Fixes needed for flawed mortgage licensing system
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
Last week’s column described a little known federal licensing system for mortgage loan originators, commonly called National Mortgage Licensing System or NMLS. It was born out of the congressionally enacted Secure and Fair Enforcement for Mortgage Licensing Act, or SAFE Act.
Although meant to protect consumers, I wrote that the Safe Act is an expensive redundancy for California loan officers and may expose them to the potential risk of identity theft. Some also question how much money the operator of this system has amassed.
In part two of this column, we look at some possible solutions.
The good news is the SAFE Act closed a California loophole that previously gave a licensing and background check waiver to loan originators employed by California Department of Corporations licensed companies.
Another benefit is that state and federal regulators now have the ability to more easily track down nefarious multi-state loan originators, bent on borrower victimization.
How about fixing the flaws? So, what is so safe for mortgage shoppers and what is fair to licensed loan originators when bank loan officers get a pass on testing and licensing?
“We believe strongly that bank originators should be licensed,” said John Councilman, president of the National Association of Mortgage Professionals.
The SAFE Act calls for the American Association of Residential Mortgage Regulators and the Conference of State Bank Supervisors to develop and maintain the licensing system and to charge reasonable fees.
Yet, licensing and renewals all start over each year on Nov. 1.
Forget staggered renewals or anniversary renewals. So, one could be licensed in October and then have to pay full boat again come November. Brilliant!
Then, there’s the matter of the $87.5 million in assets that the Conference holds as its sole NMLS shareholder.
“(There is) no system of checks. Nobody is watching the watchman,” said Richard Horn, a former attorney for the Consumer Financial Protection Bureau.
Rod Carnes, president of the residential mortgage regulators group said, “NMLS fees are small compared to state fees.”
Carnes did not know why the residential regulators did not have an ownership interest in the NMLS, but he did point out they are licensing money service businesses and debt collectors. He did not think this was mission creep even though the SAFE Act has no mention of these other business lines.
The Consumer Financial Protection Bureau, or CFPB is the regulator for the NMLS according to an NMLS spokesperson.
The CFPB would not respond to questions about NMLS profits, licensing charges, or assets.
The NMLS has no business being in the hands of the private sector, in this case a non-profit corporation.
Government entities have accountability and transparency requirements, including budgets and policies on pre-employment vetting standards, especially those that are privy to confidential personal information.
Leave the testing and licensing to the individual states and give the background and criminal oversight to the National Crime and Information Center.
" If you prefer to select one loan provider rather than spend time shopping, Mortgage Grader looks like a good choice" - Washington Posts
Website May Lead to Fairer Loans
"It's a noble proposition; getting folks a square deal on a mortgage using the ubiquity of the internet." -Jonathan Lansner, Business Columnist
"My post was about the difficulties inherent in getting consumers to choose this superior model for getting financial advice."
- Justin Fox, Business and Economics Columnist