05/08/2015: Corrected to clarify that activities on consumer and non-consumer mortgages secured by one-to-four unit residential real estate are to be reported on Part A.

This is the second in our multi-part short article series on mandatory mortgage activity disclosures required of California Bureau of Real Estate (CalBRE) licensees by the CalBRE and the Nationwide Mortgage Licensing System (NMLS). This article discusses the business activity report filings required by the CalBRE.

Click here for the first part of this article series reviewing the mortgage loan activity notification filing required by the CalBRE.

Activity reporting

California Bureau of Real Estate (CalBRE) licensees are required to submit periodic reports about their mortgage activity and financial condition to both the CalBRE and the Nationwide Mortgage Licensing System (NMLS). [Calif. Business and Professions Codes §§10166.07-08; 12 United States Code §5104(e)]

These loan activity reports include:

  • the mortgage loan activity notification (CalBRE Form RE866), reportable to the CalBRE [Bus & P C §10166.02];
  • the business activity report, reportable to the CalBRE [Bus & PC §10166.07];
  • the residential mortgage loan report (CalBRE Form RE857), reportable to the CalBRE [Calif. Health and Safety Code §§35815-35816]; and
  • the mortgage call report, reportable to the NMLS. [12 USC §5104(e)]

None of these reports requires a filing fee.

The business activity report

The business activity report is filed by brokers providing mortgage services:

  • under their individual broker license, as a sole proprietorship; or
  • under a corporation broker license.

Sales agents and broker associates do not file this report. Instead, reporting brokers provide data on their individual mortgage activity and the mortgage activity of licensees in their employ.

The business activity report provides the CalBRE with data about mortgage activity, in two parts:

  • Part A collects data about mortgage activity where the security is a one-to-four unit residential property [Bus & P C §10166.07]; and
  • Part B collects data from threshold brokers and multi-lender brokers. [Bus & P C §10232.2]

Reporting brokers file this report online with the CalBRE within 90 days of the end of the broker’s fiscal year. [Bus & P C §10166.07(a)]

This filing is completed by:

  • the individual CalBRE broker, if the broker is a sole proprietorship; and
  • the designated officer if the broker is a corporation.

Part A reporting is triggered when a CalBRE broker makes, arranges or services one or more  mortgages secured by a one-to-four unit residential property for a fee, called a residential mortgage, under their CalBRE license. [Bus & P C §10166.07(a)(1)]

Data collected in Part A was optional for fiscal years prior to 2014, but became mandatory for residential mortgage activity taking place in the fiscal year ending December 31, 2014.

Part B reporting is required of:

  • threshold brokers, who deal in hard money transactions, or private lender transactions [Bus & P C §10232.2(a)]; and
  • brokers engaging in multi-lender transactions (fractionalized trust deed originations and sales). [Bus & P C §10238(k)(3)]

Threshold and multi-lender transactions include both mortgages made for a consumer and non-consumer, or business purpose.

Editor’s note — A consumer mortgage is a debt incurred primarily for personal, family or household purposes and secured by a parcel of real estate containing one-to-four residential units, whether or not the owner occupies the property. [Bus & P C §10131.1(b)]

Threshold brokers deal in private lender transactions. Private lenders are lenders who are not institutional lenders.

Mortgages made or purchased by an institutional lender are not counted when determining threshold broker status. [Bus & P C §10232(c)]

Institutional lenders are:

  • federal or state government agencies, including Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing Administration (FHA) and the United States Department of Veterans Affairs (VA);
  • state- or federally regulated banks, credit unions, finance lenders or insurers;
  • trustees of pension plans;
  • corporations offering securities;
  • licensed residential mortgage lenders or servicers;
  • institutional investors that issue mortgage-backed bonds (MBBs); or
  • licensed real estate brokers selling part of a mortgage, note or contract to any of the above entities acting as a lender or purchaser. [Bus & P C §10232(c)(1)]

A broker meets threshold broker status when they:

  • in a 12-month period, arrange the origination or sale of ten or more mortgages totaling $1,000,000 or more which are:
    • secured directly or collaterally by real estate or business opportunities, while acting as an agent for others; or
    • sales or exchanges of trust deed notes or real estate sales contracts, as an agent for others or as an owner of the mortgages;
  • in a 12-month period, collect payments for trust deed note holders totaling $250,000 or more;
  • in a three-month period, arrange the origination of two or more mortgages in aggregate of $250,000; or
  • in a six-month period, arrange the origination of five or more mortgages and sales or exchanges of trust deed notes in aggregate of $500,000. [Bus & P C §10232(a)-(b)]

Editor’s note — Before Part B of the form is available for filing, a threshold and/or multi-lender broker is required to notify the CalBRE they meet the reporting requirements.

Likewise, if a broker currently reports as a threshold/multi-lender broker, and no longer meets the reporting requirements, they need to notify CalBRE of the change. [See first tuesday Form 542]

Online filing

Filing is completed online at //secure.dre.ca.gov/bars/.

To log in to the system, the broker identifies themselves with their CalBRE license number, date of birth and social security number.

The site then lists each of the entities associated with the broker for which the broker may file a business activity report.

Content of the filing

The business activity report provides details about mortgage activity undertaken by the broker and any sales agents and broker-associates working under the broker’s license.

Broker information

Broker information will auto-populate, and includes:

  • the name of the entity the broker operates under;
  • main office address;
  • fiscal year end date;
  • CalBRE license number;
  • NMLS ID number; and
  • branch locations.

Except for the fiscal year end date, changes cannot be made to broker information from the business activity report. Requests for address changes are completed by separately filing forms CalBRE RE 204 or RE 204A with the CalBRE, or online via the CalBRE’s eLicensing portal.

When completing the filing, all fields are to be filled in. Zeros are used in lieu of blank fields. Amounts are rounded to the nearest dollar, and interest rates to the nearest three decimal points.

Part A: Residential mortgage activity

Sales agents and broker-associates

The report will auto-populate the sales agents working under the reporting broker’s license. Requests for changes to employed sales agent information are made by filing CalBRE RE 214 or RE 214A, or online via the CalBRE’s eLicensing portal.

Any broker-associates employed by the broker during the reported fiscal year are added to the report manually by the reporting broker.

The broker then checks a checkmark box next to each licensee who performed residential mortgage services under the broker’s employment during the fiscal year being reported, even if the licensee is no longer employed by the broker. [Bus & P C §10166.07(a)(1)]

Real estate activities

The reporting broker then identifies which of the following activities were undertaken by the broker or their agents in the fiscal year being reported:

  • arranging (brokering) mortgages;
  • making (funding) mortgages;
  • servicing mortgages;
  • buying, selling or exchanging trust deed notes or land sales contracts (real property sales agreements);
  • listing or selling real estate;
  • fee-based property management services;
  • making or arranging mortgages under a Department of Business Oversight (DBO) Consumer Finance Lenders Law (CFLL) license;
  • making or servicing mortgages under a DBO California Residential Mortgage Lending Act (CRMLA) license; and
  • performing broker escrows. [Bus & P C §10166.07(a)(2)]

Advertisements

The broker also indicates the media type used for advertisements for all real estate related activities the reporting broker engages in, including:

  • print;
  • radio;
  • television;
  • internet; and/or
  • [Bus & P C §10166.07(a)(3)]

Lender and mortgage information

Loan information provided by the reporting broker includes:

  • identification of the institutional lenders with which the broker does business, and the type of mortgage (fixed, adjustable, other) associated with each institutional lender [Bus & P C §10166.7(a)(4)(A), (a)(5)(A)];
  • for mortgages serviced, the amount of funds advanced to protect the security described in the trust deed [Bus & P C §10166.7(a)(10)]; and
  • the broker’s mortgage activity for:
    • fixed rate mortgages (FRMs);
    • adjustable rate mortgages (ARMs);
    • mortgages with prepayment penalties;
    • mortgages with a conforming loan amount, with rates 8% or more over the rate for a Treasury security with a comparable maturity, or with 6% or more in points and fees, called covered loans [Calif. Financial Code §4970(b)]; and
    • mortgages which allow the borrower to defer principal or interest, called nontraditional loans (excluding reverse mortgages or home equity lines of credit (HELOCs).

The FRM and ARM section requires reporting of:

  • the total number of mortgages;
  • a total number of mortgages in each category;
  • the aggregate principal amount;
  • the lowest interest rate;
  • the highest interest rate; and
  • the highest margin, for ARMs. [Bus & P C §10166.07(a)(4)-(5)]

The above factors are further broken down into:

  • mortgages funded by the broker as a principal;
  • broker-arranged mortgages funded by a private lender;
  • broker-arranged mortgages funded by an institutional lender; and
  • mortgages serviced by the broker. [Bus & P C §10166.07(a)(4)-(6)]

The prepayment penalty mortgage section contains:

  • the total number of mortgages made, arranged or serviced which contain a prepayment penalty;
  • the aggregate principal amount;
  • the length of the minimum prepayment penalty period;
  • the length of the maximum prepayment penalty period; and
  • the number of mortgages with monthly payments that increased during the prepayment penalty period. [Bus & P C §10166.07(a)(7)]

Under the covered loan and nontraditional loan sections, the broker reports:

  • the number of FRM covered loans and nontraditional loans;
  • the number of ARM covered loans and nontraditional loans;
  • the aggregate principal amount of FRM covered loans and nontraditional loans; and
  • the aggregate principal amount of ARM covered loans and nontraditional loans.

The above factors are further broken down into:

  • mortgages funded by the broker as a principal;
  • mortgages funded by a private lender;
  • broker-arranged mortgages funded by an institutional lender; and
  • broker-arranged mortgages serviced by the broker. [Bus & P C §10166.07(a)(4)-(5)]

Foreclosure activity

The reporting broker is also required to provide information about foreclosures they initiate:

  • the number of notices of default (NODs) filed;
  • the number of trustee’s sales or judicial sales recorded; and
  • the number of deeds-in-lieu of foreclosure recorded.

The above factors are further broken down into:

  • mortgages funded by the broker as a principal;
  • broker-arranged mortgages funded by a private lender; and
  • mortgages serviced by the broker. [Bus & P C §10166.07(a)(4)-(5)]

The broker also indicates:

  • whether they offered borrowers foreclosure prevention alternatives (such as a short sale) before foreclosing on the property;
  • the number of borrowers who had foreclosure prevention alternatives in process when the NOD was filed; and
  • whether the broker’s NOD included a declaration that they contacted or attempted to contact the borrower about foreclosure prevention alternatives before filing the notice of default.

Compensation for brokered mortgages

For broker-arranged residential mortgages, the broker provides the total of fees received, including:

  • the yield spread premium (YSP);
  • fees/commissions; and
  • rebates.

Fees collected for third-party services on behalf of the borrower are not included in this amount. [Bus & P C §10166.07(a)(8)]

Editor’s note — Dodd-Frank changes to federal Regulation Z (Reg Z) make the YSP an unlawful fee on a consumer mortgage. [12 Code of Federal Regulations §1026.36(d)(1)]

Bilingual disclosures

The broker is also responsible for keeping track of the number of Mortgage Loan Disclosure Statements they provide in a language other than English, along with a tally of how many disclosures were provided in:

  • Spanish;
  • Chinese;
  • Vietnamese;
  • Korean; and
  • [Bus & P C §10166.07(a)(9); See first tuesday Forms 204 and 204-1]

Part B: Threshold and multi-lender brokers

Mortgages originated as an agent

Data on the following transactions is collected under this section:

  • multi-lender mortgages;
  • mortgages which refinance existing mortgages previously negotiated by the reporting broker or an affiliate;
  • final/balloon payment and interest-only mortgages; and
  • covered loans.

The above factors are further broken down into:

  • total number of loans;
  • aggregate principal amount; and
  • (for multi-lender mortgages) the total number of investors.

Further, the broker also needs to report whether the mortgage is an Article 7 loan or not. [Bus & P C §10232.2(c)(1)]

An Article 7 loan is a loan:

  • of less than $30,000, secured by a first trust deed on a one-to-four unit residential property; or
  • of less than $20,000 secured by a junior trust deed on a one-to-four unit residential property. [Bus & P C §10245]

A total of origination fees collected for mortgages originated as an agent is also required.

Mortgages funded by the broker for resale

Data on the following transactions is collected under this section:

  • mortgages which refinance existing mortgages previously negotiated by the reporting broker or an affiliate;
  • final/balloon payment and interest-only mortgages;
  • principal loans resold to:
    • single purchasers; and
    • multiple purchasers; and
  • covered loans.

The above factors are further broken down into:

  • total number of mortgages;
  • aggregate principal amount or (for mortgages resold) selling price; and
  • (for loans resold to multiple purchasers) the total number of investors.

Further, the broker also needs to report whether the mortgage is an Article 7 loan or not.

A total of origination fees collected for mortgages funded by the broker for resale is also required.

Costs and expenses paid by borrowers to the broker

This section reports the total of all fees collected versus retained by the broker for services rendered.

Mortgages for the broker’s benefit

Information entered in this section pertains to mortgages or notes for which the broker had the benefit of the mortgage funds, other than for fees, costs or expenses passed on to the broker for their services:

  • the total number of mortgages;
  • the total number of fractionalized trust deed notes; and
  • aggregate amount borrowed. [Bus & P C §10231.2]

Sales of notes as an agent, or as a principal

For both of these sections, the following information is collected:

  • the total number of mortgages;
  • aggregate selling price;
  • fees received; and
  • information about multi-lender sales including:
    • the number of mortgages;
    • aggregate number of lenders/investors;
    • aggregate selling price; and
    • fees received. [Bus & P C §§10131(e), 10131.1]

The sales of real property sales contracts as an agent or principal

Data collected under this section includes the total number of sales, and the aggregate selling price. [Bus & P C §§10131(e), 10131.1]

Note and real property sales contract servicing

This section requires the reporting of:

  • total number of mortgages and contracts serviced;
  • number of fractionalized mortgages serviced;
  • total dollar amount of payments collected, including payoffs;
  • total dollar amount of payments collected on fractionalized notes, including payoffs;
  • total dollar amount of mortgages serviced;
  • total dollar amount of fractionalized trust deed notes serviced;
  • total late charges received;
  • total late charges retained by the reporting broker;
  • number of loans prepaid;
  • total amount of prepayment penalties paid by borrowers;
  • total amount of prepayment penalties retained by the reporting broker;
  • total other broker charges for servicing;
  • number of NODs filed; and
  • number of trustee’s sales, judicial sales or deeds-in-lieu of foreclosure recorded. [Bus & P C §10232.2(c)]

Certification and submission

Once the business activity report has been completed, the broker filing the report electronically signs and certifies the accuracy of the information contained in the report.

The report may be started online and saved for 21 days. To do this, the broker chooses the “Save for Later” option. After 21 days, the data is lost and information needs to be reentered.

To submit the final report, the “Save and Submit” option is chosen.

After the report is submitted, a copy of the report can be downloaded as a PDF file and saved or printed for the broker’s records.

Penalties for failure to timely file

Failure to report mortgage business activity exposes the broker to a CalBRE audit, and disciplinary action. [Bus & P C §10166.07(c)]

Collecting the data throughout the year

Brokers are required to keep documents relating to transactions for a total of three years. Some documents, such as the documents used to determine investor suitability for funding hard money loans, are to be kept for four years. [Bus & P C §§10148, 10232.45]

However, collection of data is not enough. As any broker who has filed this report knows, the data reporting is a detailed, harrowing process if proper records were not maintained in an organized fashion during the year.

Proper pipeline management is completed on a deal-by-deal basis. As files are completed, data is harvested and stored for forthcoming end-of-year reporting. Since this report covers both the broker’s individual deals and deals of all licensees in their employ, the broker is responsible for developing and enforcing a thorough process for data collection compliance, much like their other office management and risk mitigation duties.

Brokers often use software to manage mortgage applications, and keep track of their mortgage pipeline. Compiling information required for this, and other reports, is a matter of:

  • confirming mortgage files are up-to-date and in the correct statuses in their origination software; and
  • running reports to pull the necessary data.

Offices with less formal procedures still need to update information at least every month to ensure the data to be reported is readily available.

The software a broker uses will vary based preference, and the type of mortgage service they perform.

For mortgage loan originators and brokers, the popular Calyx Point software includes report features that allow users to create a customized template with all the information needed to fill out the mortgage business activity report. For a basic tutorial on Calyx Point reports, visit //www.calyxsoftware.com/training/free-classes.asp.

Another software suite, The Mortgage Office, offers software to assist with a full array of mortgage activities, including a module which assists with CalBRE report processing for threshold and multi-lender transaction brokers. More information about the Mortgage Office software suite can be found at //www.themortgageoffice.com/

Editor’s note — For additional software recommendations, visit //www.capterra.com/mortgage-and-loans-software/.

At a minimum, brokers need to set up a basic spreadsheet keeping track of this data as mortgages or deals close.

Additionally, Part A requires proper management of:

  • employee records; and
  • advertisements.

Have any tips or suggestions for optimal reporting? Share your expertise in the comments below!

The next installment in this article series will discuss the CalBRE residential mortgage loan report.