What does NMLS stand for?
Once upon a time, loan officers didn't have to be licensed...
It was the Wild West where you could originate loans for people without regulatory oversight. People who couldn’t afford a traditional home loan were offered interest only or adjustable-rate mortgages. This made their initial monthly payments low and affordable. Loan originators could get loans approved for just about anybody. Things were much easier back then. You just had to get the borrower to sign the mortgage contract on the dotted line so you could receive your large commission check when the deal funded. You weren’t held liable if the borrower wasn’t totally aware of the full implications of their mortgage contract.
So, when the Fed inevitably raised interest rates, most borrowers were caught off guard when they saw their monthly payments skyrocket. Some people were forced to pay double, or even triple, what they used to pay every month.
Then the Great Recession of 2008 happened.
Congress took steps to prevent another financial meltdown and hold loan originators accountable. The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act was passed into law to curb negligent and reckless borrowing. It was also intended to prevent fraudulent transactions and boost consumer confidence.
A big part of this law meant having a national identification system in place to track loan officers and their work history. If someone had been dishonest or failed to disclose lawfully required information to the consumer, potential lenders and consumers could run a quick background check on them and find out about it.
Hence, the Nationwide Mortgage Licensing System & Registry (NMLS) was born. It’s a database that tracks every loan originator in the country by assigning them a unique identification number. You’ll see this clearly displayed on any loan originator’s profile as their “NMLS ID#.” Going by an identification number is particularly helpful since there are a lot of people with similar names (e.g. John Smith). You can look up anyone’s NMLS record here.
The loan originator will carry their unique identification number for the rest of their career.
Obtaining an NMLS ID# doesn't mean you're licensed.
These are two completely separate things.
Loan officers who work for direct lenders, such as a bank or credit union, need to have a NMLS ID#, but do not need to be licensed. In fact, many of these financial institutions prefer that their loan officers are not licensed due to potential conflicts of interests.
Loan officers who work for mortgage brokers and other financial institutions that are not direct lenders need to be licensed to legally originate loans. That means that these types of loan officers will need to have both a NMLS ID# and a Mortgage Loan Originator (MLO) license.
Many people use these terms interchangeably to mean the same things, which causes a lot of confusion.