Debbie K. Hoffman, CLO, Digital Risk, LLC
As mortgage lenders continue to navigate our vastly changing regulatory environment, many have come to realize the critical role emerging technology plays in helping them remain compliant. Up to this point, the mortgage industry, like many other industries, has utilized enhancements to their technology as a nicety, rather than a necessity. However, with more recent technology improvements, such as a nationwide licensing compliance system, certain areas of the mortgage industry have exemplified how technology can be harnessed to redefine and advance the industry, while working within regulatory boundaries.
Following the creation of the Nationwide Mortgage Licensing System Registry (NMLS), which is a national centralized database for financial services licensing, such as licensing for mortgage loan originators (MLOs), the CFPB enacted The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act) to mandate such a system for residential MLOs. The NMLS became available for online use in 2010, and currently all states use the system. NMLS has achieved recognition within the mortgage industry as an integral system of record for its consistency, convenience, transparency and efficiency.
The NMLS is a perfect role model to be followed by other industries. First, a system modeled after the NMLS would be a central repository for massive amounts of data which could be utilized within the industry it would serve. Second, depending upon the industry, reporting could be made, as in NMLS, that would be able to disseminate comprehensive data over a wide geographical and user base. It provides qualitative and quantifiable information that would not otherwise be available. Finally, this effort on the part of any industry that is regulated, would be able to track trends as well as areas of concern and could, if it’s use were mandated, be able to provide data to the regulatory bodies tasked with oversight, a means to advise the users of necessary corrections which must be made to comply with current rules or regulations.
NMLS provides consistency in mortgage licensing and education requirements, protecting consumers by assuring them that a licensed mortgage entity or individual has the baseline set of qualifications that are required to be licensed. Further, each state may elect to employ higher standards than those set forth in the NMLS, thereby possibly leading regulatory bodies to increase the national minimum requirements.
With the knowledge that requirements may escalate in upcoming years, companies are incentivized to maintain very high standards of control. Such companies endeavor to anticipate and prepare themselves for changes in state rules. For example, Digital Risk ensures that its mortgage team members earn their NMLS licensure in multiple states and maintain their annual continued education requirements. The company also encourages employees to partake in proprietary mortgage trainings that aim to educate team members on material that will likely be included in coming escalated educational requirements. As companies like Digital Risk work to elevate employee education, such compliance will result in higher quality throughout the industry.
"NMLS provides consistency in mortgage licensing and education requirements, protecting consumers by assuring them that a licensed mortgage entity or individual has the baseline set of qualifications that are required to be licensed"
Another tremendous benefit of a nationwide system is transparency. The public availability of information in the NMLS provides for enhanced accessibility and accountability. Accessibility improves visibility into the mortgage service provider by allowing consumers to review the service provider’s credentials or deficiencies, and to evaluate the company’s quality and compliance. This transparency helps to establish trust between lenders and borrowers.
A further advantage of this nationwide system is that it enhances supervision, and consequently, improves consumer protection. A nationwide system makes entities accountable to regulators, which have the power and means to keep those companies in check. For example, Digital Risk meets system requirements by using the information both within the NMLS system and the notices that are systematically sent out when any change is made to either an entity license file or an individual employee file to support many internal functions. Notifications on newly approved licenses received by Digital Risk are compiled and sent to all managers daily, to ensure they are aware of their current departmental/scope license capabilities. Furthermore, data from the NMLS approval e-mails is input into Digital Risk’s proprietary internal data system (LUSY) which, in turn, generates daily reports and sends them to each department for loan assignments. The company also uses system notices to track education requirements, license status any deficiencies that may exist that need to be corrected on a regular basis.
Although there are many benefits to the NMLS system, there are areas that lenders need to keep in mind. For instance, the NMLS requires an annual processing fee to renew licenses. These fees can become costly for companies with several branch offices and many different state licenses. In addition, the universal expiration date for licenses is December 31, requiring all renewals to be processed at the same time, which could lead to delays in licensure delivery. Additionally, nationwide systems, such as the NMLS, provide for convenient and public information sharing, which could be problematic. The transparency provided by NMLS may be beneficial to borrowers, but detrimental to lenders, since competitors could use the system to identify and target talent.
Despite the possible disadvantages that accompany the implementation of a nationwide system, it has proven to be a great success in the mortgage industry by revolutionizing the industry. The NMLS is a tremendous system with limited flaws, and these detriments are outweighed by the benefits it provides to users. The NMLS provides improved regulatory oversight, ease of information sharing, more competent professionals and efficiency, allowing lenders to offer enhanced customer experiences. This transparency and quality control makes individuals more amenable to working closely with lenders or other service-providers, thereby prompting a positive rapport among both parties. These benefits could translate seamlessly into other industries by implementation of a similarly structured system; however, the question remains as to whether more industries will model a similar type of system capable of bringing about a comparable level of efficiency and compliance