Colorado, which has lagged behind most other states on tackling mortgage-related crimes and criminals, has enacted a new set of laws and regulations targeting mortgage fraud.
Gov. Bill Owens has signed a bill into law that for the first time regulates the mortgage industry.
Alaska remains the last frontier for unlicensed originators.
Under the new law, mortgage brokers will have to undergo background checks when applying for a license and post a $25,000 surety bond. Also, anyone convicted of fraud in the previous five years will be denied a license.
“Mortgage fraud is among the most cynical crimes imaginable. These criminals prey on the American dream, taking advantage of Americans’ desire for a home to call their own.,” Owens said in a statement. The bill “will help to ensure that Coloradans are protected.”
A leading mortgage professional group said it welcomes the new regulations, which it views as important to consumer protection because it should cut down on identity theft.
Stolen identifies and pilfered personal information are often components of mortgage fraud, said Scott Meiklejohn, executive director of the Colorado Association of Mortgage Brokers.
“We’re ecstatic,” Meiklejohn told MortgageDaily.com. “We really want to protect consumers with regard to the bad actors in the system.”
Meiklejohn said the association has been pushing for the new regulations for a decade. Because Colorado has not regulated the industry the state attracted rogue and unscrupulous brokers, he said.
Last year Colorado had the fourth worst fraud rate in the nation behind Florida, Utah and Georgia, according to a study done by The Mortgage Asset Research Institute.
“Because we were one of two states without regulation, everybody who lost a license came here,” Meiklejohn said. “We were the bottom of the drain. And we wanted to put a stop to that.”
Association President Jason Berman, owner of Sierra Funding mortgage brokerage in South Denver, said the only brokers exempt from the regulations are those handling government FHA loans.
“We’re pleased … even though it’s not affecting all brokers,” Berman said in an interview. “Our goal is to get felons out of the business and our first step is to convince the public they are not dealing with convicted felons.”
Berman said previously “anyone could put out a shingle and call themselves a mortgage broker.”
“Overall it’s a step in the right direction,” he said, “but a lot more enforcement is needed.”
Berman said the surety bond will cost brokers $300 to $400 a year.
Owens has also signed two other bills into law that add further regulation and scrutiny to the mortgage industry.
One law establishes a minimum fine in mortgage fraud convictions, places the crime under the jurisdiction of state and local prosecutors and forbids plea agreements that do not include restitution.
Another is designed to “protect homeowners who are facing foreclosure from being victimized by predatory business schemes,” according to a statement from Owens’ office.
It requires that all transactions between homeowners and foreclosure consultants or equity purchasers be in writing; prohibits consultants who provide advice or assistance from acquiring any interest in the homeowners property; and requires a three-day “cooling off” period during which the buyer of a property’s equity is prevented from recording any deed or transferring or encumbering the property in any way.
