Residential Magazine

Bill Matthews, State Regulatory Registry

National registry keeps mortgage industry on the straight and narrow

By Jim Davis

One of the more ambitious and far-reaching achievements to emerge in the wake of the housing crisis was the creation of a national system to license mortgage originators. Started in 2008, the Nationwide Multistate Licensing System (NMLS) aims to improve coordination and efficiency among regulators and industry members while protecting borrowers.

To understand just how sweeping the change was, look at what was in place before NMLS. Some states regulated mortgage companies. Others regulated individuals. Fourteen states didn’t regulate the industry at all.

Now, all mortgage originators must be either licensed or registered through NMLS. A consumer-facing website called NMLS Consumer Access allows borrowers to delve into the professional background of originators. Another site serves as a resource center for originators and mortgage companies.

NMLS was created initially as a voluntary system by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators. During the crisis, Congress was looking to regulate mortgage originators. Lawmakers did that by connecting the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act to CSBS and NMLS, naming both in the legislation.

Bill Matthews, president and CEO of the State Regulatory Registry, which oversees NMLS, has been with the organization from the beginning. He gave his perspective to Scotsman Guide on where it has been and where it is headed.

What was Congress seeking to do when it tied the SAFE Act to NMLS?

It created a floor of professional requirements for mortgage loan originators. Those requirements were testing and education, financial responsibility measured through credit reports, and criminal standards through a fingerprint-based criminal background check with the FBI.

What was the problem that the SAFE Act was trying to solve?

There was a lot of mortgage fraud going on. One was what I would call borrower fraud. … To me, that’s a very low percentage of the fraud that was going on. The other is what I would call fraud for commission. That’s where a loan originator would do something to make a borrower qualify for a loan. And then the third was a fraud for profit where it was just outright fraud.

Has it accomplished what it set out to do?

If you asked me what I thought we would do when I started about a dozen years ago and what we have now, I would have never dreamed in my wildest dreams that we would have accomplished what we have.

How so?

Before NMLS, if I wanted to get licensed in Washington, Oregon, Idaho and Wyoming, I would fill out a separate paper application that required different information, cut five separate checks and stuff those applications in five envelopes and send them to the states. It takes a lot of the friction out for the industry and for the regulator.

What about for fraud?

I hate to say the word “prevent,” but it helped mitigate the migration of problem children from one company to another, or from one state to another. Every (originator) is assigned a unique identifier. The NMLS identifier doesn’t change. Now you have a link from origination to servicing of who originated a loan. … That helps on both the industry to do a fraud investigation as well as the state doing a civil or criminal type of action.

Where does it go from here?

We are in the process of doing a couple of things. The first thing that we’re doing is like NMLS licensing; we are creating an NMLS examination system for state regulators. … It will drive a commonality and uniformity among the states. We’re looking to pilot that with a handful of states at the end of this year and then we would start rolling that out in 2020, assuming that there are not any major kinks.

What’s the second area?

We are developing a new system that I’m going to call NMLS 2.0. Where NMLS 2.0 differs from NMLS 1.0 is it will be more risk focused and data driven. Many states process applications on a first-in, first-out basis. The new system will allow states to set business-rules triage on applications. … It uses data to identify risk for state agencies.


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