An Internet-based system intended to better oversee mortgage brokers and their employees whose regulations vary significantly by state was launched today.
The so-called Nationwide Mortgage Licensing System, initially adopted by seven states, applies to mortgage brokers and loan officers at state-regulated banks, but not those employed at nationally supervised banks.
Developed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, the program creates a uniform application for mortgage brokers and a database that banking regulators can use to catch brokers who attempt to work in one state after being banned in another.
“This is the culmination of a four-year effort by state regulators to provide a new and more solid foundation for mortgage supervision and consumer protection,” said CSBS Executive Vice President John Ryan, in a statement.
“NMLS provides the underpinnings of a regulatory framework to address the weaknesses of our current fragmented and complex system of mortgage origination and supervision,” he added.
It is mandatory for brokers doing business in the seven states involved, and regulators can penalize brokers who operate without a license.
Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York and Rhode Island are the initial states participating, with 42 state agencies committed to joining by the end of 2009.
Eventually, CSBS and AARMR project enrollment of more than 300,000 licensees through the NMLS system.
When the system was initially conceived, the National Association of Mortgage Brokers slammed the plan for failing to include all loan originators, claiming it creates a false sense of security for consumers.