On Oct. 4 the Conference of State Bank Supervisors announced the formation of a limited-liability company to administer a national mortgage licensing system that has been in the works for some 21 months. This is the latest development in a joint effort between the CSBS and the American Association of Residential Mortgage Regulators that aims to establish a uniform system of licensing for mortgage lenders across the country.
The mortgage lending industry has committed to assisting in this project to realize an objective it shares with the regulators: the establishment of a solid, functional, and well-run national licensing system. On several occasions the American Financial Services Association and other trade groups have voiced concerns about aspects of the project, in the hope that these concerns would be incorporated into the planning.
With this latest announcement, however, it's clear that the bank supervisor group and the mortgage regulator group are moving full speed ahead to implement the licensing project, even though the industry's concerns have yet to be addressed. We still lack answers to many important questions:
- The proposed database for maintaining the program would contain a large amount of personal information, including the Social Security numbers of borrowers and mortgage lending professionals. How would this information be protected?
- The program is estimated to cost $4.3 million to establish and $6.5 million each year to run. While the CSBS intends to have the states pay for the start-up cost, licensees are to pay for the annual cost through initial registration and annual filings. Where will all this money go?
- The database would be managed by a third-party vendor with no prior relationship to those regulated at the state level. If there is a security breach, loss of data, or another type of program failure, who will be held accountable?
- The proposed program favors brokers at the expense of large licensed lenders that al ready engage in pre-employment screening, background checks, in-house training, and accountability for bad behavior. The cost of individual employee licensing would put large multistate lenders at a competitive disadvantage on a per-loan basis. Wouldn't this inevitably serve as an invitation for some large lenders to drop the state banking system in favor of a federal charter?
- The proposed forms for the program, though modified from the original drafts, are still overly burdensome. Why are they being modeled after the most complex state versions currently in use?
We understand the impetus for uniformity stems from a realistic acknowledgement by regulators that a more consistent approach to licensing will produce greater efficiency. We believe this project is critical if we are to break free from outdated licensing requirements administered at the state level.
If implemented in its current form, the project will fall short of this achievement. Any new system should simplify the licensing process and cut down on bureaucracy without compromising protection for consumers and mortgage executives. Is should also recognize and accommodate the significant differences between large mortgage lenders and independent mortgage brokers.
Addressing industry concerns now will strengthen the project and allow both regulators and industry to support it fully.