The mortgage industry and those who regulate it appear well on their way to dramatically changing the mortgage licensing system.

On Tuesday the Mortgage Bankers Association announced its support of the basic underpinnings of a proposed Residential Mortgage Licensing System (RMLS) that it is hoped will make the regulatory system more efficient and uniform for states and for mortgage lenders, especially those that operate in multiple states. This system is designed to provide a database for regulators, lenders, and consumers and will consolidate functions that previously have been managed on a state-by-state basis and frequently handled by hand and monitored through paper records.



RMLS is expected to be operational in January 2008 and is the joint project of the Conference of State Banking Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR). It has been in the planning stages since 2004.

The system will include a central licensing system, accessible over the Internet which will allow current licensees and new applicants to apply for or renew licenses for one or multiple jurisdictions. Lenders will be able to check the status of both their license and their applications and pay licensing fees which will then be distributed to the respective state agencies. The system will be strictly operational in nature and will not interfere with the authority of each state agency to approve, deny, suspend, or revoke a license.

The system, when implemented, will allow lenders who operate in one state or a multiple number of states or wish to do so to submit applications or requests for renewal to all states from a central site.

CSBS and AARMR formed a taskforce two years ago that involves mortgage regulatory personnel from over 20 participating states. This group has met regularly over the past two years to develop the uniform applications and contracted last June with the National Association of Securities Dealers (NASD) to develop a nationwide system. NASD has over 25 years experience in developing and managing somewhat similar systems for the securities industry.

Four forms will be used in the system, each designed so that a company, branch, or individual applying for a mortgage license needs only to complete one of each appropriate form to apply to any number of participating states. The four forms are:

  • MU1 - Uniform Mortgage Lender/Mortgage Broker Form
  • MU2 - Uniform Mortgage Biographical Statement & Consent Form
  • MU3 - Uniform Mortgage Branch Office Form
  • MU4 - Uniform Individual Mortgage License/Registration & Consent Form

Five states, Idaho, Iowa, Massachusetts, New Hampshire, and Washington have already adopted the new MU forms which they will use in a paper format until the system is fully up and operational on line early next year.

Some states will have additional requirements outside of the MU forms, but overall this is expected to streamline the process at a much lower cost to participating states. 12 states are expected to be online almost as soon as the system becomes operative next year and a total of 37 states will probably participate in the longer term. At present 49 states license mortgage companies.

Based on a 50 state survey of regulators that CSBS/AARMR conducted in 2006, there were approximately 90,000 state companies holding licenses and they have 63,000 branches and 280,000 loan officers and other professionals.

While information published by the two sponsoring organizations focuses primarily on both financial and operational savings to the states and the potential convenience for licensees, the MBA's recent press release focuses on the benefits to consumers (and to consumer fraud enforcement on the state and maybe the federal level.)

A recurring theme in the battle against mortgage fraud has been the ease at which a mortgage agent, under investigation or even indictment in one state, can move with ease into another, open his doors, or more likely his phone bank, and begin to perpetrate the fraud all over again. The proposed system will include information on enforcement actions in participating states which can be checked, provided the new system requires appropriate identifying information from licensees, against application information. It probably won't do much to stop the "gypsy" company from skipping from state to state, using ever changing names and Employee Identification Numbers, but regulators in California will be better equipped to watch for abusive lending patterns by larger multi-state companies and keep track of lone agents who move across state lines for employment with new companies once their scams are uncovered.

In endorsing the Statement of Principles and Related Sample Legislation of the proposed system, John M. Robbins, Chairman of the Mortgage Bankers Association said, "We have long said we want to rid the mortgage industry of bad actors, and the RMLS will allow state mortgage regulators to have information at their fingertips that will help them enforce existing laws that protect consumers from those in the lending process who have a proven track record of abuse."