Starting a Mortgage Brokerage: A Comprehensive Guide to Compliance and Licensing

If you’re thinking about starting your own mortgage brokerage, there are several important steps to take to ensure compliance and secure the necessary licensing. While it might seem a bit overwhelming, with the right knowledge and guidance, the journey can be smooth and successful.

In this blog, we’ll walk you through all the essential steps for setting up your mortgage brokerage from start to finish. We’ll cover everything from obtaining an NMLS number to establishing business operations and marketing strategies that will set your brokerage up for success. 

And here’s the good news—SCP is here to help guide you through every step of this process! We provide support nationwide, making it easier for you to navigate the ins and outs of setting up your brokerage. So, let’s dive in and get started!

Step 1: Determine Legal Entity Type and Register with Secretary of State 

Register with Secretary of State

The first step towards starting your mortgage brokerage is to determine what type of legal entity you want for your brokerage. This could be a sole proprietorship, partnership, corporation, or LLC. Each type has its own advantages and disadvantages, so it’s important to research and consult with legal professionals to determine the best fit for your business.

Once you have decided on a legal entity type, you will need to register the entity with the Secretary of State or similar governing body for the state you intend to incorporate or organize in. This registration is required in order to conduct business as a mortgage brokerage.

Step 2: Apply for an Employer Identification Number (EIN)

apply for EIN

Once you have registered your entity with the Secretary of State or similar governing body, you must request an Employer Identification Number through the Internal Revenue Service (IRS). It is essential that the entity name is consistent with the full legal name registered at the state level. 

Step 3: Obtain an NMLS Number

Obtain an NMLS Number

The next step is obtaining a unique identification number from the Nationwide Mortgage Licensing System (NMLS). This number serves as your license to operate as a mortgage brokerage and must be prominently displayed on all business materials.

To obtain an NMLS number, you will need to complete the following steps:

  • Submit a Company Account Request Form through the NMLS website. 
  • Upload the entity formation documents from the Secretary of State (e.g. Articles of Incorporation/Organization) 
  • Upload a copy of the IRS documentation that identifies the employer identification number (EIN) for your entity. (e.g. SS-4 Letter or the 147C letter)

Once you have obtained your NMLS number, you can move on to the next step in setting up your brokerage.

Step 4: Review and Gather Licensing Requirements

Gather Licensing Requirements

Each state has its own set of regulations for mortgage brokers, so it’s important to research and understand the licensing requirements for the states in which you plan to operate. Licensing requirements may include but are not limited to drafting a comprehensive business plan, providing company financial statements (e.g. balance sheet or statement of condition), creating a company management and organizational chart, providing compliance policies and procedures, and obtaining surety bonds and liability insurance. 

Step 5: Obtain Bonds and Insurance

Obtain Bonds and Insurance

Many states require mortgage brokers to obtain a surety bond and liability insurance in order to operate. The surety bonds are specific to the state license you are applying for, so you may be required to obtain multiple surety bonds if you intend to operate in multiple states. These bonds serve as a form of protection for clients in case of any misconduct or financial loss on the part of the brokerage. It’s important to thoroughly research and compare different bonding and insurance options to ensure you are getting the best coverage for your business. If a surety bond or insurance coverage is a licensing requirement, you will be required to obtain this coverage prior to submitting the license application through NMLS. 

Step 6: Submit State Licensing Application

brokerage State Licensing Application

Once you have gathered all the licensing requirements and insurance coverage (if required), you will need to submit a state licensing application through NMLS. You must submit a state licensing application for each state you intend to operate in, and pay any necessary fees through NMLS. This may also require you to complete additional education requirements, pass state-specific exams, complete a criminal background check, and credit check. 

Step 7: Set Up Business Operations

Business Operations

Once your state license application has been approved in NMLS, it’s time to get your business operations up and running! You will now be able to get established with credit agencies, lenders, and begin to market your entity as a licensed mortgage brokerage. It is important to establish processes and procedures for your brokerage that comply with state and federal regulations. Your lenders may require you to provide compliance policies and plans for your brokerage which include but are not limited to an AML/BSA policy, Compliance Management Plan, Quality Control Plan, etc. You will also need to create Loan Officer compensation agreements and implement compliance training for your team. 

Step 8: Build Relationships with Lenders

Build Relationships with Lenders

As a mortgage broker, you will be working closely with lenders to secure loans for your clients. It’s important to establish relationships with a variety of lenders in order to offer your clients competitive rates and options. This may involve attending industry events, networking with other professionals, and actively seeking out partnerships with lenders.

Step 9: Establish Marketing Strategies

Establish Marketing Strategies

To attract clients and grow your business, having effective marketing strategies is crucial. This includes creating a polished website, leveraging social media, attending community events, and collaborating with real estate agents and other industry professionals. Additionally, it’s important to keep a federal and state marketing compliance checklist handy. This will help you and your team stay aligned with social guidelines, safeguarding your brokerage from potential fines while maximizing your outreach efforts. Want help with this? SCP provides all broker clients with a federal advertising checklist to ensure compliance and enhance marketing efforts.

Step 10: Stay Up to Date with Industry Changes

Stay Up to Date with Industry Changes

The mortgage industry is constantly evolving, with new regulations, laws, and technologies emerging all the time. It’s important for mortgage brokers to stay informed and up to date on these changes to best serve their clients. This may involve attending industry conferences, networking with other professionals, and staying current on industry news and updates. Additionally, adopting cyber security best practices and leveraging cutting-edge technology solutions can help streamline business operations and enhance client trust.

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Ready to simplify your journey as a mortgage broker? At SCP, we’re dedicated to helping you streamline your setup and navigate compliance and licensing with ease. Whether you’re just starting out or part of a large brokerage, our tailored solutions ensure you focus on your clients while we handle the complexities. Don’t go it alone—call us at 301-578-6015 or email sales@strategiccompliancepartners.com. Let SCP make your path to success easier! Visit www.strategiccompliancepartners.com for more information.

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About Ari Karen

Ari Karen is an experienced litigator who has focused his practice in representing financial institutions in both government investigations and litigation before state and federal trial and appellate courts nationwide. Mr. Karen’s practice is diverse, representing clients on matters concerning banking regulations, Dodd Frank financial reform laws, contractual disputes, employment and labor statutes, wage-hour class actions, employment discrimination and fair lending matters, whistleblower complaints and non-competition claims, among others.

Mr. Karen speaks regularly on topics affecting all types of lenders including fair lending and disparate impact, LO compensation, marketing service agreements, compliance with social media, non QM lending, vendor management, and much more. Mr. Karen is a principal in the Financial Institutions Regulatory and Labor and Employment practice groups of the Offit Kurman law firm.