State may seek to regulate mortgage broker industry
GREELEY – For who knows how long, Colorado has stood practically alone.While 48 other states watched over their mortgage brokers, Colorado paid little mind while mortgage fraud inclined sharply.Legislation awaiting the governor’s signature could soon change that. But some wonder: Is it too little, too late?The Mortgage Brokers Registration Act is expected to pare a system rife with fraud by keeping tabs on all mortgage brokers through fingerprinting, background checks, and with formal registrations and bonding requirements.”Part of the concern we have is that mortgage brokers are the only part of the real estate transaction that’s not regulated,” said Scott Meiklejohn, executive director of the Colorado Association of Mortgage Brokers, an agency that has worked for eight years to pass the legislation. “Consumers assume we are and that makes it very dangerous.”While mortgage brokers have remained unchecked, Colorado’s foreclosure rate has skyrocketed to fifth in the nation. In Weld County alone, foreclosures reached an all-time high of 1,500 last year and are up 30 percent for the first three months of this year. Much of that, industry insiders believe, stemmed from the refinancing boom that began in the ’90s and grew through the millennium. “We were the stockbrokers of the ’90s when the market was booming,” said Tom Beck, co-owner of Lighthouse Lending in Greeley. “Everyone thought the mortgage industry was a get-rich-quick scheme. Unfortunately, now, there is less business and, as the pie gets smaller, there are a lot of people who are becoming more desperate to find a way to write a mortgage, and they’re pushing envelopes and flat-out doing some illegal things to make something work.” In northern Colorado, the bill could mean regulation of more than 240 mortgage firms, which in the last year have only received about 25 complaints to the Mountain States Better Business Bureau.Common mortgage fraud schemes include equity skimming, inflated appraisals and property flipping, all of which require a mortgage broker to process. And, most scams create a larger monthly payment than borrowers can afford, which can eventually result in foreclosures. Regulation is expected to weed out brokers who may have a record of financial fraud and criminalize brokers who operate without registering. It also gives consumers an avenue to fight back.”What will happen now is that we have your name on a list, and there will be a place that someone can actually call and complain about you, and there will be someone keeping track of complaints,” said Rep. Val Vigil, D-Thornton, who sponsored the bill. “That in itself, knowing that people can report you and someone does have your name, should suffice.”The bill also would require mortgage brokers to post a $25,000 bond, which means consumers could seek monetary reimbursement if their broker charged fraudulent fees and left town. That’s the only element of the legislation that CAMB and many mortgage brokers aren’t happy with.”We’ll have to charge more money because it will cost us more every year,” said Michael Knapp, one of four owners of First Mortgage Source in Loveland. “It will give a bond company great profits. Good for them.” Some in the industry, however, prefer a licensure program, such as what real estate or insurance agents or appraisers undergo with education and testing. “What licensing does is keeps us accountable on a daily basis,” said Angel Fuchs, a loan officer with American Home Mortgage in Greeley. “What I’ve seen is that there are a lot of loan officers who don’t really understand what is fraud and what isn’t, what’s crossing the line, and that’s what licensing would force them to have to know.”Full-fledged licensing of mortgage brokers has been resisted for eight years because of the government regulation, Meiklejohn said.Unlike licensure, registration doesn’t bring an education component, which Beck and Fuchs say is vital to regulate the industry.”Registration will alter it, slow down the fraud a bit, but I don’t think it will put a stop to it. The way to change things is through education,” Beck said. “I wish they would have done a lot more even two to three years ago when interest rates were real low and everyone wanted to be a mortgage broker, but it’s great that they’re doing something and moving in the right direction.”About the lawHouse Bill 1323, the Mortgage Broker Registration Act, awaits the governor’s signature to become law July 1. It would be enforced beginning in January.The bill would require every individual mortgage broker in Colorado to:- Register with the state every three years at a cost of no more than $200;- Submit to criminal background check and fingerprinting;- Post a $25,000 bond and maintain it annually.Other provisions of the bill: – Loan officers with banks and credit unions would be exempt from such regulation.- Any mortgage broker operating without being registered could be charged with a Class 1 misdemeanor, punishable by six to 18 months in jail and up to a $5,000 fine. – The rules would apply for five years, at which time the state would review the program to determine its worth; the legislature could at any time create a bill to change the program.
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Colorado Gov. Jared Polis has tested positive for the coronavirus.