SAVANNAH, Ga. — Nonbank mortgage companies that operate across state lines will soon be subject to the same coordinated oversight that banks have operated under for years.
Regulators in all 50 states have agreed to perform joint supervisory examinations on mortgage companies doing business in more than one jurisdiction. Now they have to persuade those companies to get behind the concept of uniformity with banks.
One company already has been through the process. Citing confidentiality, Chuck Cross, the vice president of regulatory reform at the Conference of State Bank Supervisors, would not reveal the name of the company or the results of the exam.
All 50 states and the District of Columbia and Puerto Rico have adopted the nationwide protocol for sharing information and coordinating multistate exams.
The pact covers mortgage lenders, mortgage brokerages and mortgage subsidiaries of banks, credit unions and holding companies that are subject to state licensing or exam requirements. It does not cover banks themselves, which have had their own multistate examination agreement for several years.
But at the American Association of Residential Mortgage Regulators' annual conference in Savannah this month, Cross called on lenders to embrace the concept of multistate exams, which he said foster consistency in a flexible and risk-focused manner.
"We've been talking about uniformity for a long time now," he said. "The industry has asked for it, and here it is."
A former president of the mortgage regulator trade group, Cross once ran the consumer services division of Washington's Department of Financial Institutions.
He told the meeting that "we're all in this together" and asked lenders to "cooperate in the process and support the results."
"In the long term," he said, "this is going to be positive and will go a long way toward restoring consumer confidence" in both the mortgage industry and the state employees who enforce the rules.
Under the multistate examination process, rather than submit to examinations in each state in which they operate, national and regional lenders will be scrutinized by a pool of examiners representing all those states.
The team could be made up of one or more examiners from every state participating in the exam, or perhaps a select number of examiners representing a larger group of participating states. In either case the pool of examiners would be under the direct supervision of a single examiner-in-charge.
The multistate exam initiative is part and parcel of the states' bid to improve the examination process with an eye toward minimizing the regulatory burden on both government and industry.
The project predated the Safe and Fair Enforcement for Mortgage Licensing Act of 2008. But the timing of that law, which requires all mortgage originators to be licensed, "aligned almost perfectly with the examination project," according to a report from a joint committee of the state bank regulator trade group and the mortgage regulator group.
The effort to restructure the examination process "works in tandem" with the Nationwide Mortgage Licensing System, the report says.
To pull off joint reviews, the states are relying on automation. Companies are expected to upload file data on their entire portfolios. The data is then filtered through a program that audits the loans against numerous federal, state and municipal laws and regulations.
The committee has adopted the ComplianceEase software applications developed by LogicEase Solutions Inc. of Burlingame, Calif. The state bank supervisor group and the mortgage regulator group had previously adopted the software for individual company examinations.
To better allocate resources, the process involves a "prescreening" of the entire portfolio. That way the examiner-in-charge can determine the files that will be reviewed using more traditional examination methods when exam teams makes their on-site visit.
The committee has advised each state to inform companies operating in their jurisdictions that they are expected to cooperate in the new system.