The Nationwide Multistate Licensing System & Registry (NMLS) was created to bring greater accountability to professions within the financial services sector, namely the mortgage industry. Any working professional with direct involvement in the mortgage process is required to register and obtain a unique identifier from the NMLS. This helps ensure that mortgage professionals are well-trained, educated, and ethical; it also helps protect prospective borrowers from bad actors. Let’s take a look at who needs an NMLS number, and why.
What is NMLS?
The NMLS, or Nationwide Multistate Licensing System & Registry, is a database that was created in response to the subprime mortgage crisis of 2007. It was formed to add accountability and uniformity to the process of licensing mortgage professionals and other types of financial services companies, namely money transmitters.
With this system, state agencies can track the qualifications and compliance of mortgage professionals and other industry stakeholders; the system ensures that these individuals have met the requirements to operate in their state. The goal of the NMLS is not only to hold the financial industry to a higher standard, but also to protect consumers from predatory practices.
MLOs are not the only professionals who are tracked through the NMLS database. Mortgage brokers, lenders, those who manage mortgage lending offices, and others are also required to register.
The NMLS Registration Process
Once an individual decides that they want to pursue a mortgage career, they must register with the NMLS. Although each state has its own requirements for full licensure, the process for registration generally includes the following:
1. Create an Account. Visit the NMLS website and create an account.
2. Find Your State. Different states/jurisdictions have different requirements, so you’ll need to find the state in which you’ll be conducting your operations.
3. Take Pre-Licensing Courses. Federally, all MLOs are required to complete 20 hours of pre-licensing education. Different states may require additional state-specific hours.
4. Successfully Pass Background Checks. The NMLS registration process will require criminal and credit background checks for many roles. Individuals in certain roles must meet moral turpitude standards, especially regarding financial crimes.
5. Pass the SAFE MLO Exam. This exam is the national standard for MLOs, and you must receive a score of at least 75% in order to pass.
6. Submit Application & Pay Fees. Once you pass your exam, you should submit your application to the NMLS along with the applicable fees. The fees may vary based on location and type of license.
You’ll be assigned a unique identifier that will follow you throughout your career as a mortgage professional. Once your application is approved, you will be officially licensed to work as a mortgage professional. To keep your license active and in good standing, you’ll also need to maintain compliance through yearly continuing education courses.
Who is Required to Have an NMLS Number?
While not all roles in the mortgage industry require an NMLS identifier, many do. These not only include individual roles, but entities as well. Essentially, those with the most hands-on roles in the mortgage process are required to register.
1. Mortgage Loan Originators. These professionals work directly with borrowers to obtain a mortgage loan. They help complete loan applications, gather documents, and communicate with underwriters regarding the loan’s status.
2. Mortgage Lenders and Banks/Credit Unions. These organizations provide loans directly to borrowers.
3. Mortgage Brokers. Mortgage brokers are intermediaries who help borrowers connect with lenders to procure loans. They often have access to a variety of lenders who offer different rates, programs, and other features of interest to borrowers.
4. Mortgage Companies. Businesses whose principal activity is to provide or service mortgage loans fall under the category of a mortgage company. This includes credit unions, trusts, or any other financial institution that offers mortgage lending.
Roles that require an NMLS number can also vary by state. For example, underwriters (who assess the risks involved in loaning money to borrowers) are generally not required to have an NMLS identifier. However, at the state level, that may change. If you plan to take on a mortgage role outside of the four listed above, it’s best to check your state’s requirements.
The Importance of Having an NMLS Number
There are a couple of main benefits to having an NMLS number if you plan to work in the mortgage industry.
Efficiency in Supervision and Tracking
NMLS registration helps reduce the administrative load of managing industry professionals who may operate across multiple states. Because the NMLS is a federally-based system, mortgage professionals have the convenience of a consistent, standardized application process across the country. Unlike real estate agents who must follow each specific state’s procedure for applications, the NMLS allows professionals to apply to several states from one centralized database.
Professional Competence & Credibility
The purpose of the NMLS was to bring a sense of integrity back to the mortgage industry. On the individual level, holding an NMLS number demonstrates a sense of trustworthiness. After all, NMLS registered professionals are required to undergo pre-licensing education, thorough background checks, and pass a nationwide exam. Additionally, the yearly continuing education requirement ensures that mortgage professionals stay up-to-date on industry standards and regulations, ethics, and professionalism.
On the organizational level, the NMLS increases transparency and accountability by making mortgage professionals’ and mortgage companies’ information accessible to the public. Because public trust, and thus consumer protection, was the impetus for the creation of the NMLS, this system helps advance that goal by setting up oversight that can address potential issues efficiently.
Penalties For Operating Without an NMLS Number
Having a valid NMLS number is so important within the mortgage industry that operating without one can lead to serious consequences for rulebreakers. State regulators will usually begin with a cease-and-desist order. Other consequences include fines, civil, and criminal charges. Additionally, operating without a valid NMLS number can result in future denial of a license.
In cases where clients have been defrauded or harmed by the work of an unlicensed individual, violators may have to pay restitution. Considering other legal fees and expenses, including loss of future business, it is important to obtain and maintain licensure.
Opportunity for Professional Growth
Having an NMLS number opens up new business opportunities for mortgage professionals. To begin with, you have the flexibility to operate in multiple states which will expand your clientele and earnings. This also opens the door to management roles. Mortgage compliance officers, for example, ensure that organizations adhere to all regulatory edicts. This is an especially valuable role if your ultimate goal is to become a chief compliance officer.
Mortgage trainers or educators, on the other hand, are industry professionals who have enough experience to teach and train others. They will often work with companies that offer pre-licensing and continuing education courses. They may also write curriculum for these companies.
No matter what your mortgage career goals may be, you’ll want to begin with a solid quality pre-licensing education by taking courses from an NMLS-approved provider, such as The CE Shop.
