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Mortgage Licensing vs. The Economy

With an economic downturn on the horizon, what does that mean for your licensing efforts?

Vanessa Bodnar
Vanessa Bodnar
Mortgage licensing vs. economy

The SAFE Act, enacted in 2008, was designed to enhance consumer protection and stop fraud by encouraging states to develop licensing standards for state-licensed loan originators. It also established a database, Nationwide Mortgage Licensing System (NMLS), providing a streamlined process as well as a way for consumers to easily verify licensing.

Mortgage licensing, which varies by state, sets strict standards for those working in the industry. These standards ensure that borrowers receive fair and transparent treatment, and that lenders and investors are protected from fraudulent and risky practices.

Understanding that mortgage licenses often can be costly, it is sometimes the first place lenders look to minimize costs. But letting go of state licenses can end up costing you more in the long run. Without proper oversight, eliminating licenses can leave a lender vulnerable to unethical practices.

State License Evaluation

If you are a lender licensed in many states, I encourage you to complete a full licensing cost evaluation. As an owner or loan officer, you know that having all the information will ensure that you make sound decisions, especially when it comes to your licensing efforts.

Your first step will be to evaluate your volume in states in which you are licensed. Even though mortgage applications have been inching up gradually, we are still experiencing a low in application rates. I would evaluate not only your current volume but also your volume year over year.

Proximity to bordering or nearby states should also be considered. For instance, if you are a mortgage company in Texas, you are likely to have expected volume in neighboring states such as Oklahoma, Arkansas, and Colorado. Giving up those licenses will cost you the opportunity to offer lending in those states as well as recruitment efforts.

It’s also good to keep in mind that renewal costs are often less than initial license applications. In some states, you may only have to pay NMLS processing fees. Other fees to consider are branch and loan officer renewals as well as continuing education costs, examination fees, Secretary of State renewals, and annual report fees.

When you have completed your evaluation, you may discover that surrendering or not renewing licenses may be a strategic way to cut costs. On the flip side, you may discover that your licenses will help you grow and expand into other states. Don’t wait until November when renewals begin to make these decisions; you will want to make them before summer.


The Cost of Surrendering Licenses

Let’s look at what may happen if you surrender state licenses. As a company, having a diverse book of licensing could give you a leg up on other lenders in onboarding and recruitment. Once you surrender licenses, they are officially terminated; you would need to reapply for new ones. Often, company license applications, due to their complexity, can cost you an exorbitant amount of money and time as you wait on approvals.

A company would need to consider initial licensing costs with the state regulatory agency, registering with the Secretary of State, registered agent fees, branch and LO licensing. In addition, some states still require state-specific fingerprinting. If you reapply, your qualified individual and officers will need to have fingerprinting redone. That is time plus money, which, as you know, are highly treasured resources when trying to bring in new business.

Marketing costs are another area you will want to review. Once you receive or surrender a company, branch or LO license, you need to update your licensing information on all platforms, including your website and social media. If you engage a third-party marketing company, you are going to have to pay them to make these changes. Having your licensing up-to-date online is a requirement by most states, and you may be fined if it’s inaccurate.

If you are a loan officer, I encourage you, at the bare minimum, to keep your continuing education (CE) current. That way, if you need to reapply for a state license, you won’t have to spend time on late CE. Another trend in state-regulatory licensing requirements is the renewal of your 20 hours of education. This is an interpretation of the SAFE Act, which mandates 20 hours of education must be completed before a LO is initially licensed. However, some states believe that your education expires after three years. This is a growing trend and something to consider as that education can often cost more than the actual license renewal.

Licensing vs. economy

Post-Surrender Next Steps

At the end of the day, if you decide to surrender your licenses, your job doesn’t end with initiating the surrender in NMLS. Please be aware that before you surrender your license, you will need to run a pipeline report in your loan management system to make sure you don’t have any loans in process in the state you’re surrendering.

Your first step will be to review the surrender checklist for those states in NMLS. Some states want to know where your records are kept, if there are any loans in your pipeline, and who to contact if the state were to have questions.

You will want to remove access to lending in the states you surrender in your loan management system. This is important as unlicensed activity will not only put you at risk of hefty fines, but also bring harm to your borrowers.

In the states that you surrender, take the time to review record retention requirements. States require that you keep your records, including marketing, available for a certain amount of time. This requirement varies by state.

As mentioned prior, you will want to update your online licensing lists and disclosures by removing any states you are no longer licensed in.

A complete review will need to be done of your Secretary of State registrations. You may be required to continue to be registered if you have employees working in that state. Also, look at your surety bonds. You likely use a law firm or surety bond company; they will need to be notified that you are no longer licensed in that state, and you will not be renewing its surety bond. Your business plan will also need to be rewritten to remove your surrendered licenses.

Adding More State Licenses

It may be tempting during hard economic times to add more state licenses. Loan officers often ask me to help them add licenses in hopes of increasing their revenue. Just like surrendering licenses, a careful evaluation of cost vs. volume will be beneficial to considering if new licenses are needed. Another consideration would be that you would have ongoing business in that state. It’s never a good idea to get licensed for one loan. Your company may offer referral programs, so in the case of a one-loan situation, I would explore that avenue first.

In conclusion, mortgage licensing is often more complex than we think. Before you eliminate your licenses, give it some time to review and make a decision that makes sense for your business currently and in the future.

This article was originally published in the Mortgage Women Magazine May 2023 issue.
Vanessa Bodnar
Vanessa Bodnar,
Vanessa Bodnar

Vanessa Bodnar is the licensing manager for Homespire Mortgage.

Published on
May 12, 2023
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