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5 min read Feb 16, 2024

What is NMLS, What is Its Purpose, and How Does It Work?

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Megha Mulchandani

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Editor
Edited By

Megha Mulchandani

Editor, Houzeo
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Megha M. is a content editor who loves to play with words. Apart from this, she is a theater artist and a public speaker who transforms into various personas on stage.

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The Nationwide Mortgage Licensing System (NMLS) is a national database for licensing mortgage industry companies and individuals. It was established to regulate mortgage dealers in accordance with the rules set by the Consumer Financial Protection Bureau.

In 2008, the government passed the SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act) mandating mortgage service providers to be licensed. The main objective of NMLS is to supervise and streamline the licensing procedures of the real estate industry.

NMLS ENHANCES CONSUMER PROTECTION

  • The NMLS serves as a centralized database designed to enhance transparency in the mortgage industry.
  • NMLS licenses are mandatory for various entities and individuals involved in the mortgage industry. Entities include mortgage companies, mortgage loan originators, and loan servicers.
  • Once licensed through NMLS, mortgage professionals are required to engage in continuous education to stay updated on industry regulations and best practices.

What Is the Nationwide Mortgage Licensing System?

NMLS is a centralized online database that stores the vital licensing documents of mortgage companies and loan originators.

It provides lenders and mortgage loan officers (MLOs) with a unique identification number. The NMLS platform allows mortgage companies and individuals to modify, update, and renew their licenses.

Apart from this, you can get information about the license of a mortgage company and MLOs via its public portal. Also, you can check their registration status and relevant information online.

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What Is the Purpose of NMLS?

The Nationwide Mortgage Licensing System was established for various purposes, including:

  • To enhance consumer protection and promote transparency and accountability in the mortgage industry.
  • To facilitate the state in regulating the mortgage industry and monitor their business activities.
  • Provide consumers with a free central database to search for information about mortgage professionals.
  • It would allow consumers to make informed decisions while choosing a mortgage lender or loan originator.

Moreover, NMLS promotes a more competitive and efficient marketplace for mortgage services.

What Is an NMLS License?

An NMLS license is a legal instrument to identify professional and qualified mortgage service providers. Every mortgage industry associate has to obtain a license through the Nationwide Mortgage Licensing System.

Remember, it’s mandatory to acquire this license across the US. This license assures consumer protection, eliminating fraud and unethical practices.

Who Requires an NMLS License?

The Nationwide Mortgage Licensing System license is mandatory for the following:

  1. Mortgage Companies: Mortgage companies that require the NMLS license include banks, credit unions, and non-bank lenders.
  2. Mortgage Loan Originators (MLOs): Self-employed MLOs who originate mortgage loans are required to be licensed and registered in the system. This includes brokers and other entities that assist borrowers in obtaining mortgage loans.
  3. Loan Servicers: Mortgage service providers who handle payments or manage escrow accounts need the license.

Moreover, every state has its specific requirements for obtaining the license.

How to Get an NMLS License?

You will need to fulfill certain requirements to obtain an NMLS license.

  1. Minimum Education: You must complete 20 hours of pre-licensing education course and can do this online as well.
  2. Licensing Exam: Once you complete the required education you will need to pass the licensing exam. This exam would cover the topics of federal and state laws, mortgage products, and ethical practices.
  3. Submission of Application: After clearing the exam, you can apply for your license number online, and pay the submission fee.
  4. NMLS Account: You will need to create an account on the website and complete the registration process.
  5. Clearance from the FBI: You will need to provide a clearance report from the FBI (Federal Bureau of Investigation), showcasing zero criminal history.
  6. Additional Requirements: Based on the state, you may need to submit your fingerprints and obtain a surety bond as additional requirements.

Once you fulfill all the steps, you get to receive your unique identification number. This number will track your licensing and registration status.

Additionally, you will be required to complete 8 hours of continuing mortgage-related education annually.

Bottom Line

The Nationwide Mortgage Licensing System is a vital tool for state regulators, mortgage lender companies, and consumers for a safe mortgage experience. It protects home buyers from spam, abuse, and other harmful practices.

If you are planning to apply for a mortgage, make sure you check your mortgage service provider’s credentials on NMLS, before moving ahead.

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Frequently Asked Questions

How many digits is an NMLS number?

The NMLS number is a 7-digit number that is assigned to an individual or an entity registered in the database.

Why is NMLS required?

The SAFE Act mandated that NMLS establishes protocols for assigning a unique identifier to each licensed or registered loan originator.

Why was the NMLS established?

NMLS was established as part of the reforms aimed at preventing another subprime mortgage crisis, like the one in 2006-07. Which triggered the Great Recession.

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