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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2009

Know What’s Needed to Cross State Lines

Mortgage brokers looking to expand their reach should understand licensing requirements

Know What’s Needed to Cross State Lines

When searching for ways  to grow their businesses, mortgage brokers often look to work in more than one state. Many may not realize, however, that there are numerous factors involved in this decision to expand. The key detail of which brokers should be aware is licensing.

Although licensing requirements still often vary by state, being cognizant of primary, common elements could help you expedite the licensing process.

When deciding to get licensed in multiple states, the first thing brokers should keep in mind is that every state is different. Even with the new Nationwide Mortgage Licensing System, each state still has different requirements (for regulatory information, see sidebar.) In the past 10 years, almost every state has developed its own licensing scheme that requires mortgage companies, branches or loan officers — or some combination thereof — to obtain a license.

Generally speaking, these bills designate a regulatory agency such as the state’s department of financial institutions or department of real estate to develop a plan to license all required individuals according to the law. This is why each state’s details are different. Although state legislators and regulators often help each other develop licensing schemes, they often add their own twist.

Whichever states you’re looking at, a few standards generally exist. For example, most states require mortgage companies, branch locations and loan originators all to be licensed. There are exceptions, however. Colorado, for example, only requires loan originators to be licensed but not the company for which they work.

There are also some common threads among the application elements and documentation types required to receive a state license. Almost every state requires the following:

  • A filing for certificate of authority as a foreign entity and a registered agent
  • A surety bond
  • A record of fingerprints, a criminal background check or both
  • A minimum education level, proof of specific exam scores and work experience
  • A detailed accounting of business ownership and officer information
  • A detailed financial statement
  • A complete and accurate application packet

To achieve a mortgage-broker license, you must understand the details of each state in which you hope to work. Let’s take a look at each of the aforementioned common licensing items.

Certificate of authority

Applications for certificates of authority typically are filed with the state’s secretary of state. Application fees can range from $25 to $700, but they usually run  about $100.

These filings include basic information about the company and about its owners, officers and directors. In almost every state, the certificate of authority must be filed before applying for a mortgage broker’s license — unless you are a sole proprietor or are already incorporated or organized in that state.

In addition, most states require a registered agent — someone who is physically located in the state and who can receive service of process from a court, attorney or regulatory agency. It is possible to work with companies that serve as registered agents for a fee. Doing this can save you from building in-state relationships from scratch.

Surety bond

Almost every state now requires licensed mortgage companies to have a surety bond. This essentially protects consumers, third parties and the state against any claims made against a mortgage company that does not have the ability to pay. This is not the same as insurance, and you must pay it back if you ever have to pay a claim against your surety bond.

The best thing to do is to never allow your surety bond to be drawn against. Most states require a bond between $10,000 and $100,000 to obtain a mortgage license. These bonds’ premiums usually range from 0.7 percent to as much as 3 percent if you have bad credit or bad financial statements.


Every state has some way of determining if a mortgage company’s owners, officers, directors and loan originators have criminal histories that would exclude them from being licensed.

Typically, states require fingerprints. If that is the case, you must go to your local law-enforcement office and submit a record of your fingerprints.

Some states also do background checks on mortgage-broker applicants. If you have a criminal or civil background, provide that information upfront. Many people have minor violations that could become an issue during the licensing process if the information isn’t disclosed upfront.

The cost for background checks is typically between $40 and $75 per person.

Education, exams and experience

Each state requires proof that an officer of the company has enough knowledge and experience to run a mortgage company adequately. The requirement is typically one to three years of experience for a principal officer. Many states also require initial education, and almost every state requires continuing education for license renewal.

Initial education is accessible online or via a booklet in most states, but some states require in-person education. About five states require the company’s principal officer to take an exam.

Even if you have detailed knowledge of federal laws, be sure to study and prepare for these exams, which contain many questions about state law.

Ownership details

Every state requires applicants to provide details on the company’s owners, officers and directors. The information requested is similar to that found on job and loan applications.

Licensing departments typically will request your Social Security number, your residence history, your employment history and your criminal history. Again, be as detailed as possible to eliminate the need for follow-up inquiries that will delay the process.

Financial statements

Most states have specific net-worth requirements for mortgage companies. Net worth is the difference between your assets and liabilities. Personal assets are not included in this calculation unless you put those assets into your company.

The average net-worth requirement for mortgage brokers is about $25,000, but it can be as much as $100,000.

Only a few states require audited financials to obtain a mortgage license. Audited financials can be time-consuming and costly, sometimes between $2,000 and $10,000 annually.

Final application

Submitting the final application is the last step to getting licensed. Each state’s application will have different questions about your business plan, quality-control plan, company, articles of incorporation, company organization and more.

Application fees range from as little as $100 to as much as $3,000; most states’ fees fall around $750.

•  •  •

When deciding to seek a mortgage broker’s license in any state, remember that each state has its own distinct rules and procedures. You may find it useful to hire an employee or third-party with licensing experience to help guide you through the process.

Ultimately, state licensing represents a large task that grows incrementally as you decide to expand and add additional states to your repertoire. If you prepare properly and execute with attention to detail, you’ll be that much closer to executing a multistate business plan.


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