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
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."