Two leading Colorado legislators hope to combat a record-setting wave of foreclosures by licensing mortgage brokers and penalizing those who recommend home loans that buyers cannot afford.
At a news conference Monday, Senate President pro tem Peter Groff announced a bill that would require licenses and insurance for home-loan originators and give the state Division of Real Estate director the power to summarily suspend licenses.
In the House, Rep. Rosemary Marshall who chairs the business-affairs and labor committee, introduced a separate bill that prohibits false home-loan advertising and requires mortgage brokers to recommend loans that account for a homebuyers ability to make payments.
One feature of Groffs bill could substantially change home sales in Colorado. It would require mortgage brokers to provide borrowers all documents at least two business days before closing the loan. At the moment, homebuyers receive the bulk of their financial-disclosure documents at closing.
Supporters say the change will give buyers a chance to show the loan papers to a lawyer or housing counselor before making the biggest financial decision of a lifetime. Critics call it an unprecedented requirement that would force national lenders to change how they issue home loans.
For most of the past year, Colorado has suffered from the nations highest foreclosure rate, Groff said. He called his bill a substantial effort to really deal with the wave of foreclosures swamping this state.
Groff said he recognizes that the lending industry opposes new regulation and believes licensing is an ineffective means of attacking foreclosures.
But the laws we have now clearly are not working, he said. This will really put brokers on notice that were going to watch their behavior.
Last year, The Denver Post examined Colorados foreclosure epidemic in a series, Foreclosing on the American Dream. The newspaper found that most foreclosure victims bought houses with no money down, that some signed loans whose mortgage payments exceeded half their income and that inflated appraisals led to loans that exceeded the value of the house.
Michael Hancockpresident of the Denver City Council, welcomed the legislative response, calling it vital to counteract the foreclosures ravaging neighborhoods he represents.
I cant tell you how important these bills are, he said.
Colorado Mortgage Lenders Association president Chris Holbert questioned whether licensing requirements affect foreclosure rates.
North Carolina and Ohio, for example, passed aggressive anti-predatory lending legislation and licensing requirements, he said, and yet both states are confronted with a troubling number of foreclosures.
Holbert also said lenders are concerned about the requirement to provide loan documents two days in advance and a provision that would eliminate the exemption from state regulation for Federal Housing Administration loan originators.
Most FHA loan originators are employees, not independent contractors, he said.
Why would we include people who are not mortgage brokers? Holbert asked.
Jim Spray, a mortgage lender who advises homeowners facing foreclosure, said he welcomes broker licensing but was disappointed that Groffs bill does not require education, testing or a code of ethics.
And he called the proposed two-day advance copy of home loan documents impractical.
It would require every mortgage company in the United States to change what they do, he said.
Staff writer David Olinger can be reached at 303-954-1498 or dolinger@denverpost.com.
