Bridge lender's AE says I don't need an NMLS license to broker their loans

Question

I'm partway through the 20-hour SAFE course and an AE at a fix-and-flip lender told me to stop, that since all their loans are business purpose to entities I don't need an MLO license to send them files, and that half their broker channel is unlicensed. Then I went to my state regulator's page and found a mortgage broker license whose definition covers arranging loans secured by real property, with no carve-out for business purpose that I can find in plain reading.

So one of them is wrong, or the federal SAFE piece and the state licensing piece are two different questions and the AE only knows about the first one.

Second half of my question, since I'm budgeting either way: what does the license path actually run, and what am I paying monthly once I'm originating? I've seen the test fee and the course price, and I have no idea what a surety bond costs, whether I need E&O, or what an LOS runs per seat. Real numbers would help more than a list of things to look into.

Rena Expert · Accepted Answer

Two separate questions, and the AE answered one of them.

Federal SAFE Act licensing attaches to residential mortgage loan origination, which is tied to loans secured by a dwelling made primarily for personal, family, or household purposes. A loan to an entity acquiring a rental or funding a flip is generally business purpose and outside that. State law is where it stops being simple. Some states license brokering on any loan secured by real property and don't care about the borrower's purpose, some have a business-purpose exemption written into the statute, and a few have an exemption that only covers commercial property, which leaves a 1-4 unit rental inside the licensing net. Your plain reading of your own regulator's definition may well be right, and this specific question is one to put to an attorney licensed in your state before you accept a fee, because in several states an unlicensed broker's fee agreement is unenforceable and the regulator can order disgorgement.

The AE also has an interest here. His channel wants volume. If the lender's broker agreement requires you to represent that you hold all required licenses, you just signed the liability onto yourself.

On cost, check current figures because these get repriced: the SAFE test and the background and credit pulls together land in the low hundreds, 20 hours of prelicensing education runs roughly $250 to $400, state application fees commonly $300 to $500. Surety bonds are the number people miss. Face amounts are set by state and often scale with volume, $25k to $100k is common, and you pay roughly 1 to 3 percent of face annually with decent credit, so $500 to $1,500 a year. E&O is rarely mandated for brokers and most lender agreements want it anyway, budget $1,000 to $2,500. Add continuing education every year and NMLS renewal.

Also: most states require an MLO to be sponsored by a licensed company. You can hold the license and still not be able to originate until someone sponsors you, and a brand-new company license has its own net worth and audited financial requirements in some states.

jessreyes12 · Answer

I asked something close to this about a DSCR loan and got two answers in one afternoon. The bit that tangled me up is that people say business purpose like it's a property type. A duplex is a duplex. Whether the loan is consumer or business purpose is about what the money's for and who's on title, and I couldn't tell whether an LLC buying a rental with no intent to occupy is automatically outside it or whether someone still has to document that. halyard, did the AE put the unlicensed-broker thing in writing or just say it on a call?

dpatel_re · Answer

On the bond, mine was quoted against projected volume, and the underwriter asked for a personal financial statement before pricing it. Worth knowing before you assume 1 percent of face.

The other cost nobody warns about is the lender approval package itself. Every private lender I've reviewed files for wants a broker application with two years of financials or tax returns, a resume, licenses, W-9, and a signed fee agreement template. That's a day of work per lender, and if you want six lenders you're spending a week and a half before you can shop anything. It's also why the AE is happy to tell you licensing doesn't matter. He wants you approved with him and nobody else.

mikeoconnell7 · Answer

Tallying the expert numbers I get somewhere around $2,500 to $4,000 to get licensed and insured in year one, which is cheaper than I assumed. Software is where I'm lost. LendingPad quotes around $100 per user per month last time I looked at their site, Encompass is a different universe of pricing and I don't think a one-person shop is the customer. Is a pricing engine a separate subscription on top, and does anyone actually need one when private lenders don't have rate sheets in the agency sense?

tonyv88 · Answer

Adjacent problem I'm sitting in. Owners in my management portfolio ask me every month who does cash-out on rentals, and the second I take money for pointing them somewhere I'm arguably arranging a loan. A couple of lenders offer a flat referral fee, $500 or a thousand, and I've been turning it down because the licensing line for paid referrals versus a free introduction is drawn differently state to state and I'm not spending legal budget to find out. halyard, if you get licensed, that's a referral source you can actually be paid on.

derekj19 · Answer

Did the AE say unlicensed brokers or unlicensed in your state specifically? Those are very different claims.

mitchell_ray4 · Answer

The flippers I frame for all complain about the same thing, which is that their lender's draw process takes ten days and stalls the crew. Nobody talks about points, they talk about draws. If you're picking six lenders to get approved with, I'd rank them on inspection turnaround as hard as pricing, because that's the thing the borrower remembers when he does his next four projects.

Bridge lender's AE says I don't need an NMLS license to broker their loans

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