Before discussing how to get a California Mortgage Company License, we need to first discuss what type of mortgage license you should get. There are three (3) different types of Mortgage Company Licenses offered in California. The Bureau of Real Estate offers the California Department of Real Estate (DRE) Corporate License with the Nationwide Mortgage Licensing System (NMLS) Company Endorsement. The Department of Financial Protection and Innovation (DFPI) formerly the Department of Business Oversight (DBO) offers two different types of mortgage company licenses, the California Financing Law License (CFL) and the California Residential Mortgage Lender License (CRML). All three of these license types have different requirements for approval and allow different activities. It is very important to decide up front what license works best for you, so let’s take a look and compare each of them. I’ll be using a lot of acronyms, so refer to the above paragraph if you’re not sure what each acronym means.
All three license types allow companies to broker, bank/lend, or service residential mortgages. The CRML License is the only license type that allows a company to sub-service residential mortgages, which means to service loans that are owned by another company. The CFL License and DRE License both allow a company to originate commercial mortgage loans. The CFL License is the only license that allows a company to originate non-secured commercial or personal loans.
The CFL License has a major restriction that needs to be pointed out. The CFL License only allows CFL brokers to broker mortgage loans to a CFL Lender. This means that a CFL broker can’t broker to DRE companies, CRML companies, or federally or state chartered banks, unless those companies also hold a CFL License. However, there is no restriction regarding what companies a CFL lender can sell loans to. The restriction solely applies to brokering loans. The CFL License also has a restriction on funding loans on captive warehouse lines provided by a non-CFL Licensed investor that will be purchasing the loan. The way the law reads is, “The finance company shall provide funding for the loan from sources exclusive of any funding advances received from an institutional investor committed to purchasing the note.” Here is the law on this: 10 CA ADC § 1460. Real Estate Secured Loans: Sale to Institutional Investors
Minimum Net Worth
Net Worth is the company’s assets minus the company’s liabilities. Each license type has different minimum net worth required for approval.
The DRE License has no minimum net worth requirement. The CRML License has a $250,000 minimum net worth requirement, which must be audited by a CPA. The CFL License has a $250,000 minimum net worth requirement if the company is funding residential mortgage loans and $50,000 if the company is brokering residential mortgage loans. If the company is only originating commercial mortgage loans and non-secured loans, then the minimum net worth for the CFL License is only $25,000. Financials for CFL do not need to be audited.
Other Major Requirements
Following are some of the other major requirements and barriers for each license type. You’ll notice that they are all very different in what they require.
The DRE License requires the company to designate an individual with a California Department of Real Estate (DRE) Individual Broker License as the Broker/Officer of the company. In order to get an Individual DRE Broker License, a person must complete 135 hours of education, show proof of 2 years full-time mortgage experience, pass the DRE Broker Test, which is only offered in California, and then submit an application for the Individual DRE Broker License. Since a person can be the Broker/Officer for multiple companies, often companies that don’t have an Individual DRE Broker employed with their company, will contact someone that already holds the Individual DRE Broker License to be their Broker/Officer, and then pay them a monthly fee to act in this capacity. However, this can get expensive. This requirement is the most burdensome part of obtaining a DRE License, and is the reason most companies will consider one of the other two license types.
The CFL License does not have any major requirements that are burdensome other than the minimum net worth mentioned above.
The CRML License requires that the company have a Federal Agency Approval with either FHA, VA, Fannie Mae, or Freddie Mac. FHA, Fannie Mae, and Freddie Mac all require $1million in net worth to get a lender approval from them. However, Veterans Authority (VA) does not have any minimum net worth requirement to get a lender approval from them. And the best part is you never even have to do any VA loans once you get this lender approval from VA. So currently this loophole basically eliminates this major barrier to getting a CRML License. However, there is currently one other major issue to obtaining the CRML License. The CRML License requires that the company has a funding source or is in the process of obtaining a funding source to fund their loans. The regulators that approve the CRML Licenses believe that the CRML License is not for companies that just want to broker mortgage loans. So the regulators will look for liquidity in the company that will allow the company to fund loans with their own money, or the regulators will look for a warehouse line of credit to fund the mortgage loans. The regulators will in most cases accept a letter of explanation and proof that the company is in the process of obtaining cash investors or a warehouse line of credit, but this is somewhat of a grey area and must be handled carefully. Although the CRML License allows a company to broker loans, the regulators interpretation of the CRML law is that the company must plan on using the license to bank mortgage loans also.
Loan Originator Licensing
There are two different types of loan originator (LO) licenses in California. There is the DRE NMLS LO Endorsement issued by the Bureau of Real Estate, and there is the DFPI LO License issued by the Department of Business Oversight. The DRE NMLS LO Endorsement is used by loan originators working for DRE companies. The DFPI LO License is used by loan originators working for CFL or CRML companies.
The DRE NMLS LO Endorsement is much harder to get than the DFPI LO License. The DRE NMLS LO Endorsement requires 2 tests, 60 hours of education, and 2 applications. The DFPI LO License only requires 1 test, 20 hours of education, and 1 application. The reason for this difference is that the DRE requires a loan originator to first hold a DRE Individual Salesperson License or Individual Broker License before they can complete the NMLS requirements. To get a DRE Individual Salesperson License, a person needs to complete 135 hours of education, take the Salesperson test that is only offered in California, and submit an application for a DRE Individual Salesperson License. Then the DRE requires the DRE Salesperson to apply for the DRE NMLS LO Endorsement, which requires 1 more test, 20 more hours of education, and a separate application. The portions through the NMLS for DRE and DFPI are virtually identical, but again, the BRE requires the person to hold a DRE Individual Salesperson or Broker License before they can apply for the NMLS Endorsement, making the DRE LO Licensing requirements much more difficult.
Each license type has varying types of costs to consider. The DRE Corporate License application costs $300. And the DRE NMLS Company Endorsement application, which must also be obtained by DRE companies, costs $500. So the total cost under the DRE is $800. However, a company must also take into consideration the costs of licensing and endorsing a DRE broker/officer for the company. Between the education, testing, fingerprinting, and application fee, the cost to get a DRE Individual Broker License can be as much as $1,000 to $1,500. And if the company wants to hire a DRE Individual Broker instead of getting someone within the company licensed, the cost is usually about $500 to $1,000 per month.
The CFL License application costs $400. There is also a surety bond required, which costs about $250. And there is fingerprinting which costs about $50 per officer/owner. So the total cost under the CFL is about $700.
The RML License application costs $1,100. There is also a surety bond required, which costs about $500. And there is fingerprinting, which costs about $50 per officer/owner. So the total cost under the RML is about $1,650. However, under the RML, there are a few other costs to consider. If the company doesn’t already have a Federal Agency Approval, then the cheapest one to obtain is from Veterans Authority. The cost for Veterans Authority Lender Approval is $200. If the company doesn’t already have audited financials, then the company will need to pay a CPA to complete this. The cost ranges from $800 to $1,000 for start-up companies, and goes up to as much as $3,000 to $5,000 for existing companies. Also, another major cost to consider under the RML License is the cost of renewal. If a company does no business during the year, the cost to renew is $1,000, but if a company closes even just one loan during the year, the cost to renew goes up to $5,000.
California is the most confusing state for deciding what type of license your company should get. Make sure to consider all of the differences very carefully, and if you still have questions, make sure to contact a mortgage licensing specialist such as Integrity Mortgage Licensing for help.