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Bill Builds on National Registry

By Brian Collins

Starting next August, banks and thrifts will have to list their loan officers on the Nationwide Mortgage Licensing System and Registry that will be used to track all mortgage originators and get rid of "bad actors" in the industry.

The massive housing bill (H.R. 3221) that President Bush signed last week requires all loan officers and mortgage brokers to have a unique identification number and it builds on a licensing system state regulators launched last January.

The bill also sets minimum education and licensing requirements for state-licensed mortgage lenders and brokers and requires fingerprinting and criminal background checks.

"National licensing standards will help decrease the number of unscrupulous loan originators and predatory mortgages," said Sen. Mel Martinez, R-Fla.

Under the bill, federal regulators will collect fingerprints, personal history and experience about loan officers working for banks, thrifts, credit unions and their mortgage lending subsidiaries.

This information must be shared with state regulators and posted on the licensing system developed by the Conference of State Bank Supervisors and American Association of Residential Mortgage Regulators.

The legislation requires coordination between state and federal regulators, according to CSBS general counsel Buz Gorman.

"It is to prevent problem loan officers migrating from one jurisdiction to another - whether from one state to another or from federal to state registries," Mr. Gorman said.

The American Bankers Association initially had some problems with the legislation but lawmakers agreed to make certain changes. The legislation is "minimally invasive," ABA senior VP Robert Davis said, and banks and thrifts will submit the necessary information directly to their primary federal regulator.

"We think there is a benefit in creating this registry," Mr. Davis said. "Bankers that run mortgage operations tell me they like the registry. It makes it easier to screen new employees."

The National Association of Mortgage Brokers also supports the national licensing and registry system.

"Since 2002, NAMB has called for licensure and registration of all mortgage originators. This section of the bill will help protect a consumer's financial information and rid all channels - banks, lenders, credit unions and mortgage brokers - of bad actors," NAMB president Marc Savitt said.

Last January, CSBS and AARMR launched a Nationwide Mortgage Licensing System to streamline licensing of state-licensed mortgage lenders and brokers.

It is modeled on a licensing system used for securities brokers and dealers. And it provides state regulators with the ability track all licensed mortgage lenders and brokers on one system.

So far, 14 states have been using the online licensing system and another nine states are expected to transition to the system by January 2009.

The housing bill (H.R. 3221) puts more pressure on states to join. The states have 12 to 24 months (depending on how often their legislatures meet) to comply with minimum licensing standards in the bill. After that, the Department of Housing and Urban Development will set up a backup system for licensing and registering state lenders and originators.

The housing bill essentially codifies the CSBS/AARMR online licensing system and renames it the National Mortgage Licensing System and Registry to include employees of banks and thrifts.

"It is an unprecedented opportunity for states to become more uniform in their practices and regulations and raise accountability of professionals in the industry to better protect consumers," said Bill Matthews. Mr. Matthews is president of the State Regulatory Registry LLC, a CSBS subsidiary that operates the licensing system.

He noted that the state licensing system will have to be enhanced to handle criminal background checks and fingerprints and to disburse that information to state regulators.

The bill also requires public access so consumers can check on enforcement actions, employment history and basic licensing information about loan officers and brokers.

"This is all about rooting out the bad apples," said David Zugheri, president of First Houston Mortgage. He believes the increased scrutiny will lead to more enforcement and regulation of loan originators and eventually to blacklists. "Considering the state of the industry, everyone should welcome it with open arms."