National Mortgage Licensing — Will You Be Ready?

By Hafez Daraee

The Oregon legislature is considering HB 2189, a bill that would substantially revamp the process that mortgage brokers, mortgage lenders, and loan officers use to obtain or renew their licenses in this state.

HB 2189 would adopt the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ("SAFE Act"), passed in part to nationalize the process and rules used to license businesses and individuals engaged in the mortgage lending business. The primary vehicle by which the SAFE Act accomplishes the nationalization of the licensing process is the National Mortgage Licensing System and Registry ("NMLSR"). The SAFE Act's primary mandate is to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud in the licensing of mortgage loan originators and lenders.

The NMLSR, which was launched on January 2, 2008, is a web-based electronic registration system and network that was jointly developed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. When the SAFE Act was first enacted, only seven states agreed to adopt it and to use the NMLSR system. In the past 18 months, the number of states that have agreed to become a part of NMLSR has expanded substantially. It is expected that 40 states will be a part of the NMLSR system by January 1, 2010. If HB 2189 proceeds through the legislature as expected, Oregon will join the NMLSR system in early 2010.

Currently, prospective applicants who wish to become licensed must comply with specific licensing requirements mandated by each state. This process often requires complicated state-specific application forms, complicated state and criminal background checks, and other specific disclosure requirements.

NMLSR is designed to streamline the license application process by replacing each state's particular application with a single application that can be used to obtain a license in any state that is a member of the NMLSR network Moreover, when a license holder updates any information previously entered into the NMLSR database, that information is automatically updated in the databases of all member states where the applicant is licensed or registered.

Another benefit of participating in the NMLSR network is the streamlined continuing education requirements. Nonmember states have specific continuing education requirements. Not all states accept continuing education credits obtained in a sister state. Thus, there are instances in which continuing education required by one state will not satisfy another state's requirements and a license holder may be required to comply with potentially numerous state requirements.

Once the continuing education requirements are completed, the NMLSR database will automatically update this information in all sister jurisdictions. Although the NMLSR will take some getting used to, it will be a simpler tool to use, especially for those companies licensed in multiple states or for compliance officers within multijurisdictional companies.

The NMLSR is far from a true national mortgage license and is far from perfect. For example:

• One cannot operate as an independent contractor-loan processor or underwriter under the NMLSR network without also being a licensed loan originator;
• Each state will continue to maintain regulatory authority over licensees, and
• Federally regulated banks and credit unions are exempt from the NMLSR network.

Perhaps the greatest problem created by the NMLSR membership is that if one member state precludes practices that are otherwise legal in another, an applicant for licensure in both states must comply with the more restrictive rule, even in the state that would otherwise allow the practice. For example, if Alabama law precludes net branch relationships but Oregon does not, an Oregon company that utilizes net branches in Oregon and that applies for and becomes licensed in Alabama will have to change its branch organization and practices in Oregon in order to comply with Alabama's more restrictive rules. It is this type of rule application under the NMLSR process that will be the most likely source of violations by unwary companies.

The NMLSR network is the closest thing to a single national license for mortgage brokers, mortgage lenders, and loan officers currently available. Although the NMLSR network can be a very powerful tool for those entering previously untapped markets, mortgage brokers, mortgage lenders, and loan officers should carefully analyze the laws of NMLSR-member states before applying for licensure in new states.

Published Summer 2009

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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