Banks in Danger of Missing Mortgage Registry Deadline

Some federally-regulated financial institutions are in danger of missing a July 29 deadline to be registered in the National Mortgage License System and Registry, exposing themselves to possible sanctions from regulators.

A number of financial institutions have initiated their applications but have yet to complete them, says Deborah Bortner, director of consumer services at the state of Washington's Department of Financial Institutions and ombudsman of the NMLS.

Under the 2008 SAFE Mortgage Licensing Act, federally insured banks are required to submit the fingerprints of their mortgage loan originators to the Federal Bureau of Investigation for state and national criminal background checks. Mortgage loan originators working for federally regulated banks also must submit forms detailing their personal history and experience.

The information will be uploaded into the NMLS, which is being maintained by the Conference of State Bank Supervisors.

"There are a number of institutions that are not in the system yet and there is only a week left," Bortner said. "The law requires them to be on there so if you are not on there by July 29, federal and state regulators are going to have to make a decision about what sanctions they are going to impose for failure to meet the requirements of the SAFE Act."

Although many states have strict penalties for mortgage originators at non banks that fail to comply with strict licensing provisions under the S.A.F.E act, there are no proscribed penalties yet for federally regulated banks that fail to comply with the registration requirements. However, according to Timothy Doyle, vice-president of the Conference of State Bank Supervisors, there could be severe ramifications.

"It would be an issue with a regulator," he says, "But there is also a market reason to comply, because if a consumer goes to our public website and does not find the loan officer that is employed by your institution properly registered, then they may not want to do business with him or her."

Before the NMLS system was initiated it was difficult for regulators to track loans back to individual loan originators. "Mortgage loan originators typically move around the industry a lot from institution to institution," Doyle said. "So the criminal background check acts as a basic review."

Doyle said the process of registering isn't a major undertaking, but some banks might not even be aware of the looming deadline.

"For the institution it is pretty simple," he said. "It requires that you identify at least two individuals that will be responsible for the institution's account on NMLS and then they request an account. We check them against a list provided by federal bank regulators and if they are eligible we give them account access and then the two individuals have to obtain a security credential for them to log in and they go in and fill out a form that should take five minutes to fill out and then they file it into the system.

Information from the new registration system will be available to the general public starting August 1, through a new consumer access portal on the NMLS site, where borrowers, investors and regulators will have more detailed information about the individual loan originators and institutions they are dealing with. Information about licensed loan originators has already been posted on the site.

"You can find out how long the company has been in business, information about the individuals themselves," Bortner said. "By the end of next year all states are going to be asked to put enforcement actions on there."

Under NMLS each mortgage also will have a unique identification numbers for both the individual and the institution originating the mortgage.

The system has benefits for investors as well.

"The point is that before if a loan was originated and got sent to a consumer, there was no way to track back to who originated the loan," Doyle says. But with unique identifier numbers for each loan originator and institution, "it gives investors the potential to have better information about the loans they are purchasing or investing in."

There are indications that some of the big banks are taking the pending deadline seriously. "The large majority of our loan origination originators will be in compliance by July 29," Mark Rodgers, a CitiMortgage spokesman wrote in an email, "and those still in the process won't engage in proscribed activities until they are registered."

Loan originators working for non-federally regulated companies were required to meet different requirements under the NMLS licensing system, which went into effect last December. As of last week, there were 108,000 licensed mortgage originators and 16,300 licensed mortgage companies in the system. In addition to fingerprinting, criminal background checks, and financial disclosures, state licensed loan originators are required to pass a test and take annual continuing education courses.

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