In coming weeks, thousands of Colorado mortgage brokers must be fingerprinted, undergo criminal background checks and register for a new state-run database.
The Mortgage Broker Registration Program, created by a new state law this year, is designed to protect consumers by banning convicted criminals from the mortgage-brokerage industry. Previously, there was no such prohibition.
Starting Jan. 1, the program will also give aggrieved consumers a forum where they can can complain about mortgage brokers.
“We have no idea who is making loans right now,” said State Rep. Val Vigil, D-Thornton, a sponsor of the legislation to create the registry. “We will now have a list.”
In some cases, lawmakers say, consumers seeking mortgages have handed over sensitive personal information to former felons and identity thieves. Vigil noted one case in which a broker closed on a mortgage from behind bars.
Fly-by-night mortgage operations expelled from other states by regulators have been drawn to Colorado, which, along with Alaska, was one of only two states that didn’t regulate the industry, Vigil said.
Colorado ranks among the top states for the issuance of higher-risk interest-only and adjustable-rate mortgages, for mortgage fraud and for its ratio of homes in foreclosure.
Brokers handle about 70 percent of the mortgages made in the state, said Scott Meiklejohn, executive director of the Colorado Association of Mortgage Brokers, which supports the tighter controls.
Under the new law, brokers must obtain a criminal-background check, register with the state and obtain a surety bond of $25,000. Individuals with theft, fraud or other serious convictions or those who have lost their mortgage-brokerage licenses in other states can’t provide mortgages.
Brokers who don’t register are subject to fines and up to two years in prison.
“Mortgage brokers, you need to be registered by Jan. 1, but it won’t happen overnight,” said Tambor Williams, executive director of the Colorado Department of Regulatory Agencies.
Background checks, which require fingerprinting, are taking 10 weeks to process, said Geoff Hier, who will oversee the registry until a permanent director is hired next summer.
An estimated 3,000 mortgage brokers are expected to register in the state. Brokers already approved to work with the Federal Housing Administration and those employed by regulated lenders don’t need to register.
Although the registry is an important first step, Colorado Attorney General John Suthers cautioned consumers against developing a false sense of security.
Even if a mortgage broker has a clean criminal record, that person won’t necessarily be competent enough to provide a suitable loan or to say no to borrowers who aren’t qualified.
“Start with the most reputable mortgage lender you can,” he said. “If you are denied, you might think about why. Chances are you are not a good loan prospect.”
Two other new laws are also designed to cut real-estate fraud.
One sets guidelines for foreclosure investors in their dealings with distressed homeowners. Another requires brokers guilty of mortgage fraud to pay a mandatory minimum fine equal to the financial harm they cause.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
HB 1161
Establishes regulatory requirements for mortgage brokers, including FBI background checks
SB06-071
Outlaws “certain deceptive” business practices
Requires purchasers of houses in foreclosure to provide information on potential foreclosures
HB06-1323
Imposes mandatory minimum fines in fraud cases
Prohibits plea bargains unless they include restitution
Gives the attorney general prosecutorial power in mortgage fraud
