HUD RESPA Questions and Answers.

No matter what type of employment you have in the mortgage business - a loan officer, a branch manager, a mortgage processor a little know document published by HUD in April 2010 is a must read for any mortgage professional interested in navigating the complex GFE disclosure rules.

The document answers a lot of questions that come up in every day origination and disclosure.
How should you disclose seller paid items?
How should you disclose a no cost loan?
How to re-disclose a rate lock?
When does a LO have to provide a list of providers?
What happens if the LO does not provide a list of providers?
How does the section of the GFE correspond to the HUD-1?

The answers might surprise you.  

Here is link to the full Q&A RESPA document published by HUD.
HUD RESPA Q&A

I hope you find this information useful - If you would like information about a branch opportunity please visit my website http://www.netoriginator.com

North Carolina law tougher on mortgage branches, originators and lenders

A new law is going into effect soon in North Carolina that will eliminate more originators, mortgage branches and companies in that state.

Very soon if you do not have a credit score of 600 or higher, your out!
The net worth for a broker now will $25,000 and require audited financials.
The education requirements will now require 3 time more classroom hours.

Where does the N.C. brokers association - NCAMP stand on this?
Apparently on the sidelines.
A recent news article quoted Jennifer Salemson of the N.C. Association of Mortgage Professionals “Anything that would improve the quality of the mortgage industry, we would view as beneficial.”

Is more education a good thing - certainly it is and increasing the current 8 hours to 24 hours is not a burden on anyone and can only help originators stay up on the ever increasing complex laws and regulations we all are faced with.

I'm not so sure about the credit score requirement or the audited net worth requirement.

When has a good credit score reflected a persons trustworthiness?

Does anyone remember that one of the reasons we have a crisis in the mortgage industry is that underwriting basics were thrown out the window and replaced with credit scores as the deciding factor?

What is the credit score requirement in North Carolina for tax preparers, attorneys, financial advisers, insurance sales people, auto finance and sales people, home builders, etc.?

I doubt that any one in North Carolina politics has researched the cost for a small company to get audited financials. The cost can be from $750 to $2,500. This alone will greatly reduce the ranks of mortgage professions in the state.

Today I visited the NCAMP web site to see what they had to say about this up coming change - the only info I found was about the original bill passed in 2001.. isn't this 2008?

North Carolina is leading the way once again in legislation that will harm the people of their state instead of help them.

Part 2 - FHA Net Branch Opportunities - are they all the same?

In the last post we covered broker vs. lender for FHA loans.



Now let's take a look at the next items on the list of important criteria you should consider if you are considering a net branch opportunity and intend to originate FHA loans.

• FHA originated using the corporate address or the branches?
• Corporate processing of FHA loans or at the branch?
• Level of the company's experience with FHA?
  

Many companies offering net branch programs will let a branch originate conventional mortgages from the branch but they will reguire the net branch to send all FHA transaction to the corporate office for processing.

Why is this a problem?

There are several important issues that make this a practice you should be concerned about.

Control - the net branch has lost local control of their loan. The processing and placement is now in the control of someone who at best you have had phone conversations with. The borrower, real estate agent , and closing agent are now working with someone else. The loan is out of your control.

Compliance - when you put your name on the 1003 with an address that is not your branch address you are putting false information on the document. Some companies have lost their ability to originate FHA loan for putting false information on a 1003. A company that uses the centralized call center approval from HUD for FHA loans is stating to HUD that all FHA originating is done from that office. If you take the application (originate the loan) locally and then sent it to the call center for processing you are violating HUD law and could lose your license.

A key point to remember when you are looking for a net branch opportunity is that not all companies have done their homework when it come to compliance laws.

Some of this is due to lack of experience and some is due to a lack of concern for the rules.

You always investigate the net branch companies experience level. This is even more important when you are going to originate FHA loans.

HUD does not alway move swiftly to stop problem companies but the do catch them. When they do it either results in large fines and or loss of license.

Do your homework. Make sure you are really partnering with a net branch company with a proven track record with HUD (FHA / VA) loans.

For more information please visit: NetOriginator.com

Important questions to ask when looking for a net branch company (part 2)

In the previous post we looked at the common questions everyone asks.

"What are your net branch fees and how long will it take to get approved?"



I speak to people everyday that are looking for a mortgage branch partnership. Many times the key questions are not asked.

The questions that I think are important to ask are:

1. Is your company HUD approved? - Also do they use the corporate address for all FHA loans or does each branch get HUD authority? In today's market you have to have FHA! It should be a flag if you are told all FHA goes through the corporate office. There are several reasons why this is a problem. One is "Neighborhood Watch". A centralized operation exposes the corporate address to potential company wide loss of HUD license. One of the other problems is that the address on the 1003 should reflect your real location.
   
   
2. If the company is HUD approved - how long have you been approved? - This is a very important question. A company that recently obtained their FHA approval is a novice in this area of lending. They are going to make errors that every novice makes. These errors could cost everyone in the company the ability to continue to close FHA loans.
   
   
3. Has your company ever been suspended or fined by HUD? The company's track record with HUD is a good indication of their compliance knowledge and ability to manage their company.
   
   
4. Have any wholesale investors cut off or suspended your company in the last 24 months? - This is another great indicator of current and future problems. Suspensions or termination by wholesale investors tends to be viral. If it happened at one company it will happen at others. You do not want to work with a company that is losing wholesale investors due to audit and compliance errors.
   
   
5. How many branches do you have active? - Many companies have hundreds of branch offices and many cannot service the number of offices they have. This leads to high branch turnover. High turnover in any sales organization leads to problems.
   
   
6. Has your company had any buy back requests from investors? - How many buy back requests does it take to force a company to close their doors? Not many. If the average loan is $200,000 it only takes 5 to put the company $1,00,000.00 in debt.
   
   
7. How long has your company been in business? You might be surprised at the answers you get to this one. You would assume that it takes years to establish a company and build a large footprint. My personal opinion is that an answer of less than 5 - 8 years is a big whopping red flag.
   
   
8. How long has your company been involved in setting up branches? "Just a few years" would be a flag to me. A company with limited experience managing a large number of branch locations will go through a painful learning curve and take their branch managers along on the bumpy ride with them.

Is this every question you should ask? No - but this will give you most of the important ones. Each branch has a little different criteria that determine what is most important to that branch manager. The bottom line is do your homework. Remember the old saying "Look before you leap."

I always welcome comments and questions.

Important questions to ask when looking for a net branch company (part 1)

What are your fees?

How long will setup take?

These are the most common questions I am asked.

Are they the most important?

My answer is NO!

These are important questions but just about every company is close to the same answer.

Most companies are between $350 and $500 per file.
(We are $395 in most states)

Most companies are about 3-7 working days for your branch manager application to be approved.
(We are 2-3 days.)

Each state has different branch licensing requirements - so that step is dependent on which state you are in.

The questions that I think are important to ask are:

1. Is your company HUD approved?
2. If yes - how long have you been approved?
3. Has your company ever been suspended or fined by HUD?
4. Have any wholesale investors cut of or suspended your company in the last 24 months?
5. How many branches do you have active?
6. Does your company have any current buy back requests from investors?
7. How long has your company been in business?
8. How long has your company been involved in setting up branches?
   

In my next post I'll explain why I think these are the most important questions to get answered if you are considering a net branch opportunity.

Originate in other states - part 2

In the first post on this topic I mentioned that some net branch companies are promoting a system where you can get around the "other" states licensing requirements to originate and still get paid.

I learned about this from a prospective branch manager when I asked if she was considering other companies. I asked what is was about the other company that she liked - she mentioned the ability to originate in all other states without getting the normally required licensing.
Naturally I wanted to know more, so I asked for the URL.

Sure enough there it was right on their front page. Originate in all other states - licensing not required!

When I read the details I was amazed at how they are doing this.

They are paying the originator as a 1099 contract processor on the loan.

I know as an originator that sounds good. The ability to make loans in all states right now with out going through licensing, compliance, continuing education, back ground checks, etc.

But take a minute a think it through - according to RESPA, HUD, and every state that requires licensing and / or has lending laws on the books fees must be reasonable.

Let me ask the question this way; If you were an auditor from HUD or any state agency would you consider it a reasonable fee for a processor to be $3,500 of a $4,000 total fee?

Would you consider that a fair fee for a mortgage originator who does the lions share of the work?

I feel pretty confident that your answers are No to the first question and Yes to the second question.

This falls into the same category as paying loan officers as 1099 contractors or paying an LLC to avoid income taxes. Is it legal? No. Are companies doing it? Yes.

If you are a professional in this business and you are planing on being around for the long haul. Participating in these business practices will only guarantee a quick and painful end to your business.

It will only take one unhappy employee to blow the whistle on these practices and then everyone involved will in it knee deep.

If you have questions about being paid with a 1099 instead of as a W-2 employee see the first post on this topic.

I always appreciate subscribers and welcome comments and questions.

For more mortgage net branch information visit: NetOriginator.com

I want to originate in all states! - Are you sure about that?

I want to originate in every state where you are active.

In my work speaking to prospective branch managers I hear this statement every day.

My answer / question is always the same. Are you sure?

I then ask several important questions.

• Have you researched the licensing requirements for loan officers and branch offices in the states where you are interested in originating?
  
• Are you aware that many states require licensing fees for a branch office to originate in their state?
  
• Are you aware that many states also requires fees for loan officers to originate in their state?
  
• Do you know that many states also require some type of continuing education in order to originate in their state?
• Do you know that some states require a physical location to originate in their state.
• Are you aware that some states like North Carolina require each loan officer to be licensed and that the education and test must be taken in person?
  
• Are you aware of the state specific compliance requirements for the states you where want to originate.
  

Some people thinking about opening a branch office of a national company think that they can originate in every state where the company is active without any additional time, effort, licensing or money. Unfortunately that is not true.

An "out of state" originator interested in developing business in Florida, California, Maryland, North Carolina, South Carolina, Ohio and many other states has to comply with each states licensing, education, disclosure and compliance requirements. Usually it does not work as intended.

Don't misunderstand me, there are situations where you should work in more than one state.

• If you are in a border city like Kansas City, Missouri - you should also be licensed in Kansas.
• If you already have branches setup in more than one state - you should continue when you change companies.
  
• If you have established referral sources in other states - you should consider the investment of time and money to capitalize on those relationships.
  
• If you have an established office, you want to expand into another area and are prepared financially - that is a sound business decision.
  

The main point I am trying to make is that more or bigger is not alway better. Most offices "find" the majority of their business within 25 - 40 miles of their location.

Another related statement I hear is that there are other companies that allow me to originate in all states with out going through the licensing and education requirements.

I will try to address that topic in another post.

I always appreciate subscribers and welcome comments and questions.

For more mortgage net branch information visit: NetOriginator.com

1099 vs W-2 employee for a mortgage net branch

This is a very important topic that many net branch companies do not want to address.

Q. Can you work for a mortgage net branch company and be paid all or part of your income as a 1099 contractor?

(There are many companies telling prospective branch managers that this is OK - legal - and that everyone at the branch can be paid by 1099.)


A. WRONG!


Many companies are also paying loan officers and managers as 1099 contractors on FHA and VA (HUD) loans.

This is VERY WRONG!

Let review the 2nd issue - Originating HUD (FHA/VA) loan and being paid by 1099.

Read this summary memo from HUD regarding an audit to determine if independent contractors are being use to originate HUD loans.

Summary Link

It is absolutely clear that this is an illegal practice.

Now let's address the more general practice of paying branches and loan officers as 1099 contractors. Many people think that it's OK if you are not originating HUD loans.

The defining source for this is the Internal Revenue Service.

Many state are silent on this issue, and even if they allow it the federal government does not.

The IRS has a form called SS8 it is a 20 question form to determine if an individual qualifies for 1099 contractor status. No loan officer has ever qualified for 1099 independent status.

Here is another link to the IRS that covers this question in detail.
Topic 762 - Independent Contractor vs. Employee
To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship itself.

If the company requires you to use specific forms, requires you to use their vendors - appraisers, title companies, investors, etc., if must put your loans through their company, if you work under their license, you are not an independent contractor you are a W-2 employee.

If you are working as a 1099 loan originator you could be subject to large fines from the IRS.

Does the company I represent pay people as 1099 contractors? Absolutely not!

As you consider a net branch company to work with make sure you are picking a company that is in compliance with the rules and regulations we all have to follow.

Even if you are not conducting your business this way if your company is and they get caught you will be left out in the rain with everyone else in that company.

I always appreciate subscribers and welcome comments and questions.

For more mortgage net branch information visit:
NetOriginator.com