Nearly 300 attendees participated in the second annual Nationwide Mortgage Licensing System (NMLS) User Conference held in San Diego, California from February 9 –11, 2010. Patton Boggs LLP associate Haydn Richards was invited to participate in a panel where he commented on legal and compliance matters pertaining to the NMLS. Mr. Richards offered suggestions to industry participants regarding how they can limit regulatory risk in light of the implementation of the SAFE Act. He further reminded industry participants that the existing foundation of state laws and regulations must always guide any of their actions in using the NMLS. A more detailed update from Mr. Richards regarding the conference follows below.
NMLS Ombudsman Meeting
Ms. Deborah Bortner, who serves as the Director of the Division of Consumer Services of the Washington Department of Financial Institutions, has been selected as the first ombudsman for the NMLS. At an open meeting with industry members and regulators, Ms. Bortner discussed the decision-making process that takes place regarding NMLS issues, including identifying the Mortgage Licensing Policy Committee, which is composed of state regulators who help shape the direction of the NMLS by arriving at policy decisions in the interest of state regulatory agencies. Those policy decisions generally must meet the approval of the Board of Managers of State Regulatory Registry, LLC (SRR), the wholly-owned subsidiary of the Conference of State Bank Supervisors that owns the NMLS. Consistent with one of the stated goals of the SAFE Act, also announced at the meeting is increased transparency with respect to the development process, as all comments received by the SRR in connection with requests for comment made related to system developments and implementation will be made publicly available. Previously, comments had not been made publicly available.
Education and Examination of Mortgage Loan Originators
In another session, Pete Marks, Vice President, National Mortgage Education Programs, announced that 25 state examination components have been developed and were in use at the time of the conference, with another five state components expected to be released during February 2010. He announced that each state will have an approved state component examination by the end of 2010. To date, SRR has approved 171 education providers and 365 courses. In the next few weeks, SRR anticipates releasing a searchable catalog of approved continuing education courses, which will allow Mortgage Loan Originators to better identify suitable education courses. SRR also has started approving continuing education coursework so that mortgage loan originators can take such education to meet their annual license renewal requirements.
In certain instances, state regulatory agencies indicated their willingness to participate in a certification process which would allow mortgage loan originators to use previously completed education to satisfy the requirements of the SAFE Act. At the time of the conference, approximately 33 states indicated that they will move forward with the certification process. To the extent that an individual has completed a number of qualifying hours of education in the past, on May 1, 2010 the state regulatory agencies will be able to submit a certificate to the NMLS regarding the completion of such education. By August 31, 2010 mortgage loan originators seeking to make use of the certification process (rather than separately completing SAFE-compliant pre-licensure education) must have filed an MU4 using the NMLS and have completed all applicable education requirements. Thereafter, the regulatory agencies have until September 30, 2010 to submit confirmation of certification approvals and the mortgage loan originators must have completed the process by November 30, 2010.
Financial Institution Registration
Financial institutions (i.e., depository institutions and certain of their subsidiaries) also learned more about the registration process for their mortgage loan originators. With the anticipated rollout of functionality in the NMLS for financial institutions, it is anticipated that financial institutions will be required to establish an NMLS record for themselves (i.e., each entity will be required to complete a record similar to those that state-licensed entities now complete). Although the record will not be as lengthy as those completed by state-licensed entities, the requirement for completion of the record will, to some degree, allow companies to manage their registered mortgage loan originators. It also will incorporate functionality for those companies to confirm that registered individuals are, in fact, employees of the financial institution.
SRR is working with financial institutions in order to accommodate them such that they will be able to “batch upload” information into the NMLS. This “batch upload” process will mean that the financial institutions will not need to individually create each MU4 for their registered loan originators. Instead, to the extent that they can include the appropriate information in a manner capable of linking to the NMLS, such information will be ported into the NMLS and will populate individual NMLS records. All registered mortgage loan originators will still be required to attest to the accuracy of their individual licensing record, however, their employer will have the ability to streamline the population of the information in their individual record.
Cooperative Examination Process
Another hot topic at the conference was the discussion of the new examination protocol in which state regulatory agencies are cooperating and performing joint examinations. At the time of the conference, one
multistate examination had been completed and another examination of a licensee, including approximately 30 participating regulatory agencies, was underway. Chuck Cross, Vice President of Mortgage Regulatory Policy with the Conference of State Bank Supervisors, indicated that the regulatory agencies have identified between 1,400-1,500 multistate mortgage entities (MMEs), which they define as any state-licensed mortgage company that operates in more than one jurisdiction. He indicated that during the next 12-24 months, the regulatory agencies would be focusing on the top 100 MMEs and they intend to perform a multistate examination on each such entity during that time period. Although such multistate examination may not be on-site, MMEs should anticipate that, at minimum, they will receive information requests in connection with the electronic screening of information through the Compliance Analyzer software engine sponsored by ComplianceEase.
As noted elsewhere in this Mortgage Banking Update, SRR will release its Licensee Examination File (LEF). Once the LEF file is released, licensees should encourage their information technology departments to begin ensuring that their loan origination software can interface with the LEF file and deliver the information required by the LEF.
Miscellaneous Updates
The NMLS Conference also served as an opportunity to discuss what will be required with Mortgage Call Reports, a functionality to be implemented during 2010. Under the SAFE Act, state-licensed entities will be required to deliver mortgage call reports to the NMLS. Such mortgage call reports will be delivered to the NMLS on a quarterly basis and will be filed on a state-by-state basis (as opposed to one mortgage call report that summarizes all activity conducted by the entity). Mortgage Call Reports will be filed in each state where the company had activity during the previous quarter and will also include detailed quarterly financial information, including information pertaining to warehousing ability. It is anticipated that the Mortgage Call Report will distinguish between products involving forward and reverse mortgage loans, identify whether loans are made or brokered and also may touch on mortgage servicing activity.
The NMLS celebrated the launch of NMLS Consumer Access, available at www.nmlsconsumeraccess.org. That website, which launched during January 2010, now provides a public repository of information regarding all mortgage loan originators that have a record in the NMLS. The website allows users, including members of the public, to verify the licensure status for their mortgage loan originators as well as the companies with whom they are conducting business. It is anticipated that in the next phase of the development of the Consumer Access website, increased functionality will be added, including the addition of publicly available disciplinary actions against licensees.
Also at the conference, Jim Beavers with the United States Department of Housing and Urban Development (HUD) advised that each state regulatory agency has been sent a letter critiquing whether its laws and/or regulations
adequately meet the standards of the SAFE Act. He mentioned that, in a number of instances, minimal changes will be required because states followed the Model State Law and enacted laws that mirrored or exceeded the SAFE Act. In a number of other instances, however, legislative and/or regulatory changes will be required to ensure that a state is in compliance with the SAFE Act. Items within state law that Mr. Beavers indicated could potentially be an issue for HUD include exemptions for manufactured housing lenders, de minimis exemptions and whether varying definitions of origination comply with the SAFE Act.