The next NMLS Ombudsman meeting, on August 9, in Indianapolis, is the first in-person meeting since February 2020. In anticipation of that gathering, we thought that it would be helpful to revisit what was covered during the last meeting.
The spring 2022 virtual meeting focused on the NMLS modernization effort, the State Examination System (SES), the pandemic and remote work, change of control approval processing times, and the Money Services Businesses (MSB) Call Report.
At the start of the meeting, NMLS Ombudsman Jim Payne noted that since the fall 2021 virtual meeting, the Ombudsman’s inbox received 160 emails, with the following constituting the top five categories of questions:
- Annual renewal
- Entitlement issues, such as password resets to access the system
- Testing questions regarding the SAFE MLO test
- Filing consumer complaints
- The license application process in general
The NMLS modernization effort and the SES
CSBS representatives Kyle Thomas and Mike Casagrande provided updates on the NMLS modernization effort and the SES. Thomas noted that NMLS modernization continues, specifically noting that several states — Alaska, Arizona, Georgia, Minnesota, South Dakota, and West Virginia — are preparing to introduce bills in line with the Money Transmitter Model Law in 2022.
Thomas highlighted the CSBS’ focus on core licensing requirements, pointing to a 2020 proposal issued to regulators requesting comments on such requirements. In 2021, following revisions based on regulator commentary, a revised proposal was released for public comment; a summary of received comments can be found on the NMLS website. Earlier this year, a proposal regarding the core NMLS disclosure questions was submitted to regulators for comment. CSBS has since reviewed those regulator comments and issued a proposal and request for public comment on the questions. Comments are due by August 22, 2022. Thomas acknowledged that the network licensing supervision model remains the foundation for the future NMLS launch product and is inspired by the Multistate MSB Licensing Agreement Program.
Regarding the SES, Thomas noted that since its launch in March 2020, approximately 2,300 exams had been conducted or were being conducted though the system, 24 of which are or had been done on a multi-state basis. Furthermore, 49 agencies use the SES to some extent, but not necessarily fully, as the adoption process is unique to each agency.
Roughly 1,800 complaints have been processed through the system, and 14 agencies are using this part of the system. Thomas noted that while a variety of complaints have been received across industry types, the majority of the complaints received are regarding the mortgage service industry. Expect to see more SES updates that incorporate feedback and SES educational campaigns in the coming months.
NMLS account creation process concerns
Casagrande, who oversees the NMLS Call Center, addressed concerns regarding the NMLS account creation process, the purpose of which is to ensure unique entities in NMLS by requiring validation of each entity’s employer identification number and legal name. Casagrande noted a combination of an increased number of new requests, state agencies transitioning onto NMLS, the number of requests that were rejected, and other factors caused significant account creation delays in the latter part of 2021.
He acknowledged that in addition to the delays, frustrations escalated when accounts were denied, but denial communications were either inadequate or entities experienced challenges obtaining required documentation — specifically when a company has gone through a name change. The delays, which reached processing times of up to 15 business days, have now been resolved because there is no longer a backlog. The account creation process now occurs within the NMLS’ quoted “3-5 business days from date of submission to approval/rejection of that request.”
The pandemic and remote work
Panelists Cindy Corsaro from Promontory MortgagePath LLC and Kobie Pruitt from the Mortgage Bankers Association discussed the continuing issue of remote work. Specifically, Corsaro noted that several states have remained silent on the issue and failed to provide any guidance since the beginning of the pandemic. She noted that these states should speak up regarding the direction they intend to go in the future. Pruitt further emphasized the need for states to adopt laws regarding remote work, encouraging states to continue allowing for remote work beyond the pandemic.
Change of control approval processing times
Haydn Richards from Bradley addressed concerns related to an increase in the timing of change of control approvals (specifically referencing “prior approval” states). Richards noted that the former typical 45 to 90 days’ time frame has been greatly elongated. He mentioned that his concern surrounding the issue stemmed from having attended a conference with the MBA, at which economists predicted change of control activity in the mortgage space would potentially double within the next 12 to 18 months.
Regulator panelists, including Maureen Camp with the Washington Department of Financial Institutions, Nicole Bullock with the Massachusetts Division of Banks, and Jay Drake with the Arkansas Securities Department, responded to Richards’ concerns by noting the large volume of change of control transactions received, coupled with staffing challenges, in many agencies. To reduce duplicative efforts, Drake requested that entities and firms not send emails containing “the exact same thing that is filed in the NMLS” because, despite best intentions, it slows down the entire process for the Arkansas Securities Department.
MSB call report
To conclude the meeting, Lucy Gonzales from Netspend Corporation highlighted the conflicting direction her licensing team received from several states on how to complete the FC 200 (outstanding money received for transmission liability) and FC 210 (outstanding payment instruments) fields on the MSB call report. As a result, Gonzales requested that the states come to a consensus on the issue.
In response, Rick Posey from the California Department of Financial Protection and Innovation noted that the report’s state sections should be filled out as required by the state-specific law relating to the instrument that is being issued. He further advised that regardless of how the instrument is reported, the outstanding payment instrument (PI 120) balance for liability should be uniformly reported.
At the end of the discussion, the regulators revealed that the MSB Call Report Subcommittee had proposed revisions to the report’s virtual currency and financial condition line items. This proposal went out for public comment and after reviewing the comments, a new form version was adopted by the NMLS Policy Committee and will become effective Q1 2023.