Tuesday, January 26, 2021

What to do when a Regulator asks for a Business Plan or Org Chart

Vague Company Licensing Requirements can Cause Confusion

With the surge in the mortgage demand, we see many new companies throwing their hat in the ring to become a licensed provider. For the uninitiated, prepare to spend some time gathering and uploading documents. For new and experienced alike, some of the requirements, and the vague way the Nationwide Mortgage Licensing System describes them in their requirement templates, can cause confusion. We get many of these calls every day. Here we provide a primer on answering the less obvious requests:

Provide a Copy of Your Business Plan...

A business plan is a great idea. The SBA definition of a business plan, and what most people think of as a business plan - including agencies like Fannie/Freddie and others - allows you to memorialize how you will do business; the ways and means including LOS selection, pricing, startup costs, volume projections, staffing as well as unique business propositions, marketing strategies, and other relevant elements. It looks like this:

This is a sample of a table of contents of an SBA-Style Business Plan

But... THIS IS NOT what the regulator wants. The regulator wants an answer to specific questions about how you will do business. We recommend that you write a 1 pager and simply answer the questions in a Q&A format. In this way, there can be no question as to the narrative. For Example:

NMLS Requirement for a Business Plan which is quite vague

NMLS Requirement for a Business Plan which is quite vague

For the business plan requirement, we recommend that you simply draft a memorandum answering the questions:

  • What is your marketing strategy?
  • What products will you offer?
  • Who will you market these products to?
  • How will you operate - e.g.; branch processing, centralized? Manager? Loan Originators? Processors? Whom will they report to?

Organizational Chart Requirement

Once again, an organizational chart makes a great tool to ensure that all of a company's responsibilities get assigned to an individual and who reports to whom. Microsoft includes a good organizational chart template in Word, which we use in our products, too, as below.

Sample Organizational Chart for a Mortgage Business

However, for a small company, an organization "Chart" where you draw lines between functions doesn't really apply.

This is the text from the NMLS requirement for an Organizational Chart

Again, instead of a policy, draft a memorandum to Identify who, within your organization, is in charge of:

  • Compliance - reports to?
  • Production Sales - reports to?
  • Processing, Operations - reports to?
  • Financial Control - reports to?

If these are all the same person, then state that. 

If you have any questions about licensing, or if you just want to hand it off to someone else to manage, please let me know. 

MortgageManuals.com does include the business plan in the Complete Broker, Correspondent, Lender and Compliance Packages. 

#mortgagelicensing #mortgagecompliance #mortgagebroker

Sunday, January 3, 2021

What is a "Written Supervisory Plan?"

Regulators requesting "supervisory plans" may be on a fishing expedition

Screenshot of Washington State Regulations showing supervisory plan requirement

Before you purchase a "supervisory plan" we need to agree that regulators do not define the term clearly. At issue; many states that require supervisory plans have figured out that companies will try to avoid accountability for employee actions by saying "the employee did it, not us." The regulator wants to eliminate this excuse, so requires you to tell the employee specifically what his or her job entails.

Use this rubric to customize your manuals and entitle them appropriately for the regulator.

The "Written Supervisory Plan" requirement is a bit of a red herring. There isn't a particular guideline defining what that means; the rule simply says you are responsible for your employees' actions.  

This means you must have an overall employee operating plan, such as an HR module. In addition, you must have the basic policies and procedures for regulatory compliance for all employees. Then, if you have licensed originators, you must have origination policies and procedures. If you process loans in state and you have processors, you must have processing policies and procedures. The same is true for closing, underwriting and any other function, such as wholesale, that you have.

Effectively, the mortgage correspondent package or mortgage banker package meets this requirement. Simply print the documents as the applicable title to a PDF. E.g.; 2-0 Compliance would be "2-0 All Employee Compliance Related Supervisory Plan." "3-0 Originator Supervisory Plan" etc.

If you are a very small company where only the principals are active in originating, you can use the Quality Control Plan and Compliance Policies and Procedures and call them "Employee Supervisory Plan."