Script – National Licensing #1

Welcome to this MortgageMediaMag special report on an issue that some say has been debated in the industry for the last decade.  I'm Rob Hain, and to reach us here, call 800-209-0007.  The e-mail address is rob@mortgagemediamag.com. 

The debate over nationwide licensing of brokers and originators has been raging for over a decade now, according to some.  There are many parties to the debate, and most have some legitimate claim to input.  Regulators and consumer groups want to ensure that the consumer is protected, and regulators also seek to ensure that the industry remains healthy.  Brokers want to assure that their reputations are protected, and most want to comply with regulations as easily as possible.  Most also want to ensure that their shops remain free of unscrupulous and unqualified staff.

While the licensing debate has raged for over a decade, the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators have been working since at least as far back as 2004 to develop a system of uniform mortgage license applications that can be used nationwide, as well as a web database to store and distribute data.  The system is termed the Residential Mortgage Licensing System, and is scheduled to be operational in January of 2008.  In 2006, the CSBS announced a relationship with the National Association of Securities Dealers, where the NASD would take the responsibility of developing the database and operating the RMLS.  This central database is planned to be available through a secure website to regulators, licensees, and to consumers alike.

According to the sponsors of the initiative, the goals of the RMLS are many.  They want to be able to consolidate and streamline much of the process that is repeated by license applicants and often handled through the filing and review of paper documents.  To that end, licensees will have the option of applying for and renewing licenses for several jurisdictions from one central place.  The system is also due to include the abilities for applicants and licensees to check the status of applications and to pay fees, which would then be distributed to the appropriate states.  According to Mortgage News Daily, the system is only “operational” in nature and will not interfere with the states’ authority to regulate and administer their own programs.  Advocates suggest that the RMLS will enhance the The Mortgage News Daily article suggests that the system may not prevent the “gypsy” company from running from state to state, using different names and Employer ID numbers.  State regulators, according to the article, will, however, be better equipped to follow the abusive behavior of lenders and loan originators that move from state to state to avoid detection and prosecution.  The sponsors of the system also claim that the system will improve the efficiency and effectiveness of state supervision.  They say that the system will help to enhance consumer protections, including fighting mortgage fraud and predatory lending.  The increased accountability that the system offers through making records public, uniform, and accessible is what the sponsors hope will tighten the net on the few who give the mortgage industry a bad reputation.

The group has developed a set of four uniform mortgage license application documents:

·                     MU1 – Uniform Mortgage Lender/Mortgage Broker Form

·                     MU2 – Uniform Biographical Statement & Consent Form

·                     MU3 – Uniform Mortgage Branch Office Form

·                     MU4 – Uniform Individual Mortgage License/Registration & Consent Form

Several states have already adopted the new forms in paper format, as they plan to switch to the online version when the system comes online.  Other states have application requirements that go beyond the MU forms.  Again according to Mortgage News Daily, twelve states are expected to come online with the system right away, with a total of 37 states participating over the longer term.

Not all of the industry is completely on board with the proposed system, though.  The Mortgage Bankers Association announced their support for the system’s principles and sample legislative language, but as of January 2007, they had outlined a few key items of concern to them.  Among them was the privacy and security of the data stored in the system.  The group has outsourced the development and management of the system to the NASD, and the database will contain large amounts of personal data.  The MBA expressed concern that, at the time, there was no apparent accountability for the NASD and no “safe harbor” for lenders participating in the system.  A safe harbor provision would protect participants who act in good faith, but still end up in an unfortunate situation.  They also question whether the cost of the system – reported to be $4.3 million initially, followed by an annual cost of $6.5 million – is justified, based on the benefits the system provides.

Some of the concerns the MBA outlined in their release concern issues that are not directly associated with the proposal, but are more systemic in scope.  The MBA pointed out discrepancies between the ways nationally chartered banks, large lenders, state banks, and state regulated mortgage companies are regulated.  The larger lenders, they say, must already subject their employees and operations to much more rigorous screening and oversight.  The new system, therefore, would inherently favor smaller brokers over larger lenders.  In addition, the organization recommends comprehensive reform of state mortgage licensing to better accommodate the disparities between the ways various states license brokers and lenders.

The bankers are not the only ones with issues concerning the new proposal, however.  As of early March 2007, the National Association of Mortgage Brokers released a statement outlining their concerns as well.  First, they say, over 60% of mortgage originators would be automatically exempt from the system, since they work for nationally-chartered financial institutions.  The CSBS has responded to the charge, saying that the system itself does not exclude anyone.  The NAMB, according to their statement, would prefer that all originators be subject to the system.  In addition, they maintain that the data collection system is burdensome on them - and overly intrusive into their members' personal information.  Along with the MBA, the NAMB showed concern that the system would be managed by a third party - the NASD.  They also maintain that there must be some sort of complaint resolution process built into the system and that the proposal doesn't allow for.

The issue of licensing is also more complex than described by simply pointing to the proposed database.  As Ryder Smith, Vice President of Operations with Mavent, points out, mortgage licensing is a complicated system of competing licensors and, therefore, of competing licensing requirements, regulators, and regulations.  (Complex Issue)  He points out that states have become much more involved in the mortgage process and in requiring companies and professionals in the industry to be licensed.  (States more involved)  (Large Lenders)  (States want)  According to Mr. Smith, there is market pressure toward seeking a federal charter rather than a state one, simply to avoid the huge regulatory burden of dealing with multiple states.  (Pressure)  Mr Smith says that the system helps lenders who operate under state charters to originate under the various state licensing requirements.  (CSBS Initiative)

Though the system is set to roll out in January of 2008, there are many issues yet to be settled.  We'll be following the issue here for you.  To reach us, call 800-209-0076 or send e-mail to rob@mortgagemediamag.com.  To reach Ryder Smith or Mavent, go to www.mavent.com.  Thank you for joining us.