After 18 months of pushing for a uniform licensing system for state residential mortgage regulators, The Conference of State Bank Supervisors (CSBS) is pairing up with the National Association of Securities Dealers Inc. (NASD) to make it a reality.

CSBS, the American Association of Residential Mortgage Regulators (AARMR) and the industry have been working for the past year and a half to develop a national licensing system and database that will provide uniform applications for residential mortgage lenders and loan brokers, as well as a central repository of information about licensing and publicly adjudicated enforcement actions. 

The system is targeted at the more than 90,000 companies with 63,000 branches and 280,000 loan officers and other professionals, said a recent CSBS/AARMR survey of 50 state mortgage regulators.

“The national licensing system and repository will enhance the state regulator’s ability to protect consumers through an increased ability to hold industry professionals accountable for their actions,” said CSBS President and CEO Neil Milner. “Fraud and other illegal or unethical behavior, such as predatory lending, should decline as states participate in the system.”

Taking the lead

The system was the brainchild of CSBS when they recognized a need for more consistent regulation and supervision of the mortgage lending industry. CSBS also discovered that no government or self-regulatory organization existed to provide state regulatory agencies, consumers, businesses and law enforcement organizations with information on a regional or national basis about mortgage lenders, brokers and loan officers.

The new system will be a secure Web-based central licensing system and repository containing licensing information, enforcement actions and background data for every participating state-licensed mortgage broker, loan originator and lender. The system will be accessible over the Internet, allowing prospective and current licensees to apply for or renew licenses for one or more jurisdictions over the Internet through a secure Web site. The system will also collect licensing fees at the time of application or renewal and disburse these to the respective state agencies. The system will only process license application or renewals. Each state agency will retain its regulatory authority to approve, deny, suspend or revoke a license.

The database will contain licensing information, enforcement actions and background data. Professionals operating in states without licensing requirements will have the opportunity to submit information voluntarily.

Implementation

Development of the system continues through the summer and expects to be deployed on Jan. 1, 2008. About 10-12 states will participate in the first year, and more than 30 states are expected to join in 2009 and 2010.

“Companies and professionals will only have to complete one online application when applying for license in one or more jurisdictions,” said AARMR Vice President and Taskforce Co-Chairman Chuck Cross. “Both groups will benefit from access to a national licensing and enforcement repository and more homogeneous state regulations that will likely result from the uniform application.”

The system will be accessible to state regulators, licensees and consumers.

“Regulators will have access to licensing, enforcement, criminal, other background information and annual report data as part of the licensing approval and ongoing regulation process,” said CSBS. “(They) will benefit by capitalizing on current technology, centralizing duplicative functions, providing a central point of contact for submitting license applications and assisting the industry in policing itself.

“Licensed lenders and brokers will have access to their license data. Consumers will have access to public licensing and enforcement actions related to licensed mortgage lenders, brokers and loan officers. Both regulators and licensees will be able to generate standard reports from the central licensing repository. Access will vary by group, with regulators having the broadest system-access entitlements.”

CSBS also said industry professionals will benefit from a more streamlined process. 

Eventually, the system will be expanded to offer a call center, a national repository of public enforcement actions, document collection (financial statements, SOS, etc.), fingerprints and criminal checks, background checks, and surety bond and continuing education reporting.

CSBS chose NASD, a self-regulatory organization for the U.S. securities industry, because of the company’s experience operating two national licensing systems for state regulators in the securities and investment advisory industries: the Central Registration Depository and the Investment Adviser Registration Depository. NASD also provides regulatory examiners and investigators with compliance and enforcement tools.

Footing the bill with Ameriquest funds

The system will be developed in multiple phases, the first phase estimated at $4.3 million. Annual operating costs are projected to be between $6.5 and $7.5 million over the next five years. 

CSBS said the costs “will be born by the states, and operating costs will be paid for by the industry in the form of set-up and processing fees.” 

CSBS is currently soliciting funds from state mortgage regulators to fund the system. It will also use funds from the Ameriquest settlement, in which the mortgage giant paid $325 million in restitution and fines to settle allegations that it falsified home values and borrower incomes and used other high pressure and unfair tactics that trapped consumers into burdensome debt. That money, however, has been tagged for system development costs only.

In a recent survey conducted by CSBS and AARMR, 44 state agencies use paper applications for prospective licensees while only six collect new applications electronically. Thirty state agencies indicated they will mandate the use of the system. Seven agencies will make the system available on a voluntary basis, and five agencies indicated that they will not participate in the system at this time.

“The system will streamline the licensing process for state agencies and the industry,” said Bill Matthews, CSBS senior vice president, “through the use of modern technology and centralizing redundant state agency operations.”


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