Banking regulators at the state Division of Banks, located above the South Station terminal in Boston, are working to create a national database of mortgage companies and licensed mortgage brokers as well as discussing changes to the local mortgage licensing laws.

Massachusetts state regulators are continuing their efforts to build a multi-state mortgage licensing application and database system.

The idea is to create a system that would allow mortgage licenses to be applied for and renewed online. It also would allow regulators to share enforcement actions on a timely basis and provide a deeper look into an applicant’s history. Massachusetts has been one of the driving forces in creating the online system scheduled to go live in January 2008.

While the process is under way, state regulators also are considering possible amendments to local laws that would enable them to more fully take advantage of the system. The Massachusetts Mortgage Association and a few other industry professionals have been given a sneak peek at the draft of proposed amendments to Massachusetts General Laws Chapter 255E.

David Cotney, chief executive officer of the DOB, said there is not an immediate plan to act on the draft, if at all. He said changes to the law are not required for Massachusetts to participate in the multi-state licensing system. However, he said there are potential changes that are being discussed.

The proposed amendments include:

• Adding a definition for a multi-state licensing system, which would allow regulators from one or more states to share information and the licensing and application process.

• Increasing the level of background checks done on applicants and licensees. An applicant’s partnership, corporation or association must be provided along with the name and address of the business and the names and addresses of each member, director, principal officer and anyone acting as the manager of a branch location. In addition, the commissioner would have the ability to require background investigations, which may include fingerprint checks.

• Evaluating the date when licenses expire and possibly moving it to align with other states. Each license would expire annually and the DOB would have the power to change the date. Massachusetts mortgage licenses expire on May 31. Regulators from several states have been contemplating moving the date to Dec. 31. The draft clearly states that licenses are not transferable. It also says the DOB must be notified in writing 30 days in advance about a change of address or a new location at which the licensee plans to conduct business. Fees may apply.

• Requiring licensees to submit a report of their mortgage business for the year on an annual basis.

• Finally, the changes address confidentiality, stating that records of investigations and examination reports will be classified as “privileged communications.”

“We had discussions with industry folks, but there is no official legislation filed,” said Cotney. “They are basically a discussion piece at the moment.”

‘A Streamlined Process’
Cotney said in the long term there probably will be some changes to the law so that regulators and mortgage professionals can get the most use and benefit from having a multi-state licensing system in place.

Cotney said regardless of whatever changes may be made to the law, the system will be a great improvement to the current licensing structure. Massachusetts is one of 44 states that still handle the renewal and application process manually. There are about 1,500 renewal applications that all pour in at once

“To do that all manually is quite cumbersome,” said Cotney.

Currently the DOB also has more than 150 pending mortgage license applications. Cotney said the “substantial majority” of initial applications are often passed in incomplete, which means the DOB has to spend time tracking down additional information from the applicant before it can even begin reviewing the request.

“They couldn’t submit it unless it was complete,” he said about the new system. “All licensing activity will be conducted online.”

In addition to streamlining the process, applicants also will be able to submit their application to more than one state at a time.

“We certainly think it will be more efficient,” said Cotney.

The concept of the database spent more than a year in the planning stages. Massachusetts is one of 29 states working to create the system. The plan is for it to become a national registry of mortgage companies and brokers. According to Cotney, it will rolled out in phases.

Earlier this summer, the Conference of State Bank Supervisors entered into an agreement with the National Association of Security Dealers to start creating the system.

Kathy Schreck, sales manager of the Danvers-based Mortgage Network and immediate past chairwoman of the Massachusetts Mortgage Bankers Association, said a nationwide system would be a valuable addition to the mortgage industry. Having a single and secure place to file for multi-state applications and renewals also will be a benefit, she added.

“I think a streamlined process will make it somewhat easier,” said Schreck. “I think it’s a great tool that we can all use. I think the technology is here.”

Schreck, who also is on the MMBA’s board of directors, said the association supports the draft version of proposed amendments.

“There is nothing we are opposing,” she said.

Schreck said she can understand increasing the level of background checks done on applicants and how fingerprinting could become part of the licensing process. She also said some states already require it. Part of what the multi-state database will be designed to do is combat the growing problem of mortgage fraud.

John Spillane, president of Spillane Consulting Assoc. in Braintree, MMBA board member and co-chairman of the MMBA Compliance Committee, said many people feel the mortgage industry is not regulated enough. The proposed amendments appear to strengthen how closely the industry is regulated, he said.

“There are a lot of bad actors out there, and that’s going to help weed them out,” he said.

Spillane noted that the database could be used in many facets. He said wholesale lenders may find it useful to learn more about the people with whom they are doing business and those with whom they plan to do business.

He also said there is also a lot of confusion from state to state about the licensing requirements and an automated system should clear that up, as well as allow regulators to make better use of their time.

“Those are important things in the long run,” noted Spillane. “I think in the long run it’s going to make the industry much more professional. That’s really what we are looking for.”