It’s common for mortgage brokers to think about their ability to expand their business. Often this is done through strategic marketing, networking and building a strong referral system among current clients and prospects.
However, one way to expand successfully is to cross over state lines and begin providing brokerage services to homeowners and buyers in another region. While crossing over into new territory offers significant opportunities for the best brokers, it is not without its challenges. Here are several tips for expanding a mortgage brokerage business beyond California.
Know the licensing requirements
Every individual or agency engaging in business as a mortgage broker must be licensed in the state they work. State licensing requirements for brokers vary, making it unrealistic to simply set up shop across a state border. To ensure your business is operating legally, it is necessary to determine the exact requirements each state mandates. The NMLS database is the best place to start in your search, although this is not always an easy process. Asking the surety bond agency that provides your current mortgage broker bond is also a sound option for establishing what is necessary for a new state.
Meeting the requirements for a new state often follows a similar path to California, including taking and passing an exam and paying a licensing fee. In addition, you will likely need to secure a mortgage broker bond for the new state to expand your business effectively.
Working with a surety agency
It is common to think that expanding a brokerage business across state lines means a broker will need a new surety agency that operates in the new state. However, in many cases, beginning a relationship with a new bond agency can be more of a headache than a help. The agency that already provides your mortgage broker bond can help you understand what the bond requirements are in the new state. If you need an additional bond, they can help you secure that bond based on state-specific needs.
Bonds are a crucial aspect of the brokerage business as they offer protection to clients in the event a broker does not follow the rules of the state. Having the right type of bond is necessary as a new or established broker, particularly if you plan to work across state lines.
Managing expansion costs
In addition to getting a new state license and securing the right bond, mortgage brokers working in a new state need to consider the costs associated with expanding. Every state has its own licensing fees, and these must be paid in order to receive a new broker license. There is not much to be done about this added expense, but brokers do have the ability to reduce costs elsewhere.
A mortgage broker bond also comes at a cost, typically set as a percentage of the total bond amount. That percentage cost is based on several factors, including your personal credit history and score. Surety agencies evaluate a broker’s level of risk based on credit history because a bond is in and of itself a form of credit. If a claim is made against a bond, the surety agency pays up to the bond’s limit, and the broker is required to repay the claim amount over time. Because of this risk to the surety company, a check of personal credit is often necessary.
Surety companies also review a broker’s track record with other bonds in place, whether claims have been submitted and successful, and the financial stability of the business overall. These factors, when weak, can have an impact on the cost of the new state’s bond. However, a strong financial history is helpful in reducing costs for brokers looking to expand. If you are concerned about your credit standing, consider what steps you can take to improve it before applying for a new mortgage broker bond.
Taking a mortgage brokerage business across state lines is not unheard of, especially for brokers who have a good reputation and the capacity to expand their business. However, it is essential to understand both the state licensing requirements along with bond needs before following through with an expansion. Be sure to check with the NMLS resource center for state requirements, or your current mortgage broker bond agency.
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