How to Start a Mortgage Origination & Default Company
- 1). Determine the type of company structure. Mortgage broker companies are prone to lawsuits from both lenders and consumers. Therefore, a sole proprietorship is not recommended since a claim could be made on your personal assets. Instead, choose from some type of corporate structure -- S Corporation, Limited Liability Company, General Partnership or Limited Liability Partnership -- that provides a corporate shell to better protect your assets. Acceptable forms of organization may vary among states and the company may have to register with the state's Department of State.
- 2). Obtain the required licenses. The Nationwide Mortgage Licensing System & Registry (NMLS) oversees the licensing of all mortgage brokers and loan originators and sets some basic requirements; individual states can modify the requirements to make the laws more stringent. Every mortgage company must be approved and registered with the NMLS and every loan originator -- with certain exemptions -- must take a 20-hour licensing course, and pass both a national and a state licensing exam. Fingerprints are taken and the loan originator's credit report and criminal history are reviewed prior to state approval.
- 3). Establish lender relationships. A mortgage broker acts as a middleman between a lender and a borrower and isn't allowed to loan money. Consequently, the company must be approved and sign written agreements with lenders that have a wholesale lending branch. During a real estate boom, lenders may number in the thousands but that figure drops significantly during a housing recession. Read the contracts carefully. Some lenders accept new start-ups and others only work with mortgage brokers that have a proven track record.
- 4). Follow state loan modification laws. If you want to assist borrowers who are in default with loan modifications, familiarize yourself with state law. Rigid disclosure requirements must be followed. In many states, companies can't accept up-front fees for working on a loan modification; companies can only be paid if they 're successful. Attorneys are the exception since law firms are allowed to charge a retainer fee before the lender negotiations begin.
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