Among the hottest issues covered at a meeting of state mortgage regulators this month was the further implementation and development of the Nationwide Mortgage Licensing System and Registry. States are also pooling their examination resources in an effort to bring uniformity to the examination process. Unlicensed loan modification firms that charge up-front fees are also on regulators’ radar.
At the 20th Annual Regulatory Conference hosted by the American Association of Residential Mortgage Regulators in Savannah, Ga., from Aug. 10 through Aug. 14, legislators, policy makers and mortgage market participants gathered to address and discuss several key issues affecting the future of the industry.
Among the most talked-about issues at the conference was maintaining compliance with the Secure and Fair Enforcement for Mortgage Licensing Act — or S.A.F.E. act.
One of the principal agenda items of this year’s AARMR conference was to update the state mortgage regulators and industry participants regarding the continued implementation of the Nationwide Mortgage Licensing System and Registry. By the end of this year’s legislative season, it is anticipated that each state, with the exception of Minnesota, will have passed legislation that implements the requirements of the S.A.F.E. act. The state legislation will require that mortgage originators meet the minimum requirements set forth in the S.A.F.E. act — such as fulfilling pre-licensure education requirements — and potentially meet more restrictive state requirements to the extent a state law goes beyond the act’s requirements.
Pursuant to the S.A.F.E. act, NMLS has been tasked with establishing standards for originator examination and education requirements.
Prior to the AARMR conference, NMLS completed the development of its national examination required under federal law, allowing loan originators to register and providing access for completion. Though it has gotten off the ground, NMLS is continuing to work with state regulatory agencies in connection with preparing and releasing state-specific examination components.
So that loan officers can prepare for the national and state-specific examinations, NMLS has published content outlines that summarize topics and information that will be addressed on the various examinations on its Web site. Originators are encouraged to take and pass the examination early, as individuals who fail to do so may not be in a position to take the examination at the time of their choosing, potentially impacting the issuance or renewal of their licenses.
Finally, with regard to pre- and post-licensing education courses for originators, it is anticipated that the registry will publish an initial list of approved pre-licensure education courses this month, with information pertaining to continuing education coursework to follow thereafter.
Another featured topic was further development and implementation of a strengthened and modernized system of state examination and supervision. Building upon uniform Model Examination Guidelines issued in the past, the Conference of State Bank Supervisors and AARMR have established a protocol which will work in tandem with NMLS to bring uniformity to examination and supervision, similar to the uniformity that NMLS is bringing to licensing. That protocol, known as the Nationwide Cooperative Protocol and Agreement for Mortgage Supervision, has been signed by 55 agencies representing all 50 states and Puerto Rico.
The three purposes of the agreement are:
- Bring uniformity to examination and supervision, which will begin with identifying common items of risk, standardizing methods of examination and reporting and utilizing tools, including ComplianceEase software, to better identify loans with compliance issues.
- Modernize mortgage examination by bringing modern techniques to the process and moving toward a model that incorporates elements of reviews for safety and soundness.
- Improve the effectiveness of examinations, in part by implementing a cost-benefit approach to examinations. To implement the agreement, the Conference of State Bank Supervisors and AARMR have jointly established the Multistate Mortgage Committee, which will act as the body in charge of oversight and will direct the processes set forth in the agreement.
The agreement likely will drive dramatic changes to mortgage supervision as state regulatory agencies will benefit from an unprecedented level of cooperation in connection with examinations. Such cooperation will result in the sharing of information — allowing examiners to focus on multistate compliance issues. Consistent with the goals of the agreement, the Multistate Mortgage Committee will establish a pool of state examiners that will conduct examinations on behalf of several agencies.
For example, a team of four examiners, each from a different state agency, may visit a licensee to perform a joint examination on behalf of their four states. Although the individuals will prepare a joint examination report for their respective agencies, other regulatory agencies may still participate in the examination, in part by utilizing information gleaned from the onsite examiners. Because agencies are not required to send an examiner to participate in a joint examination, each examination may potentially involve a substantially greater number of regulatory agencies than those physically represented by onsite examiners.
Roughly eight weeks prior to experiencing a joint examination, licensees will be required to provide detailed electronic information on a loan-by-loan basis to the various agencies using a secure Web site. Upon receiving that information, the regulatory agencies are able to utilize ComplianceEase to prescreen the loan data provided by the licensee. After the prescreening, joint examiners will elect to focus on the loans that the software has identified as having a greater risk for compliance issues.
Not satisfied with moving towards a joint examination model, the Multistate Mortgage Committee intends to modify current examination processes by shifting towards models of examination involving, among others, safety and soundness reviews, portfolio risk reviews and liquidity reviews. Moving forward, licensees whom the regulatory agencies deem to have greater risk will likely experience examinations more frequently than those who have lesser perceived risk.
Other changes as a result of the modified examination model include the creation of a protocol enabling agencies to monitor the ongoing mortgage compliance efforts of licensees such as imposing an ongoing obligation to provide periodic uploads of data for review by compliance software will likely become an ongoing obligation. Since the evolving examination model will increasingly focus on loans originated today and in the near future, licensees are encouraged to promptly conduct reviews of their compliance efforts so that they are prepared for future joint examinations.
One common theme expressed at the AARMR conference by representatives of the state regulatory agencies and, in certain instances, consumer groups, was that the unfortunate circumstances experienced by many borrowers has led to the creation of a cottage industry of loan modification providers, or individuals or entities paid by borrowers to assist in the modification of existing loans.
Regulators and consumer groups acknowledged the efforts of mortgage lenders and servicers to assist borrowers, but generally expressed the view that, for various reasons, loan modification efforts have been inadequate. Moreover, many regulatory agencies generally took the position that for-profit loan modification companies do not provide value to borrowers in distress.
Because of this perception, regulatory agencies are working together to root out pay-to-play loan modification companies, in part by enforcing existing state licensing statutes, which require licenses for third-party modification companies, and by enacting new licensing obligations for such entities. Individuals who are compensated for modifying loans on behalf of consumers should be wary of doing so without the appropriate licensing approvals, as regulators are actively seeking to eliminate such practices and are forwarding matters to their respective attorneys general for criminal enforcement.
