The National Association of Securities Dealers, which for years has kept public databases on the conduct of its registrants, is outsourcing its expertise to mortgage regulators.
Last week the NASD signed a deal with the Conference of State Banking Supervisors to create and maintain a $4 million database to track the licensing of individual originators and state-chartered lenders, as well as enforcement actions against them.
The database is meant to combat mortgage fraud, whose perpetrators often move around the country, and to make the licensing process cheaper and easier for lenders and regulators.
Development is scheduled to start in the next few weeks and should take 18 months, with an anticipated rollout on Jan. 1, 2008.
Gavin Gee, the director of the Idaho Department of Finance, came up with the idea and headed a committee to look into it. He did not return calls and the NASD referred inquiries to CSBS.
Bill Matthews, a senior vice president with the Washington trade group, said it chose the NASD to build and maintain the database because of its experience in creating licensing databases for other industries. (Mr. Matthews worked 14 years at Mortgage Asset Research Institute Inc., which runs a subscription antifraud database.)
Investors can use the NASD's BrokerCheck to find out, among other things, if there are felony charges or convictions, consumer complaints, investigations, or other regulatory actions against a brokerage, a stockbroker, or a financial adviser. Like BrokerCheck, the new database will be open to the public, Mr. Matthews said, so regulators, consumers, and lenders could use it for background checks on originators. The increased efficiencies for regulators and lenders would come from a uniform online application that could be used for licenses in multiple states, he said.
"The mortgage industry… uses a very paper-driven process," Mr. Matthews said. "I don't know how many trees they kill a year."
Automating licensing could save everyone involved in the mortgage process time and energy, he said. For instance, looking up licensee information currently requires a regulator to sift through paper files.
Adam J. Bass, the vice chairman of ACC Capital Holdings, the parent of two of the largest nonprime specialists, Ameriquest Mortgage Co. and Argent Mortgage Co., said the idea "sounds pretty good."
A uniform application form "and a more simplified process to do business in multiple jurisdictions is generally favorable," Mr. Bass said. "To the extent you minimize costs, efficiencies go up."
Chuck Cross, the director of consumer services at the Washington State Department of Financial Institutions, who worked on the database project, said, "The industry will have a single portal to apply for and change license information nationwide. Think of a company operating in 20 states being able to change personnel information or headquarters address with a single entry in the system. Consumers will be able to go to a single source to learn a company's or loan originator's history, bonding info, etc."
Some lenders worried that such a database would expand the number of employees who were required to have licenses, but the supervisors trade group has left that issue to the states.
"Who's licensed and all that is a hot topic," Mr. Matthews said. "Lenders have one position; brokers have another." The purpose of the database "is to streamline the [licensing] process, not to set policy." Hypothetically, "if Connecticut licenses individuals and New York doesn't, the system will facilitate whatever that state license is."
The database could help track down fraud or criminal behavior by originators or mortgage banks, he said. "Today if a [prospective] licensee comes in from ABC company," it's difficult for the regulator "to validate all of the information on an application" or determine if the applicant was involved in any misconduct in another jurisdiction.
"Say they had an enforcement action in Ohio, but they don't put down that they had been licensed in Ohio. If they omit that under the current system, any state agency has difficulty" verifying, Mr. Matthews said, but the new system would track originators wherever they go.
Also, if a license application includes information on activities in other states, the state receiving the application would have to contact the other states to validate the information, he said. Under the new system, the data would be in the system already and available online.
To maintain the database, states would either charge or absorb a processing fee for each licensee.
About 30 states have committed to use the database, and over the development period, "we will have testing going on, so it won't be a cold turkey rollout," he said.
