The Association of Independent Mortgage Experts (AIME) called on the NMLS policy committee to make it a requirement for every state to adopt a broker-specific license option amid the committee seeking feedback on a proposal to adopt a standardized approach for the mortgage industry licensing.
The NMLS does not require mortgage brokers to provide audited financials to the agency every year, but there are 18 states that don’t have broker-specific licenses.
“We believe it makes sense for the NMLS to require that every state adopt a broker-specific license option. It would not only add welcome clarity to the audit process, but it would also make data-collection and channel comparison far more straightforward,” the letter reads.
Preparing audited financials would cost the average mortgage broker $10,000 or more, AIME noted.
The annual cost would be “extremely onerous for small and mid- brokerages and risks putting the majority of brokerages out of business,” according to the letter.
In addition, AIME encouraged the NMLS to adopt unaudited financials as a required alternative in identifying a company that strictly permits brokering activities.
“Compiled reports average $750 to $2,500 and reviewed financials $1,500 to $5,000. Brokers have little choice but to pass these costs on to the consumer,” the letter said.
AIME’s letter comes in response to the proposal by the Conference of State Bank Supervisors (CSBS) — the operator of NMLS— to create uniform state licensing standards for mortgage companies. After rolling out the proposal in April, the organization was seeking public comment through May 15.
The Loan Store – which purchased assets of Homepoint’s wholesale origination channel — supported AIME’s position.
“Based on the current NMLS configuration, there are 18 states that do not offer broker-specific licenses. This puts mortgage brokerages in these 18 states at a disadvantage compared to their peers in the remaining states because they’re not similarly able to mark themselves as exempt from providing audited materials,” Brandon Stein, president of The Loan Store, said in a letter to the NMLS policy committee.
Without the exempt status, which they are entitled to as brokers, they are forced to incur the expenses associated with having an accountant prepare audited financials to the agency, the letter reads.
The Loan Store’s partners are classified into two groups — independent mortgage brokers and non-delegated correspondent companies.
The NMLS proposal would require non-delegated companies to provide audited financials to the agency every year, Brad Pettiford, The Loan Store’s spokesperson said.
The NMLS does not require mortgage brokers to do this, but the challenge comes from that fact that the NMLS identifies brokers by license type – but there are 18 states that do not have broker-specific licenses, Pettiford added.
State-licensed mortgage companies originated $2.9 trillion in loans in 2022, accounting for 64% of mortgage originations in the country, according to the CSBS.
Mortgage Brokers should ABSOLUTELY have audited financial requirements. I think it is insane to allow someone that cannot afford a $5000 audited to prove their are financially in shape to work on someone’s home loan. The cost to opening a brokerage is way to low and this will ultimately lead us down the rabbit hole we were in during the 2008 crisis. In fact, further rules should be in place to safeguard the industry. Non Del and Delegated lenders must provide audited financials, it will just level the playing field.
Mike, could you define “working on someone’s home loan?” It’s a pretty broad statement. Would you hold individual loan officers to these types of auditing requirements? If so, why not?
In our research, audited financials are closer to $10,000 or $15,000. Not the $5,000 you estimated. Also, the cost of opening a brokerage varies wildly from one state to another. Some states have net worth requirements as high as $500,000.
This is also the first time I’ve heard the “leveling the playing field” argument used against Brokers. Can we get a uniform APR calculation before we start making all the accountants rich?