A continuation of my analysis of HR 3915 from here and here.
Over the last decade, the debate over licensing used what many thought to be the rational distinctions of broker, banker, lender, FHA-approved lender and depository institution in determining the minimum standards of state licensure. Some states employed legislation that tiered and parsed amongst the definitions to establish their regulations based on some very substantial and some pretty flimsy differences between originators. HR 3915 establishes minimum standards that delete every distinction except depository (registration) or non-depository (state-licensing and registration) from the debate. It covers every single originator and requires a unique identifier number for the purpose of tracking the originator. It will be interesting to see if they employ MERS for assistance in tracking and streamlining the process… 78 character MERSMIN FTW!
HR 3915 defines an originator as anyone who:
“takes a residential loan application; assists a consumer in obtaining or applying to obtain a residential mortgage loan; or offers or negotiates terms of a residential mortgage loan, for direct or indirect compensation or gain, or in expectation of direct or indirect compensation.”
Depository institutions are subject to some pretty profound regulatory standards and auditing. So HR 3915 directs the Fed to establish registration only. This registration is limited to fingerprints and background checks on any loan originator, most obtain these in hiring anyway, so it shouldn’t be too onerous. Registration for all originators will be founded in the Nationwide Mortgage Licensing System (NMLS) that went live in early January of this year. Not every state has signed on for participation, but HR 3915 would require that all do so in the future.
NMLS: a mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the State licensing and registration of State-licensed loan originators and the registration of registered loan originators or any system established by the Secretary under section 108.
In creating the distinction of depository and non-depository, HR 3915 makes any flavor of originator that has enjoyed exemption additional regulatory requirements, such as FHA approval, a moot point. All will be required to obtain state licensure – but there is a lot more. They will also be required to obtain that licensure based upon the minimum standards established in the legislation. These standards are considerably higher than many states’ broker standards, so another winner amongst our industry partners will be companies offering mortgage education. Fortunately for those of us that have had to obtain licensing in several different states, the courses will be standardized and approved by the NMLS, making it substantially easier to comply and potentially much less expensive.
All states will be required to amend or pass legislation within a 1-2 year period, depending on their legislative cycle, that conforms to drastically different standards of licensure and eliminate any exceptions or exemptions available for many mortgage lenders. These new standards include: fingerprints and background checks (including a credit report), no license revocation for the past five years, no felonies for the past 7, at least 20 hours of education (to include 3 hours on federal law and 3 hours on ethics), 8 hours of annual continuing education, and a test to be developed by the NMLS.
While HR 3915 does specifically define and exempt employee loan processors and underwriters, it does require that “ a loan processor or underwriter may not work as an independent contractor unless such processor or underwriter is a State-licensed loan originator or a registered loan originator. An interesting aside is the impact this could have on mortgage insurance companies and their contract underwriting, unless they qualify for a different exemption… The last part of the clause suggest that the independent contractor might be eligible for registration only – fingerprints and background; however, it would be interesting to find out how they are going to track them as well, will their unique identifier number be in a different field for reporting?
A big concern is about the efficacy of placing the entire mortgage industry and their livelihood into a virtually untested database. HR 3915 does include language that allows the Fed to replace the NMLS if it is ineffective; and there have been numerous other platforms that perform much the same service. I would imagine that the technology won’t be the downfall; rather It is the data entry that is of greatest concern, especially in light of the volume of transactions. Being placed on a list that could potentially wrongfully denude you of your license is a grave responsibility. On the other hand, for those that play by the rules and do spend a lot of time and money maintaining licensure, it could be a welcome relief.
