Uniform licensing system goes live

WASHINGTON -- An important new consumer safeguard launched this week when seven states went live with a Web-based, soon-to-be-nationwide mortgage-licensing system.

The system, which has been in development since 2004, is designed to increase and centralize the information available to state regulators, the lending community and borrowers about the people and companies that originate and fund home loans.

"This is the most significant innovation in mortgage-industry supervision to date," says Steve Antonakes, the commissioner of banks for Massachusetts.

Initially, the new regulatory tool will allow state-licensed mortgage brokers, lenders and loan officers in participating states to apply for, amend, update and renew their licenses online using a single set of uniform applications.

As the software morphs through several releases over the year, the system will notify regulators in all states of adverse actions taken against a licensee in any one state.

And by late next year, consumers will be able to access licensing and supervisory data on the professionals with whom they are thinking about doing business to see if they are, indeed, licensed, what type of license they hold, where they have been licensed and for how long.

Borrowers will also be able to tell in an instant whether the person has had any enforcement actions taken against him or her, no matter where he or she has worked in the past.

All this is a significant improvement over the way states currently license and supervise loan originators who work within their borders.

For one thing, each state has its own examination and licensing procedure, and 44 of the 50 states are still tied to paper.

Consequently, companies that operate in more than one jurisdiction must go through the same laborious and expensive task of registering their staffs in several places.

For another, each state has its own criteria for licensing and continuing education, so a loan officer in one jurisdiction may be far better educated than a loan rep in the neighboring state.

But perhaps most important, because most state licensing systems are manual -- and don't talk to each other -- a rogue broker who has had his shingle lifted for engaging in predatory lending practices in one state can simply pack his bags and set up shop in another state without anyone being the wiser.

"The system will create efficiencies, drive uniformity and increase accountability," says William Matthews of the Conference of State Bank Supervisors, which has developed the national licensing system along with the American Association of Residential Mortgage Regulators. CSBS and AARMR are professional organizations whose members oversee financial institutions in their states.

So far, 40 states agencies, representing 37 states and the District of Columbia, have committed to participate. But according to Matthews, who is president of the CSBS subsidiary that owns and operates the new system, no state has indicated it does not want to be part of the program.

Only seven states were part of the Jan. 2 kickoff because the others either want to come on board as their current license-renewal periods expire or their lawmakers need to pass enabling legislation allowing them to participate. The initial participants are Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York and Rhode Island.

Eight more states -- Louisiana, Mississippi, North Carolina, Pennsylvania, Vermont, Washington, Wyoming and New Hampshire -- will log on sometime this year.

The 13 states not yet consigned to the system are California, Nevada, Texas, Florida, South Carolina, Virginia, West Virginia, Ohio, Missouri, Minnesota, Wisconsin, Maine and Alaska.

Also not on board is the National Association of Mortgage Brokers, a group that speaks for about half the nation's brokerage firms. Brokers work with borrowers to find the best rates, terms, products and companies for their particular needs.

But while they handle much of the paperwork, they don't actually fund the loans.

NAMB is not against the system per se, but it questions why brokers are being singled out. It believes all originators should be part of the system, whether they work as loan reps for brokers or loan officers for funding lenders who also have their own retail offices.

NAMB also maintains that the information required from licensees will be burdensome and intrusive. And it argues that it is too costly for individuals, and should be borne by the companies that employ them. It worries, too, that the system does not include a complaint-resolution process, and that no one is accountable for a breach in security.

When fully operational, the system would cover only about half of all loan originators. But it is the half -- state-licensed lenders and brokers and their loan officers -- at which most fingers point when a discussion of abusive lending practices is on the table.

Loan officers who work for federally insured depository institutions are not included. But if legislation already cleared by the U.S. House of Representatives makes it to the president's desk, all originators no matter whom they work for and no matter whether they fall under federal or state jurisdiction would be part of the system.

The Mortgage Bankers Association, which speaks for most of the lenders that fund loans originated by mortgage brokers, supports the idea of licensing all originators, but with some rather large and significant carve-outs.

Specifically, the MBA doesn't see any need to register loan reps working for lenders approved by the Federal Housing Administration or who sell loans to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp, better known as Fannie Mae and Freddie Mac, the two giant government-sponsored enterprises that touch about one out of every two mortgages written.

North Carolina's commissioner of banks, Joseph Smith Jr., whose state comes on board with the new licensing system in July, doesn't understand why it doesn't have the full backing of the lending community, especially since the Financial Industry Regulatory Authority built it. Formerly known as the National Association of Securities Dealers, FINRA operates a national licensing and database system for the securities and investment advisory industries and has a long record of managing and protecting information.

"I view it as a positive for the industry, if only because it will produce a coherent set of standards," Smith says. "It's a concept that actually works."

Under the automated procedure, all participating states will share a single record for each licensee. Regulators will be able to process licenses electronically, and if one state takes disciplinary action against a licensee, all states will be notified instantly.

In addition, application forms will be more expansive, so regulators will have more information on licensees working in their jurisdictions. And eventually, the plan is to add a streamlined fingerprint procedure so the FBI can share background checks with all participating states and allow states to tap into other states' databases to perform criminal-background checks.

Regulators hope this will put an end to what Massachusetts' Antonakes calls "jurisdiction shopping" in which nefarious brokers move on to a new state under a new name with a new principal owner.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing finance industry publications.