A proposal to register Colorado mortgage brokers is a sensible approach to fighting fraud in the real estate business, especially as non-traditional lending sources gain popularity.
Colorado shares the dubious distinction of current having unlicensed mortgage brokers with only one other state – Alaska.
A state Department of Regulatory Agencies’ proposal would require mortgage brokers – intermediaries between borrowers and lenders – to pass criminal background checks, register with the Division of Real Estate and post a $100,000 bond every three years. The plan stems from a request by the Colorado Association of Mortgage Brokers to review if an activity should be regulated. The report cites such scams as falsifying credit and employment data to get loans; overinflated appraisals to snag bigger fees; equity skimming in which homeowners lost their houses in rent-back loan schemes, or hiking interest rates at closing. Losses have been in the millions of dollars.
A tougher proposal with educational and testing provisions was aired in 2001, but DORA spokesman Geoffrey Hier said “we didn’t see how (it) was going to protect the public.”
Officials acknowledge now that there have been numerous abuses in the interim.
The Colorado Mortgage Lenders Association president Chris Holbert opposes the proposal, noting that licensing hasn’t stopped fraud in other states. A more effective tool, he suggests, is a law to protect lenders from lawsuits by applicants to encourage underwriters to report to prosecutors applications they reject as fishy.
That idea has merit, but only if brokers are regulated here. Scam artists looking for new locations have “only one place to go,” says Scott Mieklejohn, president of the mortgage brokers group. And it isn’t Alaska.
