National database is in works

The Financial Industry Regulatory Authority is developing for mortgage brokers a national database similar to the Central Registration Depository.

Working under contract for the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, FINRA is creating a national database — the National Mortgage Licensing System — that will be launched in January and cover licensing and enforcement actions in the mortgage brokerage business.

The two mortgage regulator organizations have been developing the system since 2005, said Bill Matthews, a CSBS executive who will serve as president of the State Regulatory Registry LLC, a non-profit organization that will operate the database. He said the system will cost $10 million to develop.

The registry and its sponsoring organizations are based in Washington. FINRA is based in New York and Washington.

Initially, Mr. Matthews said, the electronic system will be available in seven or eight states, with an expected total of 15 by the end of 2008. He expects “another large group” to join the registry in 2009, and “they’ll trickle in after that.”

Participation is voluntary, Mr. Matthews said, and some states must pass enabling legislation or redesign their licensing forms before they can participate, in order to comply with the uniform format that is being developed. The system, once complete, will be “huge from the perspective of weeding out "problem children’ before they even get into the industry,” he said.

It will “eliminate the opportunity where a company might get in trouble in one state and then try to change its name and open in a new state,” said Steven Antonakes, the Boston-based commissioner of banks in Massachusetts.

The system will give most of the states their first opportunity to check criminal history on a national basis via the FBI, making it “much easier to weed out any bad actors,” he said.

Mr. Matthews said the system also will make it easier to identify mortgage brokers who are originating bad loans, because every loan application will carry a unique number identifying the mortgage originator. That kind of data will allow vendors “to create a performance score similar to a credit score,” he said.

The NMLS also will be available to the public.

Because it will exclude bank-based loan officers, the system is not without its critics. The National Association of Mortgage Brokers, based in McLean, Va., which represents non-bank brokers, has been especially vocal.

In a press release issued this year, Harry Dinham, then NAMB president, noted that some of “the largest and most recent fines and settlements for abusive lending practices” involved banks and lenders that would be exempt from the NMLS, citing Ameriquest Mortgage Co. of Orange, Calif., which entered into a $325 million settlement in 2006. It was formed under a thrift charter.

The reason bank mortgage officers are not part of the system, Mr. Matthews said, is that states don’t have jurisdiction over federally chartered banks. In the interest of parity, the database creators decided to exclude state-chartered banks, as well.

“The regulation of mortgage brokers and the regulation of commercial banks are in different worlds,” Mr. Matthews said.

He estimated that even without banks, the NMLS system will cover about 70% of all loan originators. NAMB president-elect Marc Savitt believes that “it might be fewer than 50%.”

NAMB has supported a national licensing registry but would prefer to see a national database run by a federal agency.

“The only way this is going to work is to have all of the originators in the system,” Mr. Savitt said. “Otherwise, you won’t have true consumer protection.”

Support for the NMLS has come from President Bush and other industry groups, including the Washington-based Mortgage Bank-ers Association.