A proposed Residential Mortgage Licensing System (RMLS) is anticipated by many to uniformly regulate states and mortgage lenders, particularly those who operate in more than one state. This would be done through consolidation of functions currently handled on a state-by-state basis. Additionally, it will involve a database for consumers, regulators and lenders- eliminating some of the current hand monitoring through paper records, old-fashioned localized approaches.  Essentially, it is going to be an enormous database for all parties involved where everything can be closely monitored.

Planning began in 2004 and it is expected to operate by January 2008.  Last week the Conference of Stat Banking Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) announced that 28 states plus the District of Columbia have agreed to join by the end of 2008.

The reasons for joining were outlined by the 29 agencies.  In sum they wish to improve effectiveness of state supervision in the U.S. mortgage market, fight fraud and preparatory lending, increase accountability and streamline the process for mortgage lenders and mortgage brokers.

While the initial state surge shows promise for the plan, there is much resistance.  The National Association of Mortgage Brokers (NAMB) has condemned the initiative. Citing a narrow focus which will leave consumers unprotected, 60% of mortgage brokers will be intentionally excluded from the registry system.

The President of NAMB, Harry Dinham said, “If the goal of this registry is to protect consumers by standardizing license requirements and tracking bad behavior then it should apply to all mortgage originators. As it stands today, thousands of loan originators who work at banks and other financial institutions would not be required to register. This approach puts consumers at risk.”

"This flawed system will create a false sense of security for consumers and government agencies because many bad actors will continue to be able to move freely from bank to lender and back again without fear of being detected by the proposed registry."

He then stressed being a long-time supporter of a uniformed standard for government regulated banks, credit unions, mortgage lenders, mortgage brokers, mortgage bankers and all employed within those sectors.

Senior Vice President of CSBS Bill Mathews defended the initiative by explaining they are not make policy for the states but will handle licensing for whoever the states want to regulate.

Currently 44 of 50 states license through paper applications; this will digitize the market and allow regulators to increase efficiency and lowering overall expenses.

At the very least, large states can better monitor fraud by large state-to-state companies, such as California mortgage loan tactics. Smaller gypsy-like companies may slip under the radar, but on a whole it can better inform states. It appears to be a starting point to an ongoing process that will need to be tweaked so there is more involvement throughout the mortgage industry.