Residential Magazine

Want to Be a Multi-State Broker?

With varying requirements in each state, achieving several mortgage-broker licenses is like herding cats

By Michael Riley

So your mission is to gather licenses to broker mortgage loans in all of the states in the country. Have you thought of herding cats instead?

Although it’s possible to accomplish this ambitious goal, the overall process of completing each state’s regulations can be mazelike. Besides industry experience and formal communication proficiency, you’ll need a solid foundation of diligent persistence while you apply keen organizational and administrative skills, both innate and learned.

Some law firms have created an enterprise out of acquiring state licenses for brokerages. While that may be an easier way to proceed if you’re flush with funds, I haven’t run across any state where attaining a broker’s license requires a law degree. I recall learning early in life that successful task completion is a result of finding out what you don’t know, carrying out logical processes to overcome the obstacles and knowing which details can be disregarded along the way. That certainly is true here. Just be careful of the details you decide to dismiss.

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License-requirement differences

If nothing has changed since lunch, 48 states require licenses to broker mortgage loans, with each state employing a multitude of nonuniform requisites to be muddled through, met and mastered. Of course, this doesn’t take into account having to also understand and blend in federal regulations such as the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act and the Truth in Lending Act.

Alaska and Colorado are the two states that do not require a license. Alaska does require that a copy of your business license be submitted to the state, however. (I read that Oakland, Calif., even tried to implement city mortgage-broker regulations, in addition to the state and federal regulations. The courts mercifully shot down the attempt.)

All states, however, require mortgage brokers to file a standard certificate of authority (COA) with their financial branch. Lenders usually ask you for a copy of this “filed” document if a mortgage is being originated on property within a state that requires no license. Acquiring a COA is straightforward if it’s done through an organization that specializes in such things. These organizations also readily provide a state-registered agent for a nominal annual fee, if you need one. If done properly, this process is trouble-free, swift and requires no state scrutiny.

To clarify, I do not support easing compliance and regulations for mortgage-broker licenses in any state. Even with today’s comprehensive state and federal legislation and the solid ranks of reputable brokers throughout the nation, smooth-talking “anyones” can be quickly broken in as so-called “loan officers.”

Sporting comfortable headphones, they’re peppered into banks of computer nooks soliciting homeowners to refresh their million-dollar mortgages lying in the dust of their safety-deposit box. It’s usually for a valid reason based on today’s myriad of lender programs and available lower interest rates. Yet far too often, the solicitation is without positive motive for the homeowner; it’s predatory lending at its purest. Consider what the consequences would be with no state regulations — most likely a major nationwide wake of conned victims and enormous calamity in the financial marketplace — very scary.

Still, there are 48 states with virtually 48 assortments of requisites of diverse strength to achieve a license to broker mortgage loans. Numerous states require passing an onsite exam. Florida requires a formal, in-state, three-day class before you’re even allowed to sit for the exam. Some exams are pedestrian, some complex. You’re never really sure because they’re shuffled and changed at will, sometimes because of new legislation. Of course, no state owes you enlightenment.

Oddly, not all states require fingerprints or credit and criminal background checks of the principal officers or principal brokers. Most do a formal check, but given the nature of the business, I believe this thorough groundwork should be an obvious mandate for all.

What’s somewhat surprising is that currently only about one-third of all states require an in-state brick-and-mortar office as a prerequisite for licensure. The states that require an office usually request that a commercial-building lease in the business’s name be included with the license application.

Many people find it hard to believe that Florida and California are among those requiring no state office. Perhaps surprising to some is that Nevada, the state of excitement, fun and freedom, may have some of the most-stringent regulations for licensure. Not only must you provide an office lease when you apply for a license in Nevada, but you must also originate and process any loans in Nevada once licensed — not at your “wherever” headquarters. Nevada officials sometimes caution newly arrived licensees that they’re subject to an audit of their first six months. Whether they audit or not, I wouldn’t gamble on being found in noncompliance (every pun intended).

When you have a license

Your work hardly ends once your license is awarded. You must carefully consider and plan the laborious process of maintaining each state’s ongoing requirements. They’ll most likely be dissimilar among the states and may include newly implemented laws, license-renewal requisites, educational requirements, separate files and loan logs, just to name some simple ones. And don’t expect states to send you an annual “laundry list” of items to check off for compliance.

The privileges also differ once you achieve various states’ licenses. For example, I hold a California broker’s license, which provides me the benefit of brokering real estate and mortgage loans — a “one-stop shop.” I earned this with some industry experience, formal educational prerequisites and passing a state exam before simply filing a county-endorsed doing-business-as (DBA) certification with the state’s Department of Real Estate (DRE). After following that somewhat involved yet straightforward procedure, you have the potential of becoming a millionaire (note I said potential).

California’s exam, however, is one of the nation’s most convoluted because it combines the laws of the real estate marketplace with mortgage-loan brokering. Most states separate these two functions for licensure, thus easing the requirements for each. It’s also worth mentioning that California requires that a homegrown Mortgage Loan Disclosure Statement — a version of the federal truth-in-lending and good-faith-estimate statements — be sent with all other disclosures to the prospect with subject property located in California. And the California DRE doesn’t take lightly dismissing this form. It had better be properly signed by a licensed originator before being sent along with the loan application (1003). Believe me, I know; I deserve more than a T-shirt for learning this one the hard way during my rookie season.

In contrast to California, my Florida mortgage-broker’s license only allows me to be a designated broker for a mortgage-business entity that must also be licensed in Florida, albeit that could be my own business. But the business license requires a new application and scrutiny check. The point is that I cannot broker loans with only an individual license. And I cannot perform Florida real estate transactions with that license — period. That requires a separate license altogether.

The same licensing aspect of Florida is also true in Washington state. I cannot do real estate and can only use my license to be a principal broker for a mortgage-business entity that submits an extensive, multipart application for a license. Additionally, Washington issues no certificate when an individual license is achieved. Your background check, fingerprints and test score are on file, which is referenced by your letter attached to the business-entity application for it to match.

Incidentally, I frequently find the licensing departments in all states responsive, considerate and helpful; yet I believe Washington’s representatives were the most accommodating to date. But don’t misinterpret their easygoing and polite mannerisms; follow what they tell you to the letter if you want to progress in your effort. They do their jobs well, and I also sense they have no tolerance for noncompliance once you are licensed.

When I arrived in Olympia, Wash., to sit for the exam, I was puzzled. I received the multiple-choice-exam packet (closed, but not sealed) at the registration desk before I even made my way to the testing room — floors above. And during the exam, you’re allowed to leave the room at any time, unmonitored. Before, you can’t help but anticipate how painless the exam is going to be with the seemingly lax preliminaries and the courteous proctors. Yeah, right! I believe this exam could almost be open-book, and it wouldn’t be easy. Seventy percent is a passing score; I passed with … um … never mind.

Many applicants, even state natives, fail it on their first try. The point is that the exam is going to be quite difficult if you don’t understand the concepts and particulars behind the state and federal regulations.

A hope for uniform regulations

I may be California dreamin’, but why can’t we strive to develop uniform regulations for all states, perhaps even a two-tier sphere, to alleviate the administration and monitoring for less-intensive property-dealing states? With today’s means of communication and all-encompassing organizations such as the National Association of Mortgage Brokers, we could get this done, one orderly step at a time.

The initial coordination would certainly be a mind-boggling process, and we may be attempting to herd those cats again. But there must be a beginning somewhere. I believe we can collectively find out what we don’t know, execute the proper processes to a successful uniform conclusion and along the way, discard many of the ineffective details that hinder us today. 


  • Michael Riley

    Michael James Riley is a California real estate broker and also holds multiple state mortgage-lending licenses. He is a consultant in states’ licensing and California compliance, achieving the experience and credentials while serving as a principal broker and states’ licensing manager during the former refi boom.

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