State Sen. Chris Romer has been waiting two years for the mortgage industry to address what he calls the “insanity” of Colorado’s foreclosure crisis.
Now, it’s his turn.
In the coming weeks, Romer and other members of the General Assembly – notably Senate President pro tem Peter Groff, Senate Finance Committee Chairwoman Paula Sandoval and Rep. Rosemary Marshall – seem likely to do to the home-loan business what the home-loan business has not done to itself: clamp down on mortgage brokers.
The most telling thing Romer heard in last week’s roundtable session between legislators and lenders was this: “Third-party mortgage brokers have no fiduciary responsibility.”
Those fancy words mean the guy or gal arranging your loan doesn’t have to make sure you can afford the home payments you’re about to incur. He or she doesn’t have to make sure you know what’s in the fine print.
When the folks who arrange a loan must also bear financial responsibility if it fails, they behave a lot differently, Romer said. With unlicensed third-party mortgage brokers setting up 70 percent of new home loans, said Romer, there is “a license for abuse.”
Marshall agreed. While industry representatives talked down the value of government regulation, Marshall talked up the number of complaints of mortgage fraud received by the Colorado attorney general, state prosecutors and the FBI. Marshall said they’d been “inundated.”
“The number of complaints suggest unscrupulous behavior,” said Marshall, who cited The Denver Post’s ongoing series “Foreclosing on the American Dream” for exposing lending problems.
Ample evidence exists of the mortgage industry’s inability to police itself. There have been roughly 6,400 calls to a state foreclosure hotline since it was established in mid-October, said Zack Urban, who runs the program.
“I represent an area with the highest number of foreclosures in the city,” added Denver Council President Michael Hancock. “The highest growth in foreclosures is among the immigrant population. Some of the stories are horrific. Foreclosures have an unbelievable impact on the entire community.”
So the pleas of industry officials not to be subjected to more regulation and licensing will not fall on deaf ears. But they will be taken in context.
That context includes people dangling no-money-down loans, adjustable-rate mortgages that don’t even cover the interest, and puffed-up prices with kickbacks in front of folks desperate to realize the American dream.
Personal responsibility?
You’re preachin’ to the choir.
Buyer beware?
You betcha.
As Kathi Williams of the Colorado Division of Housing said so poignantly: “Not everyone is cut out to be a homeowner.”
At the same time, naivete, poverty or ignorance should not make people fair game for brokers, real estate agents, appraisers and bankers who exploit them to collect fees, then transfer all the risk and misery to someone else.
The lending industry supports greater enforcement of existing laws. It supports letting the attorney general take civil action, as well as criminal action, against unscrupulous lenders.
Enforcement is a good start. But as lawyer Jerry Stevens told the round table, criminal loan fraud is very hard to prove, and if you can get a hearing for a civil case before 2012, count your blessings.
What it comes back to is regulation.
All transactions must require independent appraisers. All loan decisions must be made in ways that do something besides line pockets.
“A doctor explains the side effects of medicine,” Hancock said. It is not too much to ask mortgage brokers to explain the side effects of risky loans.
And, said Romer, it likely will not be too much for the legislature to license folks to make sure they do it right.
“If a regulator can pull your license,” he said, “you tend to pay attention to the rules.”
Jim Spencer’s column appears Monday, Wednesday and Friday. Reach him at 303-954-1771 or jspencer@denverpost.com.
