Texas Bill 3617 Has Passed
For years, many states required a physical presence within the state in order for a person to obtain a mortgage broker license. Over time, many states did away with these so-called “brick and mortar” requirements as the mortgage business began to move online. Texas has been one of the holdouts, continuing to require a brick and mortgage location before issuing a Mortgage Company License.
Legislation known as Texas House Bill 3617 has removed this requirement. With the passage of HB 3617, Texas has entirely eliminated the requirement of a physical presence within the state in order for a person to secure a Mortgage Company License.
Understanding Texas HB 3617
HB 3617 was first filed in March of 2021. Over the next several months, the Texas legislature debated and amended the bill before taking it up for a vote on April 30, 2021. On May 5, 2021, the bill was received by the Senate. The Texas Senate began debating the bill, eventually passing it out of committee at the end of May.
The Senate passed the bill with some changes on May 24, and the House passed the amended version on May 28. The governor signed the bill on June 18, with an effective date of September 1, 2021.
Even before the passage of HB 3617, there were some ways around the brick and mortar requirement in Texas. Specifically, mortgage lenders could get around this requirement with direct endorsement privileges for FHA-insured loans or an approval with Fannie, Freddie, or Ginnie as a seller/servicer to qualify for the Mortgage Banker Registration. However, starting September 1, 2021, there will be no need for these workarounds.
These changes pave the way for a much larger pool of mortgage brokers to offer services within the state. Instead of requiring brokers to maintain a physical office within the state’s boundaries, brokers can secure a license while using online platforms to do business.
These changes will allow out-of-state brokers an opportunity to work in Texas when they previously could not have done so in most cases. However, Texas still maintains its strict licensing requirements. Mortgage Company License applications MUST submit their original IRS EIN letter as an NMLS upload to the state in order to acquire an approval.
Moving Away From Brick and Mortar Requirements
Texas is not the only state moving away from brick and mortar requirements. In the past ten years, many of the holdout states have eliminated these requirements. Since 2009, states like Alabama, Ohio, Oklahoma, Pennsylvania, and South Carolina have also removed their brick and mortar requirements entirely.
Other states take a hybrid approach. While Georgia has previously required all mortgage brokers to have a physical presence in the state, the current approach is not as rigid. Under Georgia law, a mortgage broker will only need a physical location within the state if the state in which they are licensed also has a brick and mortar requirement. In other words, brokers in brick and mortar states must have a physical presence in Georgia while other brokers do not.
What This Means for Texas Mortgage Brokers
Ultimately, the passage of Texas HB 3617 will have a lasting impact on mortgage brokers throughout the state. Until recently, Texas was one of the few holdouts that had refused to give up the requirement of a physical office within the state to obtain a mortgage broker license.
With HB 3617, this requirement vanishes on September 1, 2021. This change in the law will open up the state to a variety of new mortgage brokers that lack a physical presence within the boundaries of Texas.
This is excellent news for these brokers, but it also means Texas’ current mortgage brokers can expect far more competition moving forward, or will they face difficulty obtaining a mortgage broker license in Texas?. It remains to be seen what this change does to the industry, both short and long term.