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Commercial & Corporate Law

Mortgage Broker's Compliance Guide – How to Start a Mortgage Brokerage Firm

Hunter Boone

Hunter has been a part of the Sequoia Legal team since 2017.  Hunter handles general corporate matters, healthcare compliance, international trade laws, and anti-kickback regulations.

Estimated Reading Time
updated:
9.3.21
how to start a mortgage brokerage

Fulfilling compliance and education requirements is one of the most challenging aspects of how to open your own mortgage brokerage. Regulatory compliance for how to open a mortgage brokerage is essential for mortgage lenders and includes stipulations about:

  • Marketing and advertising
  • Record keeping
  • Origination and compensation
  • Maintaining a Colorado mortgage license

Obtaining a National Mortgage Licensing System (NMLS) license ensures you are familiar with regulatory compliance for mortgage lenders. This guide created by professional business attorneys provides an overview of how to start a mortgage brokerage firm and how to get NMLS license in Colorado.

How to Become NMLS Licensed in Denver

colorado mortgage license

A mortgage broker pairs borrowers with lending institutions. Their duty is to find mortgage products that best suit their client’s needs and work with them to complete the mortgage application process. The first step in starting a mortgage brokerage firm is obtaining the NMLS license, which includes:

  • Application
  • Background check
  • Pre-licensing and tests
  • Continuing education

Once you receive your license, you may begin working as a mortgage broker.

Step 1. Request Your Personal NMLS Account and ID Number

The first step in becoming NMLS licensed is creating an account. Each state issues its own license for MLOs; Colorado’s process can be completed online with a few quick steps:

  • Request an NMLS account on the NMLS online registration website
  • Select “Individual”
  • Complete a security captcha and click “Next”
  • Fill out the required information on the form and click “Submit”

Once you have an NMLS account, you may use it to complete the rest of the steps of how to become a mortgage broker in Colorado.

Step 2. Complete Your Colorado NMLS Pre-License Education

Colorado requires NMLS applicants to complete 20 hours of pre-licensing training conducted by an organization approved by the NMLS. The training consists of:

  • Three hours covering federal regulations for mortgage brokers
  • Two hours covering nontraditional mortgage products
  • Three hours on mortgage ethics
  • Twelve hours of electives

Colorado also requires applicants to complete two hours of state-specific mortgage broker regulations, although you may choose this option as an elective course.

Classes may be taken individually or all at once, depending on your schedule and timeline for completing your licensing education. However, you must complete your training within three years of your application submission.

The NMLS has approved several educational institutions throughout the state, giving you plenty of choices for one near you.

Step 3. Pass the NMLS Mortgage Licensing Exam

how to open your own mortgage brokerage

Passing the NMLS mortgage exams is a requirement for how to start a mortgage brokerage. Once you finish the training programs, you take the S.A.F.E Mortgage Loan Originator License Exam, a two-part test proctored by the NMLS. You will be tested on:

  • State and federal mortgage loan origination laws
  • The roles of regulatory agencies
  • Regulations that all mortgage brokers must adhere to
  • Disciplinary measures for non-compliant brokers

You must prove that you have completed the required training in order to register for the tests and pass each of the exams with a 75% score or higher. You may be permitted to retake the test after 30 days if you don't pass.  

Step 4. Complete Background Check and Pay All Fees

Becoming Mortgage Loan Originator Certified is the next requirement for how to start your own mortgage brokerage. To receive a Colorado mortgage originator certification, you must complete the SAFE Act, which established licensing and registration standards for mortgage loan originators.

You will need to complete the following requests and pay their associated fees:  

  • FBI CBC: $36.25
  • NMLS Processing: $30
  • State CBC: $39.50
  • Credit Report: $15
  • Colorado State Licensing Agency Application: $25

In addition, you also must:

  • Create a Fieldprint and have your prints registered.
  • Pass a criminal background check, which can be done through your NMLS account.
  • Authorize a credit check, also available through your NMLS account.

This process can take 3-6 weeks, depending on the background check.

Step 5. Apply for Your NMLS License

Once all the pre-licensing education and testing are complete, it’s time to apply for your NMLS license. You may use the NMLS website and your account to do so. The application process is as follows:

  • Log into your NMLS account
  • Select “Filing” at the top of the screen
  • Select “Individual”
  • Select “Request New/Update”

If you are already working for a mortgage company, your employer may have paid the fees for you, so you can skip the next step. If you are paying your own fees, click "Continue". Then:

  • Click “Add” to apply for your Colorado license
  • Select the license you are applying for and click “Next”
  • Select "Colorado Mortgage Loan Originator License" and click “Next”
  • Verify all the information is correct, and click “Next”

If the information is correct, you may click “Finish” and finalize your mortgage loan originator license application process. Applications can take up to 10 days from receipt to process.

Mortgage Broker Compliances and Regulations

how to open a mortgage brokerage

There are various mortgage loan officer compliance requirements to be aware of in order to ensure regulatory compliance for mortgage lenders, starting with passing the mortgage loan originator exam. These mortgage acts and practices include regulations and requirements regarding marketing and advertising, origination, record keeping, licensing, and compensation. All of which ensure that your firm is achieving regulatory compliance with the Colorado division of real estate requirements for mortgage loan officers and lenders. This blog contains a high-level overview of the relevant regulations and requirements involved in Colorado mortgage compliance.

Marketing and Advertising

Digital marketing and advertising are some of the most effective ways to reach potential clients. However, digital mediums come with specific regulatory requirements. If the content is designed to advertise your Colorado mortgage loan officer services, then your company’s Nationwide Multistate Licensing System and Registry (“NMLS”) identifier must be included in all advertising. Moreover, certain states have additional requirements, meaning that it is vital to make sure that you check for additional requirements on a case-by-case basis.

Origination

As a mortgage loan officer, you are responsible for originating loans for your new clients. This requires ensuring that you are making both state and federal disclosures required for the type of loan you are processing. Your loan origination software (“LOS”) will be instrumental here, as it will provide templates for documents such as disclosures. In lieu of software, your company also has the option of hiring a third-party compliance specialist who will verify that you have met all federal and state-specific origination disclosure requirements.

Record-Keeping

The next requirement is ensuring that your company has a record retention policy. Having a comprehensive record retention policy will help to make auditing efforts straightforward for all parties involved. As a mortgage loan officer, you are required to maintain your client and business records for three years. However, there are additional state-specific rules that might modify this time frame. For this reason, it is very important to maintain thorough and accurate documentation of the lifecycle of each mortgage transaction. Your lender can be an essential partner at this step as they typically can enable easy access to these documents.

Licensing

how to start your own mortgage brokerage

As you know, each mortgage loan officer is responsible for obtaining a Colorado mortgage license to conduct business. The license requirements will vary based on the business structure and the state in which the business is operating. Connecting with well-established mortgage brokerage firms can be a valuable step in learning more about what licensing requirements will be of particular importance to your mortgage company.

It is also important to be timely in renewing your mortgage license with NMLS. Some states require a loan officer to start the licensing process over if they fail to renew their license in a timely manner.

Compensation

To have a successful mortgage brokerage business, you will want to develop a compensation plan that attracts the top talent in the field. The Loan Originator Compensation Requirements are a good place to start in terms of figuring out an appropriate, compliant compensation plan. This resource describes various requirements established under the Truth in Lending Act Regulation Z, including qualifications of loan originators, compliance procedures for depository institutions, and loan originator compensation, among many other requirements. This is another point in your process at which it can be helpful to speak with a well-established mortgage broker.

Tips to Make Your Compliance Processes Easier

As a strategic partner, Sequoia Legal is well-equipped to help your company in satisfying all mortgage broker compliance requirements, including help with communicating and working with the Colorado division of real estate and surety board. The tips below are designed to make your compliance processes easier and more streamlined.

TRID Disclosure Audits

There are various regulations that detail the different mortgage broker compliance requirements. These regulations include The Truth in Lending Act, the Real Estate Settlement Procedure Act (“RESPA”), and TILA-RESPA Integrated Disclosure (“TRID”) Audits. Truth in Lending Act information is provided to consumers when they close on a mortgage. RESPA information is provided to borrowers during settlement. TRID is consumer protection created during the Dodd-Frank Wall Street Reform and part of the Consumer Protection Act. TRID requires mortgage loan originators to compile Truth in Lending Act information with the RESPA information when the borrower applies and closes on a mortgage or applies for a surety bond.

HOPEA & State High-Cost

how to start a mortgage brokerage firm

The Hope Ownership Protection Act (“HOPEA”) requires mortgagees to share more detailed information with buyers who are purchasing high-valued homes. The types of mortgages covered under the Act include closed-end home equity loans, purchase-money, refinance, and open-end credit plans. Various states have additional rules regarding the lending associated with the purchase of high-cost homes.

State Consumer Credit & Fee Restrictions

States often pass additional laws forbidding predatory lending in the form of consumer credit laws. Typically, they contain restrictions on fee amounts in addition to controlling licensing and regulation of lending activities. The Colorado division of real estate has its own requirements, which we can help you fulfill.

RESPA GFE and HUD-1 Disclosures

RESPA revised the Good Faith Estimate Rules that mortgage brokers must provide to borrowers at settlement. With the new rules, brokers must provide a good faith estimate of the total cost of a real estate transaction within three days of receiving the loan application. The total cost is comprised of document preparation, legal fees, title searches, title insurance, taxes, pest and house inspections, notary services, and the like.

HMDA Filings and Data Analysis

The Home Mortgage Disclosure Act (“HMDA”) requires brokers to report to regulators data that shows whether they provide credit in the actual location in which their offices are located. This information guides the government’s decision as to where, geographically, investment dollars should be directed.

Covered financial institutions, including mortgage brokers, must report data on applications and originations for covered loans in addition to information about purchased covered loans. Covered institutions must submit a Loan/Application Register containing the required loan information to their mortgage broker regulatory body. Information including application number or universal loan number, date of application, loan type, loan purpose, owner-occupancy, loan amount, action taken, property location, applicant’s information, purchaser type, reasons for denial, and the difference between APR and benchmark rate (if the rate spread is outside designated thresholds) must be provided in these reports. This information is then compiled and made public by the Federal Financial Institutions Examination Council.

Flood Zone Determination

The Flood Insurance Reform Act of 1994 created disincentives for building in flood-prone areas, particularly raising insurance rates where there is a higher risk of flooding. The Act also requires that buyers located in flood zones buy flood insurance.

Due Diligence and Audits

how to get nmls license in colorado

Mortgage loan originators and companies must conduct themselves as if they were banks, meaning that you should put a premium on compliance and due diligence efforts. Included in these efforts are developing procedures for identifying risks for fraud or identity theft. In addition, mortgage brokers must comply with Anti-Money Laundering (AML) Laws and must file Suspicious Activity Reports (SARs).

Conclusion

At Sequoia Legal, we have experience navigating the various burdensome requirements and regulations involved in creating and operating a mortgage broker firm. We are here to help you establish and operate your mortgage broker firm in a compliant way.

For more information, contact our legal team today!

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