Common Questions and Misconceptions of the Mortgage Industry

(FAQ)

by

Jim Montrym

Dear Student,

The following is a compilation of some of the questions and concerns that I have been asked for the past ten years. I hope they will enlighten you and help to keep you current in your occupation.

The Changes

1. Starting October 1, 2001, to start-up your own mortgage brokerage business you will need to be licensed for one(1), year or show the Department one(1) years worth of experience. At this time, the state has not clarified this, so call 1-850-410-9895 with your questions.

2. Starting October 1, 2001, if you want to start a Correspondent Lender or Mortgage Lender business, the Principal of the company must take the twenty-four (24) hour class and pass the state exam.(I like it). Companies in place prior to October 1, 2001 are excluded from this requirement unless the Principal of the company changes.

Question and Answer

Q: When does someone need a Mortgage Broker License?

A: Basically, when they take loan applications. In other words, being a processor, telemarketer, receptionist, etc., which many include quoting rates on loans and conditions is not required to have a license

________________________________________________________________________________________________________________________________

Q: I do commercial mortgages. Do I or do I not need a license?

A: You only need a broker license when either party to the transaction is a private party.

________________________________________________________________________________________________________________________________

Q: When may I turndown a borrower for not providing me with necessary information, and cancel the deal in my loan journal?

A: After seven(7) days of requesting it from a borrower, it is called Substantial Fault of the Borrower.

________________________________________________________________________________________________________________________________

Q: What does the state charge for audits?

A: $0 if you are in Florida. For out-of-state businesses, it will be travel expense and per diem subsistence at the rate provided by law, up to thirty (30) 8 hour days per year for each examination. (DO NOT HAVE YOUR BUSINESS IN HAWAII!!)

________________________________________________________________________________________________________________________________

Q: How long must I maintain loan files?

A: Three(3) years from the date of original entry. This means three years from the date you take the application. Note that pre-qualifications and rate shoppers are notapplications, so they do not have to be logged into your journal, or maintained in load files. Remember, it's only signed loan applications that count.

________________________________________________________________________________________________________________________________

Q: How long must I maintain copies of advertising?

A: Two years from the first date of publication or broadcast.

________________________________________________________________________________________________________________________________

Q: When must I disclose a conflicting interest?

A: When you or someone you are related to owns 10% or more of a business providing a service in a transaction you are in as a mortgage broker. (Should be done on the Good Faith Estimate). However, my personal rule is if you think they should know it, DISCLOSE IT!! I have never heard of anyone being charged with telling a client TOO much information in a deal!

________________________________________________________________________________________________________________________________

Q: A client is refusing to pay me a commission I feel I have earned. Can I cloud the title to the parcel of real estate involved (i.e. lien the property or file a Lis Penden)?

A: No!

________________________________________________________________________________________________________________________________

Q: What two parties have the right to arbitrate a dispute?

A: Borrower and non-institutional investor (two members of the public). This right cannot be taken away.

- I have heard some changes with regards to having a mortgage broker business tell me:

1) Mortgage Broker Businesses no longer have to be in Florida.

2) The department is no longer looking for occupational licenses on audits. However, I do not think most local and county governments feel the same.

3) You do not need a sign on or around the entrance to your business.

(Working out of your own home looks very attractive to me.)

________________________________________________________________________________________________________________________________

Q: When should I license a branch office?

A: Use the 7-11 rule (AKA - Common Sense). This means if you live in Tampa, and your company home office is in Orlando, you need a branch office license. (When in doubt, pay the fee.).

________________________________________________________________________________________________________________________________

Q: What commission monies must I disclose to my client?

A: All. This means "front end" (i.e. directly from client as a mortgage broker commission listed on the closing statement), and back end monies (i.e. par plus, yield spread, lender participation).

________________________________________________________________________________________________________________________________

Q: Can I, as a Mortgage Broker Business, collect monies from origination fees and discount points?

A: No. You are allowed, as a mortgage broker, to obtain monies two ways: application fees and mortgage broker commissions.

- As a Correspondent or Mortgage Lender, I do not have to disclose "back end" money.

A: Wrong. Yes, you do!

________________________________________________________________________________________________________________________________

Q: I am an out-of-state broker business. Where must my escrow account be?

A: In a Florida bank, S & L, or credit union insured by the Federal government. (Business can be out-of-state, however escrow cannot be.).

________________________________________________________________________________________________________________________________

Q: I hear that I have to file a list with the state of all the people who work for me as either associates or originators.

A: Yes. Every quarter you must file a list with the state of all persons who you hire or fire. (Do it through the internet). This applies to all broker businesses and lenders.

________________________________________________________________________________________________________________________________

Q: When figuring a maximum brokerage fee, what monies are included?

A: All. Again, both "front end" (broker commission and application fees) and "back end" (par plus, yield spread, lender participation) monies.

________________________________________________________________________________________________________________________________

Q: I use a lot of private investors. What must I do differently?

A: Get a copy of the Florida Statute 494 and read section 494.0043. Basically, they are to get an appraisal with opinion of value by the appraiser and title insurance, unless they waive it in writing. Disclosure of senior mortgages and status of them. Disclose is if you are involved as either the private investor or you are getting your hands on their money. The mortgage must be recorded at the courthouse before delivery to the investor. Each mortgage must be recorded by you within thirty(30) business days of the closing. (I think a personal injury lawyer wrote that last part of the law).


________________________________________________________________________________________________________________________________

Q: I am a Correspondent Lender or Mortgage Lender. What's the deal with my net worth?

A: If your net worth drops below the minimum of $25,000 as a Correspondent Lender or $250,000 as a Mortgage Lender, you must notify the state within 48hrs, and cease taking applications. The law states either you knew or you should have known. (Stupidity is no defense!). Secondly, if your net worth falls below the minimum, and you tell the Department voluntarily, you get one hundred twenty(120) days to get money back into the company. If the state catches this in an audit, you only get sixty (60) days to get it back up. However, in no manor may you continue to take applications.

________________________________________________________________________________________________________________________________

Q: Loan Officer, Loan Broker, Loan Originator, Associate Broker, Loan Solicitor. What's the difference?

A: It is time to be technical.

1) Loan Originator means an employee of either a Correspondent Lender or Mortgage Lender. (They do not need a broker license).

2) Associate Broker has a couple of legal meanings.

a) They work at a mortgage brokerage business as either an Employee(W-2)

or Independent Contractor (1099).

b) They work at a Correspondent Lender or Mortgage Lender as an

Independent Contractor(1099).

(These two need a broker license to be legal).

All of the others the state really does not identify, so use either associate broker or loan originator on your business cards.

________________________________________________________________________________________________________________________________

Q: Can I work for a Correspondent Lender or Mortgage Lender as an Employee (W-2), no license, and also hang my Associate Broker License somewhere else?

A: Yes.

________________________________________________________________________________________________________________________________

Q: When changing offices as an Associate Broker, what must I do?

A: Take the original license off the wall and post it on the wall in the new office. That's it? Yes.

________________________________________________________________________________________________________________________________

Q: Can, and should I, have an Escrow account?

A: Yes, you can, but I would not. Why? The vast majority of people who are looked at by the state are those involved with the dispute from the public over escrow accounts. Solution: Tell the customer that appraisers, termite inspectors, and surveyors expect to be paid at the time of service. (No escrow - No foul).

________________________________________________________________________________________________________________________________

Q: How soon must escrow funds be put in the account?

A: Immediately. This means within seven(7) business days of receipt of funds. (This is not a typo).

________________________________________________________________________________________________________________________________

Q: What must be in each loan file?

A: A Mortgage Broker Agreement, a Copy of a Signed Closing Statement, and a Copy of the Good Faith Estimate; and a copy of everything else you send to them. (That is why loan files are the "Great Novel No One Reads".). Also, if a loan has a lock-in and/or commitment, a copy of one from both you (on your letterhead), and a copy of one issued by the lender.

________________________________________________________________________________________________________________________________

Q: Mortgage Brokerage and the Lending Journal. What's the deal?

A: First, all mortgage broker businesses and lenders acting in the capacity as a brokerage must keep one. Second, the state will send you a blank copy with your business application. Third, once an application has been taken you must log it into the journal within seven(7) business days .


________________________________________________________________________________________________________________________________

This concludes my attempt to answer as many of the questions I have received over the years. Once again, I wish you to thank you for taking our school's course and wish you continued success.

Sincerely,

Jim Montrym

P.S. I will, from time to time, update this section, so please bookmark it on your computer for further reference.