Imagine going to one Web site to apply for a mortgage license in several states. And imagine accessing a single database to check state licenses of brokers and lenders, as well as any enforcement actions against them.
That's the scenario envisioned with a national automated licensing system being developed by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR).
As it stands now, unless they are a bank or thrift with federal preemption, mortgage lenders and brokers must go to each state to get a mortgage license.
While the days of local banks and thrifts have given way to national and regional lenders, state regulations and licensing requirements have proliferated. In 1993, only 18 states took enforcement actions. Now all but Colorado and Alaska take enforcement actions. Indy mac
‘It's become a cumbersome process to get and maintain a license because of the patchwork regulations the states have,’ says Bill Matthews, the CSBS senior vice president spearheading the licensing project. ‘It's a very inefficient process for the regulators and the industry to process licenses this way.’
The system will let lenders and brokers submit license applications one time – not 50 times. Applicants will be able to go to one Web site, complete one application, pay the application fees to the different states, and click a submit button to send the form to all the states. Each state will individually process the application.
In addition, the Web site will replace paperwork with current technology. Fifty-one state agencies now oversee mortgage lending, he says, noting that some states have more than one agency. Out of those agencies, 44 process applications primarily in paper. Only six states process them primarily electronically.
‘The mortgage industry is on the cutting edge of technology for the Jurassic age,’ Matthews quips.
The project will offer a way for lenders to outsource their systems. ‘It's outsourcing to a combined effort of many states,’ he says. ‘There's a tremendous benefit to the regulators and the industry. Instead of filing out five applications in paper form, you'd fill out one in an electronic form.’
Secondary market benefits
Secondary market players will also benefit. Lenders and investors, as well as the general public, will be able to verify licenses and check enforcement actions against brokers and lenders.
In another advantage, applicants will be able to update their information – such as employment history – electronically without filing a completely new application.
As part of the project, CSBS and AARMR are developing a universal mortgage application form. States deciding to participate will use that same form, plus state-specific forms, for subjects they treat differently, such as bonding.
State-specific requirements could defeat the purpose of a universal form, Matthews admits. Yet he's optimistic that those state rules will gradually become uniform. The securities industry was once in the same boat: It once had many state-specific rules, but now there are none.
‘We anticipate a similar process in the mortgage industry,’ he says.
Some states need legislative changes to come on board. Others need only regulatory changes, some may need both, and some require only the regulator's decision to join.
For example, some states may forbid third parties from collecting licensing fees. Legislation would be needed to change that. In other cases, definitions on licensing forms must be changed to match the common form. SME
AARMR, which represents state mortgage regulators, and CSBS, which represents state banking regulators for 54 states and territories, are now learning what states need legislative or regulatory changes and what states are willing to be the first to join the effort.
‘We've got a good core group,’ Mathews says. ‘We're early in the process.’
States take a variety of different tacks to regulating mortgages. Some put the function under banking departments, while others separate departments. Every state regulates mortgage companies, most oversee branches, and some regulate individuals.
Idaho became the first state to agree to use the system in April when it passed legislation authorizing its state director of finance to join the plan. Passing similar legislation soon after that, Kentucky became the second state to join.
To build the system, the two regulatory groups are working with a vendor, the National Association of Security Dealers, which created the Central Registration Depository for the securities industry in the early 1980s and the Investment Advisory Registration Depository about six years ago. It continues to operate those databases. Indy mac
The system may be operational in late 2007 or early 2008. Matthews wants 10 to 20 states to participate initially before the Web site is rolled out to all 50, and hopes all states eventually join.
Taking input from mortgage industry players, the groups have already been working on the project for about 18 months. ‘It's no small feat,’ he says. ‘It's a huge undertaking. It's a huge change in how things are done. It's a tremendous cost savings for regulators and the industry.’