Mortgage Licensing Glossary Of Terms
BATTLECALL GUEST EXPERT: Eric Smith, AM
Licensing
If you are looking into getting your own mortgage license whether as a broker
or as a direct lender, it is helpful to understand a few terms. Here are some of
the most common you will encounter as you navigate the mortgage licensing
maze.
Articles Of Incorporation:
If your company is an LLC or partnership, this may be called your Articles of
Organization or Partnership agreement. Basically, these are the documents you
will file and receive back from the Secretary of State where you have formed
your company.
Brick & Mortar:
This means that a state requires you to have a physical office in their state
before getting licensed. Now, the requirements for that office vary widely, but
generally, it must be an actual office with an employee who works in the office.
Some states do allow home offices, but they typically still need an employee who
works in that office.
By-Laws:
If you are a LLC, this might also be called your operating agreement. This
document should have been drafted when you formed your company, but often it
isn't. This, basically, is a detailed description of how your company will run
(who is on the board, who owns shares, etc). If you don't currently have these,
your best bet is to contact a local attorney to discuss, but you might also try
running a Google search for "By-laws" to find a
template.
Certificate Of Authority:
The full name for this item is a "Certificate of Authority to do business as
a foreign corporation (or llc)." This document must be obtained from the
Secretary of State in the state where you are wanting to obtain your mortgage
license. The process differs from state to state, but the basic requirements are
that you must have a registered agent in the state, your name must be available,
and you must pay a fee to the Secretary of State. The reason for this document
is threefold: 1) You must register so that state can tax you 2) You must
register so that you can make sure your company name isn't already being used by
another company and 3) You must register so that, if necessary, the state can
serve papers on you without having to extradite you to that state. We typically
recommend you use a third party company to obtain this document, but you can do
it on your own.
D/B/A:
This is an abbreviation for "doing business as." If the name of your company
is fairly common and you are looking to start doing business in another state,
you may find that there is already a company of the same name in that state. If
that is the case, then you will be required to register a DBA in that state that
you will do business under. This is to make sure that borrowers of that state
aren't confused with 2 companies having the same name.
Financial
Statements:
With the exception of a few states, you aren't going to need to have your
company financials audited by a CPA in order to get licensed. You will, however,
generally need to show at least $25k in company net worth via a company balance
sheet and income statement. This statement will need to be signed by an officer
of your company and dated within 90 days of the date of application. (This
requirement varies state-to-state which will be discussed in later
posts)
Surety Bond:
A surety bond is essentially a line of credit issued to you by an insurance
company that the state retains on file should something every go wrong with your
company or your loans. It is not an insurance policy, but rather an extension of
credit. Surety bonds are state specific, so it isn't possible to obtain one
large bond to cover each states requirements. The cost of the Surety bond will
depend on your credit history, but generally runs in the range of 1%-15% of the
bond amount. The average bond for a mortgage broker is $25,000. So, if you have
decent credit, you can expect to pay $250-$500 in yearly bond premiums per
$25,000 surety bond.
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