the final bill to look very similar to the bill just recently passed by the Senate, but there is still a chance that some of the provisions in the House bill will be adopted. I would expect a final bill to be sent to the President by February.



Massachusetts Bond Form Released

Massachusetts made some new requirements for new licensees back in September, one of which was a new bond requirement. Unfortunately, the state failed to make the new bond form available. All mortgage companies that applied for a mortgage broker license since that date have been on hold. Massachusetts finally issued the new bond form, but to this date, it still has not been approved by the insurance companies to be issued. Numerous companies are waiting on this final item in order to get a license and hoping that the insurance companies will start issuing surety bonds on the new form soon.



Colorado E&O Requirement Postponed

Colorado recently issued a new requirement for all individual mortgage brokers (loan originators) licensed in the state to maintain an E&O policy. The insurance companies starting issuing these around the beginning of December, however, one of the questions on the application was "what percentage of loans originated in the previous 12 months were sub-prime loans?" Anyone that said more than 20% was either denied or told that they would have to pay thousands for the policy. Due to this issue, Colorado has issued an emergency ruling allowing until 1/31/08 for individuals to obtain the necessary insurance as well as increasing the maximum deductible to make the bond more cost-effective. Colorado is getting known for their emergency rulings since the state legislator is not giving enough time for the Colorado Division of Real Estate to implement new legislation.



Alaska Licensing by 7/1/08

This is just a reminder for those of you who are currently originating loans in Alaska. Many people have been able to originate their for years without a license, however, there new licensing requirements go into effect on July 1, 2008. Make sure to get your applications in soon if you plan on continuing to do business there after the first of the year.



Nationwide Mortgage Licensing System (NMLS) Released

Just a final reminder for those who are licensed in the first 7 states that will be using the system. You will want to access the system as soon as possible to update your company information. Here is a list of the first 7 states that will be using the system:

• Idaho • Iowa • Rhode Island • New York • Kentucky • Massachusetts • Nebraska

What Services does a Mortgage Licensing Company Offer?

I have had clients tell me that licensing a mortgage company nationwide was one of the most challenging projects that they have ever taken on. So why is it so challenging, and what can you do to make the process easier?

What does a Mortgage Licensing Company do to make this process easier?

To explain what a mortgage licensing company does, I need to first explain what is involved in getting a mortgage license. Almost every state has the following requirements: Filing for certificate of authority as a foreign entity, registered agent, surety bond, fingerprints, education, experience, and exams, detailed ownership and officer information, financials, and a final application.

Time
The following items take a lot of time to complete and fill out correctly if you have never done it before. Filing a certificate of authority is different in each state and required prior to obtaining a license. Each filing requires a number of additional items such as a certificate of good standing and/or certified articles of incorporation as well as information on the registered agent. By using a mortgage licensing company, they usually include this process in the service that they offer. Completing the license applicaton also requires a number of different documents to attach and can be very time consuming to research and fill out accurately. Most states do not make the process simple and definitely do not explain what is needed in a step by step manner that would be simple to fill out.

Knowledge
The following items can take detailed understanding and intimate knowledge of each states requirements. The surety bond requirement can be difficult and often the largest barrier to obtaining licenses nationwide. Since each state requires a surety bond, once about 5 to 10 states are reached, a mortgage company will find it difficult to obtain the necessary bonding in order to go into additional states. If there is any financial or criminal background on the owners or officers of the company, you will need to delicately provide this information to the states and make sure to provide them the answers that they need to be able to determine if their regulations prohibit that type of background. It must be handled very carefully.

In whole, the process can be done on your own or with the assistance of professionals. If planning on a mortgage licensing project in to 1 or 50 states, make sure to consider the cost, not just the immediate monetary cost, but also the cost of the time involved to maneuver all of the different state requirements quickly and efficiently.

Largest Barrier to Mortgage Company Licensing

I get calls all of the time from companies that are interested in getting away from a net branch company and getting their own mortgage licenses. After hundreds of these conversations, I've been able to reduce the call to a simple question. What is your mortgage company's net worth?

Now you may be thinking that net worth is not a requirement in a lot of states especially for mortgage brokers or is very minimal such as $10,000 to $20,000. You are correct. Most states don't have a very high net worth requirement for mortgage brokers, although a few do. That is actually not why I ask the question, "What is your net worth?" The reason I ask the question is because most states have a surety bond requirement. To better explain this, let me tell you what a surety bond is.

A surety bond involves three parties, the Principal (in this case mortgage companies), the Obligee (the state department), and the Surety (insurance surety carrier). It is an agreement by the surety to be responsible to the obligee for the obligation or conduct of a third party which is the Principal. It is also a way for the states to regulate the licensing of mortgage companies conducting business in their states as a broker or a banker or both. The laws and statutes vary from state to state. When the statutes or laws are broken by the Principal a claim or loss can occur on the bond. The most important thing to remember on a surety bond is that it is not an insurance policy. Whereas, in a regular insurance policy, the Insurer takes all risk and pays out claims, in a surety bond the law seeks that Surety ask for recovery or reimbursement for what surety pays out to handle the claim with the state.

With that being said, basically if you receive any claims on your surety bond, your company and then in most cases the ultimate owners of the company will be required to pay back the surety company. Since the surety may have to go after your mortgage company and owners for the losses, the surety company needs to verify that you actually have the ability to pay them back if their was ever a claim. So they verify the company's and the owners assets and ultimately net worth.

Most surety companies that you talk with will tell you that the maximum they can offer in surety bonds is the net worth of the company. With that being said, now you can see why net worth is so important when you go into multiple states. For example: Let's just say that you decide to get licensed in 5 states. Each state has between a $10,000 to $50,000 surety bond. The total of all surety bonds in the 5 states equals $175,000. If you try to get $175,000 worth of surety bonds, the surety company will ask to see your company's financials to see if your company could pay back any claims. If your company only has a net worth of $25,000, you may have a difficult time getting the bonds. There is one exception, and that is if the owners financials are very good. If the owner has a couple hundred thousand in net worth, the surety companies may look at that as enough to lower their risk of non-payment.

Now despite this being the largest barrier to mortgage licensing in multiple states, surety bonds are hardly ever claimed. Usually companies pay any fines or fees way before they get a claim on their surety bond. The reason is for this is if there is a claim on a company's surety bond, they usually will start to lose their bonds, because no surety company will insure them and they will subsequently lose all of their state licenses. It just doesn't happen very often.

Even though multiple states may not be an option at this time, I do recommend getting licensed in a few states that you do most of your business. This will greatly reduce your overhead and allow you the flexibility to work on your own.

December 2007 Mortgage Licensing Update

The bills in the Senate are just sitting there, the state legislative sessions are starting up and business is slowing down. Here's the latest news for mortgage licensing



Colorado - E&O Insurance now required for Mortgage Broker Individuals

Massachusetts - Surety Bond is not available

FHA Reform - New Bills still on hold in the Senate



Colorado

Colorado began licensing mortgage brokers on 1/1/07. Mortgage brokers are defined as any individual that solicits or originates a loan. Colorado is one of the only states that only licenses individuals and not companies, i.e. corporations and LLCs. Colorado also removed the HUD exemption on 6/1/07, which then required about 1,000 more companies to get their individual loan originators licensed as Colorado Mortgage Brokers. Now, as of 1/1/08, all licensed mortgage broker individuals will also need a $25,000 E&O policy. I just spoke to my insurance company today and they said it is now available.



Massachusetts

Massachusetts issued some new requirements that became effective in September. I review all of these requirements in the following news update: Massachusetts adds New Requirements. One of the major requirements was a surety bond for mortgage brokers and lenders. Since that date, no mortage licenses have been issued in the state because the state failed to issue a form for the surety bond. Massachusetts has stated that it will be available very soon. Any mortgage companies that need assistance with obtaining this bond, please let me know.



FHA Reform

This is one of the hottest topics right now for mortgage companies. Unfortunately, the US Senate doesn't seem to think so. The Senate Banking Committee has sat on a number of bills for months and nothing seems to be moving. I have received confirmation from someone involved in the congressional hearings that the bond provision in lieu of the audited financials for HUD approval (FHA Licensing) has been removed and will not be passed in the Senate. This is very unfortunate for many companies that don't have the time and money to do audited financials every year. The other hot item is the FHA loan limit increase. This is expected to pass in one form or another. We are still waiting to see what happens on this.



Conclusion

Be ready for some state legislation as their legislative sessions are about to start very soon. I'm predicting a lot of legislation in regards to foreclosures, loan modifications, counseling, additional licensing requirements, and more. Keep your eyes open for some major changes.

What Are The Benefits Of Using A Mortgage License Service?

If you're reading this article, you may be asking what the benefits are of using a mortgage license service. Acquiring a license is as simple as just sending an application to the state and waiting for the license to come in, right? Well, yes and no. Due to sensitive information handled by mortgage companies, the large amounts of money handled by mortgage companies, and the increasing amount of fraud in the industry, mortgage licensing has become a very arduous task. Mortgage licensing often involved numerous steps and can take months for the state to process the application just to find out that they need a few more items. This can often go on for months. So what can a mortgage license service do for you.?



1. Experience - Provide expertise to expedite the application process.

2. Connections - Find the best service providers for surety bonds, registered agents, and document retrieval.

3. Filing - Complete the paperwork so you can focus on building your mortgage company.



Experience

A mortgage licensing service has the experience to be able to put the licensing application together for you quickly. Without assistance it can take weeks even months just to research everything that's required. You will also have an advocate with the states. A mortgage licensing company has dealt with the same people at the states numerous times and can get you the answers you need if there are any issues that come up during the process.



Connections

Knowing the right companies to work with during this process is invaluable. You will need an insurance company that provides surety bonds. You will need a registered agent company that is nationwide that can receive service of process for you. You will also need a company that can expedite document retrieval from the different Secretary of States to expedite the process. I remember working with a surety bond company many years ago that told me the company I was working for couldn't get any more bonds. They told me that the companies financials weren't good enough. I went to about 10 different companies before I found one that would be able to provide additional bonds. Without assistance finding the right connections, you could find it difficult to complete the process.



Filing

The paperwork in some states is very simple, but most states have pages and pages to complete. Some of the questions are not very clear and require additional research and making calls. A mortgage licensing service already has gone through this and can provide the answers to these tough questions. They also complete the mortgage license applications for you so you don't have to spend hours filling out paperwork.



Mortgage Licensing Conclusion

If you have trained staff to handle all of the paperwork, make the connections, and provide the expertise, then definitely handle it in-house, but if you don't I recommend considering outsourcing the mortgage licensing process. It will actually save your company money and time.