The Residential Mortgage Licensing System


Heather Morton
August 31, 2007

In a move to help state residential mortgage regulators, the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) are developing a national licensing system and database for residential mortgage lenders and loan brokers. The Residential Mortgage Licensing System will be a central repository of licensing information and enforcement actions.

Begun in 2004, CSBS, AARMR and the mortgage industry developed a uniform mortgage application for each state and are now working with the National Association of Securities Dealers, Inc. (NASD) to create a secure, Internet-based system for participating state-licensed mortgage professionals. When the system becomes operational in January 2008, it will allow lenders and brokers to apply for and renew their licenses, and it will provide consumers access to licensing and enforcement actions.  "The national licensing system and repository will enhance the state regulator's ability to protect consumers through an increased ability to hold industry professionals accountable for their actions," says CSBS President and CEO Neil Milner.

The primary goals of the system are to:

  • Streamline the licensing process for regulators and mortgage professionals.
  • Reduce the regulatory burden and improve the efficiency and effectiveness of state supervision.
  • Increase accountability among mortgage industry professionals.
  • Reduce mortgage fraud and predatory lending practices.

"Companies and professionals will have to complete only one online application when applying for licenses in one or more jurisdictions," says former AARMR Vice President Chuck Cross.

To date, at least 29 state mortgage regulatory agencies have agreed to participate in the Residential Mortgage Licensing System.  At least 11 states—Arkansas, Connecticut, Idaho, Iowa, Indiana, Kentucky, Mississippi, Nebraska, New Hampshire, North Carolina and Rhode Island—have enacted legislation authorizing their state agency to join and use the system.

The Residential Mortgage Licensing System does face some industry criticism. The National Association of Mortgage Brokers (NAMB) is concerned that the system is too narrowly focused to effectively protect consumers. The system intentionally exempts more than 60 percent of mortgage originators, who, because they work for nationally chartered financial institutions, do not have to comply with state laws. The NAMB Immediate Past President Harry Dinham believes "this flawed system will create a false sense of security for consumers and government agencies because many bad actors will continue to be able to move freely from bank to lender and back again without fear of being detected by the proposed registry."

The Mortgage Bankers Association (MBA) is concerned that the database will hold a large amount of personal identifying information that will create the potential for a security breach and inappropriate disclosure of that data. In the event of a breach, it is unclear who will be held accountable. MBA also questions the cost benefit and efficiency of a system that will cost $4.3 million to start, paid by the states, and an estimated $6.5 million annually to maintain, which will be paid for by the mortgage industry.

In addition, MBA officials have expressed concern that the system does not recognize the differences between mortgage bankers and mortgage brokers. They recommend expanding the project to include comprehensive reform of state licensing. The MBA believes that any licensing system must reflect the national scope of the mortgage banking industry and that there should be greater uniformity and reciprocity among the states.

Heather Morton tracks banking issues for NCSL.