Recently I attended the 2012 NMLS Annual Conference in Scottsdale, Ariz., and learned that there are still many challenges out in the licensing corner of mortgage lending. It was a great opportunity to meet with state and federal regulators, compliance professionals, licensing specialists, lawyers, and experts in the industry. While there were many key topics addressed during the sessions, today I thought we'd explore the concept of “pre-notification.” I wasn't familiar with the term prior to the conference and thought I'd share what I learned with you all.
You may be thinking, “Hmmm, I'm licensed individually in each state I do business in and the company I work for is licensed at the corporate level as well so we're set, right?” And you would be correct, unless you or your company is going through any sort of significant change. In the event of any type of corporate change or amendment there is one thing to keep in mind. It's possibly the most basic and critical thing I learned during the NMLS conference. Are you ready? OK, here it is...Regulators do not like surprises. Ta-da! Simple, right? But here's the thing, when you (or more likely your compliance or licensing manager) files an amendment via the NMLS it happens in real-time. Again, you may be thinking “So?” But think about it, if that filing or amendment is entered via the NMLS interface it's immediate. And that is the kind of surprise that regulators don't like.
OK, so we know now that we need to be proactive (again, this is the very best approach for all things licensing related) in our communication but what does that mean exactly? Essentially it means that you and/or your company are giving advance notice to your regulator(s) of a proposed change that's going to impact your company or the jurisdiction(s) you are licensed to do business in.
“So what sort of items requires me or my company to provide a pre-notification? I probably don't have anything to notify my regulators about, right?” Not so fast friends, because it could be something as simple as a change of address or location. That's not so far-fetched, right?
Here's a breakdown of common items that should be brought to your regulator's attention in advance of filing anything with the NMLS:
• Address or change of location.
• Any legal name changes.
• Changes in qualifying individual (for states with a QI requirement).
• Changes or revisions in the business's organizational structure.
• Changes in ownership or control.
• Addition of or changes to a DBA.
• Branch office changes like location changes or branch manager changes.
Those are pretty common changes, right? If you're wondering why you can't just file an amendment through the NMLS and call it a day, you're not alone. It's likely no surprise that many state regulators find the vast majority of the items calling for pre-notification are not presented to the regulators in advance of any NMLS amendment filings. The problem with that approach is the fact that the NMLS is a “real-time” system. That's an issue because we've learned that regulators don't like surprises.
While the eventual goal is to add pre-notification to the system, and the NMLS is working to develop ongoing processes to support this functionality within the system's interface, today we have to manage it independent from the system. Keep in mind that there are two separate sets of requirements to manage—first you've got the pre-notification process to follow (we'll dig into that in a moment) and then you have the actual NMLS amendment filing. Since most of us are going about it in reverse by submitting our amendments first it would be a great time to go over the correct process and keep our regulators happy.
Here's an overview of the “No Big Surprise Pre-Notification Process”:
1. Company/licensee reviews the “amendment checklist” for each state they hold an active license in to verify that the change item requires an amendment filing with a pre-notification.
2. Target requirements found on the amendment checklist including all applicable forms, filings and supporting materials.
• Remember these requirements vary by jurisdiction so if you or your company are licensed in multiple states this process is applicable in each state.
3. Gather all relevant documents required by the checklist paying close attention to the notice your regulator is requiring.
• Again this varies by jurisdiction but 30-60 days is the average
4. Submit your pre-notification packet including your Amendment Checklist, and additional supporting documents to all jurisdictions you hold a license.
• Submissions could be delivered via email, hard copy, or a combination, depending on the jurisdiction. When in doubt, reach out to your regulator. I've heard they don't like surprises.
5. From there your regulator reviews the packet to determine if all requirements have been met and documentation provided.
6. Regulators may communicate with you or other relevant jurisdictions in order to address questions or gaps in information that's relevant and necessary for the amendment filing.
7. Regulators communicate with the licensee to advise that the pre-notification event has either been “accepted” or “rejected.”
Keep in mind that those seven steps are the first set of requirements we know we have to manage. This brings us to the second process to manage, filing an amendment on the NMLS.
That process includes:
1. The licensee submits a filing including the accepted changes through the NMLS interface on or shortly after the effective date of the change.
• Remember that the information submitted through the NMLS interface should match the information submitted to the regulator via the “Pre-Notification Packet”
2. At this point the regulator reviews the changes in the NMLS record to verify the amendment filing matches the documentation submitted and makes any necessary updates to the license status.
If you're thinking this seems like a lot of effort, you're right. And it's a much more common situation than you may think. On average an individual state may see as many as 200-plus amendment filings annually (that's well over 10,000 filings nationwide each year). You may also be wondering if there are consequences for failure to pre-notify. Typically it depends on the specific requirements and practices of the jurisdiction you are licensed in. In some cases it may be as minimal as a warning letter, in other cases fines or penalties may be assessed. Depending on the type or severity of the infraction a licensee could also lose their ability to transact business in that jurisdiction.
My best advice: stay ahead of the curve by anticipating the needs of your regulators. Check the NMLS website (www.mortgage.nationwidelicensingsystem.org) for state specific amendment and pre-notification guidance. If you have questions or are uncertain about how to proceed, reach out and contact your regulator (there's all sorts of contact information provided on the state specific checklists) to avoid springing a surprise on them that could potentially put your license status in jeopardy.