State mortgage regulators met in Minnesota last week ahead of the GOP to discuss important regulatory issues. Licensing was among the top issues.
The following key items were discussed at the Nineteenth Annual American Association of Residential Mortgage Regulators Conference held in Minneapolis from Aug. 18 to Aug. 22. The event brought together more than 40 state mortgage regulatory agencies and industry members to discuss developments and issues affecting the mortgage industry.
The Nationwide Mortgage Licensing System panel’s discussion will likely have the greatest day-to-day impact on mortgage brokers, lenders and servicers.
Each of the board members of State Regulatory Registry LLC, which owns the NMLS, represented the registry on the panel and provided an update regarding the functionality of the system. They confirmed that a total of 20 regulatory agencies are anticipated to participate in the system during 2008. In addition, they confirmed that 44 regulatory agencies in 42 states either presently participate or have signed a statement of intent to participate.
A more targeted focus of this presentation was the need for each of the states to pass legislation that implements the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or the “S.A.F.E. Act.” Because the act requires various states to comply with certain minimum requirements, all of the states will be required to pass legislation so that their state laws comply with the minimum requirements of the act. In the event that a state is not in a position to implement the minimum requirements, implementation is required by the Department of Housing and Urban Development.
In order to minimize the possibility that HUD takes on the responsibility of implementing the S.A.F.E. Act, the board members announced that they have prepared a model state law for implementation. That law, currently in draft form, was in the process of being revised Friday, though board members hoped to finalize it by Labor Day. Its prompt completion would result in timely distribution to the various regulatory agencies for forwarding to their respective legislatures for their consideration.
Importantly, those individuals working with the regulator group and the Conference of State Bank Supervisors to prepare the model law have actively solicited guidance from an advisory council for the mortgage regulators. In so doing, the council has actively assisted the trade group and the state bank supervisors in connection with achieving a more effective Model Law that drives towards uniformity but also considers the interests of the mortgage industry.
The implementation of electronic compliance tools that will enable state regulatory agencies to electronically analyze loan data was another key issue discussed at the conference. The bank supervisors announced they had entered an agreement for state regulatory agencies to utilize the Compliance Analyzer program, provided by Compliance Ease, in connection with mortgage examinations.
Similarly, mortgage regulators seek a similar agreement for their members who are not affiliated with the Conference of State Bank Supervisors. The adoption of this electronic examination tool seeks to bolster bank supervisors’ previous efforts to improve the examination efforts of regulatory agencies. Importantly, the electronic process complements the standardized examination procedures, known as the Model Examination Guidelines, which bank supervisors distributed for use by the regulatory agencies during last year’s conference.
State regulatory agencies anticipate using Compliance Analyzer in a manner that will allow them to scrutinize the vast majority of loans that have been made or brokered by licensees. Prior to commencing an examination, regulatory agencies will request that licensees provide a report detailing certain key information regarding each of the loans made and/or brokered by that company during the examination period. After receiving that report, the examiner will utilize the software to screen each of the loans that appear on the report.
After the examiner screens each of those loans, he or she will move forward with manually reviewing specific loan files. It is anticipated that examiners will likely utilize the software to identify loans that have compliance issues and focus their review upon those loans. In effect, the software will provide for targeted examinations of specific loans that have compliance issues. Examiners no longer will need to randomly select loans in connection with performing an examination.
It is anticipated that implementation and beta testing of Compliance Analyzer will begin on live examinations this month. In combining the Model Examination Guidelines with the software program, bank supervisors anticipate that the state regulatory agencies will be better able to leverage their limited resources in connection with evaluating their licensees.
Other significant concerns at the conference were the issues of appraisal and mortgage fraud.
Speakers on separate panels presented guidance to state regulatory agencies regarding how to identify and combat appraisal and mortgage fraud. The guidance provided at the conference will probably allow each of the participating regulatory agencies to better identify and address challenges that arise as a result of appraisal and mortgage fraud.
The regulators will be followed by the Republican National Convention, which is being held in Minneapolis from Sept. 1 to Sept. 4.