State joins national mortgage system

After months of dithering, Connecticut is joining a national mortgage licensing system in July to help it keep tabs on brokers who arrange home loans.

In January, New York and a half-dozen other states debuted the Nationwide Mortgage Licensing System, as Connecticut waited to get feedback from industry players on whether to follow suit. Having completed the vetting process, Connecticut is giving loan originators just three months to register in the system, though it is possible the state could extend the deadline ”“ Iowa did just that this month, giving brokers an additional 30 days to sign up.

The system arrives in Connecticut as the president of the Federal Reserve Bank of New York called for broad new regulations in the finance industry. In his remarks to the Economic Club of New York, Timothy Geithner addressed primarily banks that underwrite and securitize loans, rather than the brokers that help consumers obtain mortgages.

“Our current system has evolved into a confusing mix of diffused accountability (and) regulatory competition ”“ an enormously complex web of rules that create perverse incentives,” Geithner said. “We need to make it much more difficult for institutions with little capital and little supervision to underwrite mortgages.”

The Nationwide Mortgage Licensing System (NMLS) provides state-banking regulators a single database to track professionals licensed to sell mortgages. NMLS is managed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.

Unlike Louisiana, which also announced last week a July 1 start date, Connecticut did not immediately post a detailed transition plan for license holders.

It is already earmarking money to support the system, however. In late May, the Connecticut Department of Banking slapped a penalty on Main Street Mortgage L.L.C., one of a half-dozen it issued to mortgage brokers late last month, alleging the company omitted information on a U.S. Housing and Urban Development form. Main Street agreed to pay $15,000 to support NMLS.

In the first quarter, Connecticut homeowners under foreclosure proceedings reached their highest level in 10 years, according to the Mortgage Bankers Association, with some 15,000 home loans classified as delinquent. Last week, U.S. Sen. Chris Dodd finalized plans for a nationwide, $300 billion insurance pool to ward off additional foreclosures, with the money to be drawn from an affordable housing fund underwritten by Fannie Mae and Freddie Mac.

After Waterbury-based Webster Financial Group Inc. and four other banks revealed a $125 million mortgage relief fund four months ago, the initiative had issued less than 75 new or refinanced loans as of early June. Still, more than 40 community banks have since joined the effort, all affiliates of the Massachusetts Bankers Association.