Nationwide Mortgage Licensing System (NMLS) & Registry Overview

With the passing of the Secure and Fair Enforcement of Mortgage Licensing (SAFE) Act in 2008, consumers were given a platform on which they could learn more about their mortgage lender. This helped boost consumer confidence and also regulated who could act as a mortgage loan originator by setting a national standard for licensing and renewal. Let us show you how important this platform is and why it came into existence.

What Is NMLS?

Before we find out more about a Nationwide Mortgage Licensing System  (NMLS), let’s take a closer look at why it came into existence. In 2008, rates on subprime mortgages began to climb, which effectively meant that people owed more money on their homes than their homes were actually worth. Refinancing became next to impossible, credit wasn’t as readily available, and a foreclosure epidemic was underway.

In trying to solve the problems that led to this crisis, the government focused on the lending process, believing that lenders were not always honest about qualifying buyers and passed the SAFE act in July 2008.

Before this, there was no consistent method of registering mortgage lenders. Every state had different requirements which often made it hard for consumers to really compare one to another. In an effort to give potential homebuyers confidence, national standards were developed that allowed comparisons of mortgage lenders and their credentials. With a standardized system and a process in place to get registered, customers would know that the lender they’re considering has met and perhaps exceeded the minimal requirements.

NMLS is the system that manages the registration, both for lenders seeking to get registered and customers who want to find out information about various lenders. Anyone who visits the NMLS website can enter the NMLS number of the lender they’re interested in and find out a lot of information, including contact information, who the lender works for, where all of their offices are located, and the state of their registration. Some states even provide employment history.

This system was designed to increase consumer confidence and to make sure that lenders act appropriately in an attempt to avoid another housing crisis. Consumers are encouraged to work with a lender who has good standing in the system.

The goal of the legislation was to establish more government oversight of individual mortgage loan originators, with the outcome of increased consumer protection. Primarily, the law set forth objectives for an NMLS for the residential mortgage industry. The SAFE Act specifies licensing and registration for any residential mortgage loan originator. A mortgage loan originator cannot be employed by a credit union or a depository institution without being registered at the federal level. All other residential mortgage loan originators, without exception, must be state licensed.

What Are the Licensing Requirements?

One of the ways that this process helps consumers is that it proves that the lender has met certain qualifications. In order to obtain a license, here are the things that a lender has to do.

• Pre-licensing education. This is one of the more rigorous requirements because everyone who applies for a license has to take 20 hours of education that covers federal law, ethics, income assessment, appraisals, and case studies. In addition to this federal requirement, states may add additional educational hours and topics.
• Pass an exam. There are state and national licensing exams. The federal portion covers the federal laws and is taken by everyone applying for a license. State exams are taken in the states where the loan officer wants to practice, which could mean multiple exams have to be taken. These tests aren’t easy.In fact, only 54% of applicants passed from July 1, 2016 to June 31, 2018.
• Criminal background check. Fingerprints are sent to the FBI to check if the applicant has a criminal record. Licenses are not granted to anyone who has a felony conviction in the last 7 years or has ever been convicted of a felony related to finances.
• Credit check. States are required to review credit reports for each applicant, though there aren’t any federally mandated items they have to look out for. Each state sets its own regulations with some having a minimal credit score for license approval.

Size & Scope of NMLS

In order to see how big the system is, there are several reports available directly from NMLS.

The 2017 NMLS Mortgage Industry Report compiles all of the data about licensed or registered lenders. This include individual mortgage originators as well as companies and branches. The data also includes both state licensed and federally registered lenders.

Analysis of this data has shown several things. First, there was some growth as the number of licenses held by mortgage loan officers grew by 15.3%. But there was some decline as well. Mortgage originations by state-licensed MLOs decreased as did the number of federally registered institutions.

This report actually provides a state-by-state breakdown of the number of MLO licenses, how many MLOs and companies work in more than one state, and breaks down company and individual licenses. There’s even a first quarter 2018 update available.

2018 and Beyond

As you can see, getting licensed and registered isn’t easy—and it shouldn’t be. In order to prevent any future problems in the industry, it needs to be run by people who can be trusted. NMLS provides a centralized database that gives regulators a way to keep track of lenders and customers the chance to perform due diligence.

The data provided in the overview reports shows interest in the field and continued growth over time. That said, the fact that only 54% of applicants passed the exam from July 1, 2016 to June 31, 2018 shows that it’s not easy to obtain a license and get listed in the registry. That’s a good thing because anyone who wants in will need to demonstrate they have the necessary knowledge about the law as well as the ethical and moral implications of the mortgage lending process.