A nationwide licensing system that’s intended to help states track mortgage brokers and lenders under their jurisdiction launched today with seven states participating and 31 more expected to join by the end of next year.

The Nationwide Mortgage Licensing System (NMLS) creates a single file for each state-regulated mortgage lender, broker, branch and loan originator, simplifying the process of licensing and monitoring companies and individuals who do business in more than one state.

First proposed in 2004, the NMLS launched today with New York, Massachusetts, Rhode Island, Idaho, Iowa, Kentucky and Nebraska on board. All told, 38 states, plus Washington, D.C., and Puerto Rico, have committed to participate in the system by the end of 2009.

Developed by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators, the system has drawn fire from the National Association of Mortgage Brokers, whose members have complained that it excludes originators at banks and other federally regulated financial institutions.

But lawmakers in the House of Representatives endorsed the idea by incorporating it into HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007.

Approved Nov. 15 in a 291-127 vote, HR 3915 would also restrict yield spread premiums and other incentives used to steer borrowers into higher-cost loans, require lenders to determine that borrowers have a reasonable ability to repay a loan, and create limited liability for companies that bundle mortgages for sale

Although the bill’s chances in the Senate are uncertain, most states have already committed to join the NMLS.

“The world of mortgage finance and residential mortgage lending was changing at the speed of light while state and federal regulation struggled to keep pace,” said Wyoming State Banking Commissioner Jeff Vogel in a statement. Vogel, who is also the chairman of CSBS, said the industry had a weak track record on self-regulation and “recognized that serious reform was needed.”

Four of the states that haven’t signed on yet — California, Nevada, Florida and Ohio — have some of the highest rates of defaults and foreclosures in the country. Other states that have yet to commit to the system are Texas, Alaska, Minnesota, Wisconsin, Missouri, Virginia, South Carolina and Maine.

Backers expect that all 50 states will eventually join the system, with enrollment growing to more than 500,000 company and professional licensees.

NMLS is designed to improve supervision of mortgage brokers and nondepository lenders by creating a single system for tracking licensing, affiliations, employment history and enforcement actions. That will make it harder for lenders or mortgage brokers who have problems in one state to close up shop and reopen for business in another. The system is also expected to simplify the application process for lenders by creating uniform state licensing processes.

Consumers are expected to get access to the system’s public licensing and enforcement information next year, in order to help them choose a mortgage loan officer and lender.

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Send tips or a Letter to the Editor to matt@inman.com, or call (510) 658-9252, ext. 150.

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