RMLO License/SAFE ACT

[James Gravitt]

I was thinking about getting my license to become a loan originator. Its only 4 days worth of class time and it costs around $300.
With this I could also do loan originations for other people and charge a fee.

Do you hink this is a good idea and would it be a good move in the MH buying/selling?

[Eric M.]

I had thought about this too, however in most states you have to be "sponsored" by a Mortgage Brokering Firm to be an originator.
Unless you want to pay the serious fees for that, you can't just be a one man originating company I don't think.

[Karl V.]

Hi

Eric is right, and TX is one of the states that requires that originators be sponsored by a mortgage broker.

Oh, and you can't apply to be a mortgage broker unless you have years of experience in the mortgage business.

Yep, it's a private club and you can't just get in without drinking their kool-aid.

Also, because this is a relatively new and untested law, what transactions are exempt is still open to wide interpretation by those who enforce it. I've talked to closing attorneys that have refused to work on a deal because they are avoiding the issue until court cases clarify it.

The safe thing to do is to pay a licensed originator to do your work for you, if you can find one that will do it without screwing up the deal, and if you can get one at a fair price.

BTW, if there's anyone out there using a licensed MLO, what are you paying for their services?

Karl
[LINK REMOVED]

[Chris Martin]

Originally posted by Karl V.:

Also, because this is a relatively new and untested law, what transactions are exempt is still open to wide interpretation by those who enforce it. I've talked to closing attorneys that have refused to work on a deal because they are avoiding the issue until court cases clarify it.

The safe thing to do is to pay a licensed originator to do your work for you, if you can find one that will do it without screwing up the deal, and if you can get one at a fair price.

BTW, if there's anyone out there using a licensed MLO, what are you paying for their services?

Karl, somewhat of an update... for NC people, don't know how applicable it is elsewhere. Exempt transactions are well defined in NC state law and by the NC Commissioner of Banks. In addition, good theory about outsourcing MLO but this is what the NCCOB says:

14. Q: May I hire MLOs from a temporary service or outsource company?

A: No. N.C. Gen. Stat. § 53-244.100(a) provides that “[i]t is unlawful for any person to employ, to compensate, or to appoint as agent a mortgage loan originator unless the person is a licensed loan originator under this Article.†N.C. Gen. Stat. § 53-244.100(b) provides that: ....

The rest is here: http://www.nccob.org/NCCOB/Mortgage/FAQ/Company+Licenses.htm

[Bryan Hancock]

How is that inconsistent with what Karl wrote Chris? I didn't read through the link thoroughly, but item 14 seems to be addressing "temporary service" or "outsource companies."

The guidance we received from TDSML in Texas is as follows:

I talked with TDSML…here is a summary of their interpretation of compliance for owner financing as it relates to loan origination activities.

The Owner who is doing the financing can trigger a non-compliant action by doing any of the following activities without a license:

Taking a mortgage loan application
Discussing interest rates, terms, loan payments or loan fees with the consumer
Negotiating loan rates, terms, payments, or loan fees with the consumer
Preparing a loan package for the consumer

Yes, the owner financer can refer the customer to a third party licensed originator, such as a mortgage broker, to handle the loan origination and completing the government related documents for the loan.

Caveat: TDSML interpretation is subject to final HUD ruling/interpretation which they expect HUD to publish sometime this Fall.

There are all sorts of questions raised by what constitutes "negotiating" and we parsed this to death at RENC the middle of last year. I don't see how referring the business to a licensed broker is non-compliant or how it could be interpreted as such.

Is this what your state is claiming?

[Chris Martin]

?

In the context of this forum, Mobile Homes & Mobile Home Park Investing, Karl said: The safe thing to do is to pay a licensed originator to do your work for you..." but in NC where Karl is from (not Texas) the NCCOB says "May I hire MLOs from a temporary service or outsource company? ... No." So in NC Karl will have a hard time financing mobile homes 'onsite' and instead will need to say 'go find yourself financing somewhere else...' He can't hire a MLO to do the work that is now regulated (at least not after he's financed five in a year in NC.) So, this thread is about what to do.... Karl asks "BTW, if there's anyone out there using a licensed MLO..." and in NC this is not allowed.

He can't simply refer the business to a broker because there are no lenders for his clientele purchasing his product. Correct me if I am wrong, but isn't this the point of this discussion?

[Bryan Hancock]

Yeah....I think that is fine. I was just trying to interpret what you wrote. It is confusing to me.

[J Scott]

Originally posted by Chris Martin:
...the NCCOB says "May I hire MLOs from a temporary service or outsource company? ... No." So in NC Karl will have a hard time financing mobile homes 'onsite' and instead will need to say 'go find yourself financing somewhere else...' He can't hire a MLO to do the work that is now regulated (at least not after he's financed five in a year in NC.)

Okay, now I'm confused... :)

If Karl can't hire a mortgage broker to originate a loan on the MH he's selling, how can his buyer "go find financing somewhere else?"

Does this mean that the buyer can hire a mortgage broker to originate the loan? If so, why can't Karl do it as well/instead?

And if the buyer can't hire a mortgage broker to originate the loan, does this mean that buyers of MH in NC can't financing them?

Sorry, perhaps I'm just missing something obvious (probably :)...thanks for any clarification...

[Chris Martin]

If the buyer qualifies for a MH loan, then he obviously doesn't need Karl's financing. The buyer can go to a local bank and get a loan (through Fannie Mae or Freddie Mac underwriting, assuming these GSEs still underwrite MHs.)

If the buyer does not qualify for a MH loan, then Karl may try to finance the deal himself. Ooops. SAFE Act. He can't originate without a license per SAFE Act. He can't hire a MLO per NCCOB. So Karl can't legally (now) transact the deal.

My guess is that the clientele that Mobile Home Park operators cater to is primarily subprime, and that many buyers will be unable to get conventional financing. So I don't know what the new business model looks like... since MHPOs can't offer financing, what is the answer?

[Bryan Hancock]

Originally posted by Chris Martin:
He can't hire a MLO per NCCOB. So Karl can't legally (now) transact the deal.

This isn't how I interpret what is written above and is why I responded the way I did. Can you please read my post again?

I may be missing something and I am not trying to argue with you. It just seems you are interpreting things incorrectly to me.

[J Scott]

I had the same question as Bryan...

It doesn't appear that Karl or the buyer can't hire an MLO, just that there are certain types of MLOs he can't hire (temporary service and outsource companies).

Of course, I don't know what temporary service and outsource companies mean in this context...which is why I'm still confused.

[Bryan Hancock]

Another thing to consider is the OP is from Texas...not NC. Generally threads drift a bit, but in the end they are supposed to address the OP.

I am all for discussing the NC law and/or interpretation here too.

[Bill Gulley]

Loan Officers (losely defined term) = Mortgage Loan Originator.

Mortgage Broker, hires originators and brokers the loans from the public to mortgage bankers/investors.

Temp. Service, is where in the old days, loan officers would be employed by a banking employee service. They would show up at the bank or mortgage company (even stay home and just hit the streets soliciting loans) and the Manpower type employer could take a cut of the production. Various arrangements could be worked out, but the is a broker who brokers the services of the loan officer to originate for a mortgage broker or lender. The employer may also provide assurances of expertise and underwrite performanc of the originator.

An Outsource Company would be where a lender would enter into an origination agreement with another lender/mortgage broker. In my brokerage, I would originate in my name, an outsorce company originates in the funding lender's name.

Either way, you're looking at hired help. Guess the real difference boils down to who's name is the mortgage originated in, under current laws. The originator must be working directly for the lender who's named as the lender/broker. What it also means is no third party originations.

In Texas, sounds like they simply want to do away with seller financing taking deals into the conventional or sub-prime market.

The way around the issues of compliance is for the seeler to state the terms of financing that will be acceptable to them in advertising the deal, at that point it there is no contact with any borrower/buyer. The sale contract is subject to that being the deal.

Taking it as the seller not being able to accept the borrower or not is probably not going to fly, IMO. Without some originator guarantee, it would be pretty hard to tell anyone that here is your note, you must accept it as consideration in selling your property, we won't tell you anything about the borrower, nor can you have any say in the interest rate earned for loaning your equity!

I don't think the Texas law is really menaing that as there would have to be acceptance by the note holder and terms would need to be met. The SAFE Act does not make any such requirement, it does not say nor even imply that the note holder will not have any input into the processing with the loan originator, but it does take the seller out of being the underwriter of the borrower, but not to the extent that what ever a mortgage originator decides has to be agreeable with the seller. So, I see the communication bewteen the seller and the LO, prior to any borrower.

I didn't read any statutes except what was mentioned above, but I suspect if you dig a little deeper you'll find that there has to be communication as well as acceptance.

I also see avoiding the whole issue if there was a mortgage broker that funded a loan and sold the note at the table to the property seller, a purchase-repurchase situation, or even a portion of the note.

Advertising a property to be financed will likely be required and meeting the T.I.L. requirements will be a goiod idea. I remember we had an attorney guru say something like "seller will finance" but IMO, that's poor advice, not only does it not meet all state requirements for "investors" or "those in the business" but it is also saying regardless of my situation or money down, the seller will do the deal....IMO. So, I'd suggest you work out a sale price, show an example of an amount down, the principale amount to be financed, the note rate of interest required, the amortized payment and any costs required and then compute the APR for the amount financed in the example. If you do that, you'll be in the clear.

To find a mortgage loan originator, you'll need to check with a mortgage brokerage operation, most likely, I don't see banks getting involved in this at all since if the bank is not making money on the service, they sure won't be accepting any liability for doing the processing or underwriting! So, look for a mortgage broker.
Lease purchase transactions will still be good to go as sepearate transactions.

[Bryan Hancock]

The guidance we got in Texas was to originate through a RMLO and to have rate and term sheets just like a lender would. You supposedly can't "negotiate the terms" unless you were licensed. It is really fuzzy what that means, but my suspicion is that if you have a RMLO involved and pay the $500 fee to get them to do a TIL and all of the other stupid paperwork you will be fine.

That is what we were told by one of the best sub-to/wrap sale attorneys in the state at RENC the middle of last year. Things may have changed and North Carolina may be different. It is hard to imagine they will disallow doing this through a RMLO though. That would be very surprising news to me.

[Bill Gulley]

Who has the rate sheets, the seller or the RMLO? I can see it as a simplification, almost pick a car pick a payment.

A rate sheet is certainly not negoitiations, that's why I said state it up front what it would be.

I could also see a seller giving a rate shhet to the LO, giving a risk analysis, loan or LTVs and different rates requireed at each level. Then the LO processes and fits the borrower in the category.

But in doing so, I see the LO taking on alot of liability to the note holder, if they failed to properly access/underwrite the deal..good luck in Texas!

[Bryan Hancock]

They wanted the note owner to pass out the rate sheet. The loan officer would just qualify per the terms like I assume a standard deal is done. They even had templates for investors to use set up so that they could be "compliant."

Honestly I see this law being challenged as unconstitutional at some point. How can someone be denied from selling their own property as they see fit? This seems pretty lame and is asking for a challenge soon. I don't know a whole lot about the constitution, but this has to violate some basic laws. Of course...they passed rent control too so I guess anything is possible.

I didn't see any value in this for the RMLO either. They are taking a huge amount of risk for a small fee, but there were some folks signing up to do it in Austin. It really just hurts the sales at the end of the day because this "tax" is passed on to the borrower.

[Bill Gulley]

LOL, The Persuit of Happiness.

Bryan, would you email me the name of this Attorney and any contact info there might be...I see what is being done to simlify things, but you're right, as soon as a mortgage guy tells me this borrower is qualified to do the deal at the preplastered rate sheet deal, he is on the hook and as soon as there is a default, and I guy like me comes along to tell the court why the borrower was not qualified, well, that broker will be be flapping in the breeze like the flag over the Alamo. Thanks.

[Bryan Hancock]

Any news on this Chris? Are we interpreting what is written wrong?

[Dale Osborn]

There is a legal battle in the works to have mobile homes excluded from the requirements of the SAFE Act. From what I have heard the basic argument is MHs are personal property and a mortgage is not being originated on real property. Also there is no money being exchanged as the home is being sold with a down payment and the balance being carried back as a note. This places it more in the category of a land contract. No Seller is being paid from any proceeds. As I hear more - will let you know or check in with David Reynolds with MHPS.com as to the progress.

[Gilbert Dominguez]

Correct me if I Am wrong guys but I read somewhere that the limit is not 5 but 3 before an owner financier must have a license. As I read the law an owner can hire a MLO to do the loan origination but still end up the one that is financing. Chances are the borrower would not qualify under any other loan program otherwise why would they need owner financing in the first place. 

[Ken Rishel]

Originally posted by @Account Closed:

I  have read that in Texas unless  you are doing more than 5 owner financed deals a year you do not need to be an RMLO

http://www.lonestarlandlaw.com/owner_finance.html

 This thread is out of date and full of misinformation. People need to stop listening to each other guess at what is right and start working with organizations that have a vested interest in supplying the right information, strategies, and advice.

[Ken Rishel]

Originally posted by @Gilbert Dominguez:

Correct me if I Am wrong guys but I read somewhere that the limit is not 5 but 3 before an owner financier must have a license. As I read the law an owner can hire a MLO to do the loan origination but still end up the one that is financing. Chances are the borrower would not qualify under any other loan program otherwise why would they need owner financing in the first place. 

 Wrong - You stand corrected.

[Bill Gulley]

I agree with Ken, deal is this is really out dated and I find myself having opinions as a moving target since the laws were drafted, adopted, modified, opinions issued and to date we have other related compliance issues arising. 

Were the exemptions maybe for an occupied SFD seller financing their own home is a far cry from a firm or business operation doing seller financing in the consumer arena. 

RMLOs must be sponsored, they don't have a license to hang out a shingle and originate loans as independent underwriters. I have not read anywhere that an RMLO can set any fee, (they might agree to compensation from a lender, but they don't really write their own ticket) with any party outside the compensation rules for the originator. The lender sets the compensation program, by lender I don't mean an unregulated seller financing guy, but a regulated lender.   

IMO, if you're a business entity financing to consumers, you're a lender, you're required to set up business as a lender, have a compliance program in place, servicing solutions, reserves as required, the whole nine yards.

I'm sure there are avenues to accomplish this, but the cost of compliance and setting up shop is going to be more than what Danny's We Fix & Finance RE can muster, to be profitable, you'll need to operate at a larger scale. 

That's my opinion to date and I'm not working on this matter day in and day out as would be required to give specific advice about how to set up a mortgage operation today. I clearly get segments and parts and the intent of the popular areas, but this is going to take specialized knowledge that laypersons just won't have. I get much of my opinions from reading instructions to examiners, I'm familiar with that, but they aren't in the business of structuring the operation. 

@Ken Rishel if I'm off base, please let me know. :)

[Gilbert Dominguez]

Ken Rishel, 

Thank you for your input. It would be nice to understand these new laws in any area so we know how to go about doing things and of course we would consult with those knowledgeable in this area of law at any particular given area. I do not mean to make statements of fact I am questioning my understanding of the facts with regards to Dodd Frank and the Safe Act. Thanks again. 

[Jay Hinrichs]

@Ken Rishel

  do you have a publication or website that has the updated rules.. it sounds like your in the business.. ?

[Ken Rishel]

We publish a monthly newsletter - The Chattel Finance Newsletter that you can obtain by emailing Julie Anderson at [email protected] and asking for a complementary subscription. I'm not sure I can go any farther than that and obey the rules on Bigger Pockets. We do have a website. Just google my name.