« In health bill, billions for parks, paths
Apartment vacancies highest since 1987 »

Stricter rules for mortgage brokers keep hundreds out


Wal-Mart.com USA, LLCmortgage_licenseBy Todd Wallack - Boston.com - July 9, 2009

In its first year of licensing mortgage professionals, Massachusetts disqualified hundreds of applicants from working in the industry because they had criminal records, shoddy finances, or other questionable history.

Nearly one-fourth of the 7,747 applicants for a mortgage origination license in the state’s most recent fiscal year were rejected or withdrawn, after Massachusetts adopted regulations that prohibit felons, those convicted of misdemeanors related to fraud, or people with a record of financial mismanagement from handling mortgages.

The vast majority of the rejected applicants had already been working as mortgage brokers or loan officers in Massachusetts prior to the new licensing requirements. Some had been previously convicted of bank, insurance, or securities fraud, while others had poor credit histories.

The licensing requirements took effect in 2008 in the wake of the subprime mortgage crisis that triggered the waves of foreclosures sweeping the country. Housing advocates contend that many unsophisticated borrowers were the victims of unscrupulous mortgage agents who talked them into loans they did not understand and could not afford.

Grace Ross, coordinator for the Massachusetts Alliance Against Predatory Lending, a watchdog group, expressed dismay at how many former mortgage professionals had problems. “People assumed they were dealing with professionals, and brokers were hired all over the place with no regard for the most basic standards,’’ she said. “It’s really good that after the fact, we are in trying to license. Obviously, we needed to do this.’’

Over the past three years the Massachusetts Division of Banks said it has brought 377 formal and informal enforcement actions against mortgage companies for, among other problems, falsifying borrowers’ income in order to qualify them for loans.

Just yesterday in New York, 13 people and the mortgage company they worked for, AFG Financial Group, were indicted on larceny and fraud charges. Prosecutors said they cheated lenders out of as much as $100 million by using phony real estate transactions.

Earlier this week, the Federal Bureau of Investigation reported that “mortgage fraud continued to be an escalating problem’’ across the country in 2008, and predicted the ongoing recession presents “a favorable environment for expanded mortgage fraud activity.’’

In Massachusetts, regulators said they are prohibited from saying why any one individual was rejected because criminal records and credit histories are protected information. Regulators yesterday did provide the names of 186 rejected applicants, but no other details, such as where they had worked. The Globe was unable to reach some of the rejected applicants provided by the division.

But regulators said they had documented and rejected 94 felons, including several who had been convicted of violent crimes, such as manslaughter and assault and battery with a dangerous weapon.

Others were rejected because they had poor credit or other financial problems, including one with a credit score of 400. Since mortgage professionals advise borrowers on what is often the largest financial transaction of their lives, state regulators want to be sure they practice what they preach. And they want to make sure loan officers aren’t so desperate for commissions that they steer applicants into loans they can’t afford or that don’t make financial sense.

“The public needs to know they are sitting across the table from someone who is financially responsible themselves and is not going to be in a position where they are going to abuse the consumer,’’ said David J. Cotney, deputy commissioner at the Massachusetts Division of Banks.

The banking division said an additional 1,323 applications were withdrawn or terminated after the agency spotted potential red flags and demanded more information. For instance, applicants may have indicated a misdemeanor conviction - but either withdrew or didn’t respond when regulators pressed them for more details.

While generally welcoming some uniform licensing standards, mortgage industry professionals worry the Massachusetts standards are too rigid. Some applicants may have a felony conviction for a crime that has nothing to do with financial matters, said Kevin M. Cuff, executive director of the Massachusetts Mortgage Bankers Association. He said he knows of one mortgage veteran who now can’t work because of a marijuana conviction dating back 37 years.

“He had a 25-year career, and now he’s out on the street,’’ Cuff said.

Mortgage banker Brian Koss, managing director of the Mortgage Network Inc. of Danvers, said he’s been unable to hire otherwise qualified workers who couldn’t get a license because of credit problems. But Koss said it shouldn’t be surprising that many applicants have financial problems, because the sharp downturn in the mortgage business has slashed commissions.

“2007 and 2008 were two of the worst years we’ve had in the mortgage business. A lot of guys got pushed out because they were late on their mortgage,’’ said Koss, who noted that none of his current employees were rejected.

A federal law passed last year with the support of the mortgage industry encouraged states to set minimum licensing standards for mortgage professionals. National banking regulators are in the process of setting up an online database to let consumers look up any mortgage loan originator nationwide.

[Digg] [Facebook] [Google] [MySpace] [Reddit] [Technorati] [Twitter] [Yahoo!] [Email] More »

This entry was posted on Thursday, July 9th, 2009, 5:07 am and is filed under Housing Market. You can follow any responses to this entry through RSS 2.0. You can leave a response, or trackback from your own site.

  1. No comments yet.
(will not be published)
  1. No trackbacks yet.