The National Mortgage Licensing System (NMLS) is the regulatory response to the many compliance issues that plagued the home lending industry in the heady days that led to the housing bubble burst, the subprime mortgage meltdown, the credit crunch and the present economic difficulties.

Prior to the NMLS, the regulation and licensing of mortgage brokers and loan officers in the United States was less than diligent. Licensing of home loan officers fell under the purview of each state's regulatory body, and getting mortgage professionals licensed was either an easy endeavor or an utter mess. Unscrupulous brokerages and individuals often skipped the licensing and registration process, which in turn resulted in unprofessional, unethical and sometimes fraudulent practices.

The NMLS was implemented in 2009 after the Housing Economic and Recovery Act. The legislation required each state to ensure the proper testing and licensing of Mortgage Loan Officers (MLOs). Uniform licensing standards were established on a federal level, and minimum requirements regarding the education and testing of MLOs. The main idea behind the NMLS is that MLOs should be thoroughly tested and vetted prior to being assigned a Unique Identifier Number (UIN). This number should be provided by an MLO upon request, and it must appear on documents related to a mortgage application.

Registration in the NMLS requires MLOs and other individuals who offer or negotiate terms on a home loan transaction to take a two-part test. Under the provisions of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE), MLOs must take a national component and a state component licensing test. Some state agencies require MLOs to obtain a minimum score prior to NMLS registration. The content of the state component varies, depending on where each individual MLO wishes to do business. For example, an MLO who wants to originate loans in Florida will be specifically tested on Chapter 494 of the Florida Statutes, and rules 69V-40.001 and 40.290 of the Florida Administrative Code. In Massachusetts, an MLO must be familiar with the Community Reinvestment Act and the right to cure a mortgage loan after default.

For untrained MLOs, the NMLS test is not easy, and the failure rate can be high. Preparation for the state and federal components is crucial. Without achieving the minimum scores, MLOs are not allowed on the NMLS registry and therefore cannot originate loans. While these written exams can be retaken, mortgage brokerage firms and lending institutions are strongly advised to take the adequate steps to properly train their MLOs before they attempt to take the test for the first time.