How To Protect Your Independent Mortgage Brokerage

Protecting your independent mortgage brokerage from fraud and staying compliant with federal and state lending regulations can seem daunting. As an independent mortgage professional, it’s imperative to be up to speed on licensing and compliance requirements, since it’s more than likely you’re going to encounter mortgage fraud at some point during your career. But if you develop a process to ensure you’re doing right by clients, partners and the government, you can focus on originating more loans and delivering an excellent experience to your borrowers.

What are mortgage brokers responsible for when it comes to compliance?

1. Licensing

As an independent mortgage broker or loan officer, you must be licensed by the Nationwide Multistate Licensing System (NMLS), complete continuing education requirements and follow the guidelines to renew your license. Keep an eye on your email, as you’ll regularly receive emails from NMLS that walk you through the continuing education and renewal process.

2. Marketing and advertising

It’s essential that all marketing and advertising materials are compliant, including your social media content. For example, if you are writing a social post to advertise your mortgage company, you’ll need to include your NMLS number. Also be sure to consult your individual state guidelines, as there are some additional requirements in some states.

3. Origination

When it comes to loan origination, you’ll need to ensure you have the state and federal disclosures needed for the type of loan you’re processing. This is where your loan origination software (LOS) or a third-party compliance specialist is helpful.

4. Record-keeping

You have to keep records of all your transactions for at least three years after they occur, but again, there are additional rules you may have to abide by, depending on what state you operate in. Make sure you keep enough documentation to tell the complete story of each mortgage loan.

5. Employment and compensation

Understanding compensation and the rules that govern it will allow you to develop a competitive pay structure that attracts top talent. Consider reading up on Loan Originator Compensation Requirements to get started.

Now that we’ve covered compliance, let’s take a look at the types of mortgage fraud and what you can do to prevent them.

Two types of mortgage fraud that are typically attempted:  

1. Fraud for property

According to Freddie Mac, this type of fraud typically involves borrowers or loan officers. They may do things such as providing false information on employment, income and/or assets to obtain a mortgage.

2. Fraud for profit

According to Freddie Mac, this type of fraud will typically involve multiple industry professionals whose overall goal is to gain more profit and/or compensation in an unethical way. 

As an independent mortgage professional, you can take several precautions to safeguard your business from these types of fraud. 

Safety precautions for independent mortgage brokers

1. Invest in proper training

Ensure both you and your employees are properly trained to spot red flags, particularly in the underwriting process.  Everyone on your team should be able to spot inconsistencies and irregularities in applications and documentation and know exactly what to do if they suspect fraud. 

2. Know your partners and vendors

Do your research and know exactly who you’re doing business with. Do you trust them? Do they do good work? Are they ethical? Do they have a good reputation in the industry? These are all questions you should ask before working with a partner. Once you have a solid foundation and relationship built, you can add partners to an internal “approved to work with” list, so you and your team know exactly who you can safely and confidently share information with.

3. Triple-check everything  

Give final loan documents an extra check to ensure everything is legitimate. This may take some extra time out of your day, but it’s better to be safe than sorry.

Unfortunately, mortgages provide many opportunities for people to commit fraud. Being prepared, educated and aware are the first steps to combat it as industry professionals. Luckily, independent mortgage professionals have support from a network of industry partners and trusted resources, so you never have to do it alone.

Are you interested in starting a career as an independent mortgage broker or loan officer? It’s easier than you might think, and our team at BeAMortgageBroker.com is here to help you every step of the way.