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Newsletter - January, 2006
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Table of
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Colorado Mortgage Broker Update
In a decisive and positive move,
the two preeminent state mortgage industry trade groups, Colorado
Mortgage Lenders Association (CMLA) and Colorado Association of
Mortgage Brokers (CAMB), seem to have reached an agreement and have
joined together to move a bill that will originate and finance a
committee to enforce actions against those who commit mortgage fraud.
The long debated Mortgage Broker Registration Act
that has been steadily supported by CAMB but extensively opposed by
CMLA, was introduced last Wednesday by state Representatives Tom Massey
and Val Vigil.
Although CMLA continues to dispute that registering
mortgage brokers will in any way decrease the incidences of fraud, they
have made a statement in their current newsletter that “registration is
such a popular idea that it seems inevitable-” but adding “beside
populist support, there is a legitimate argument for bringing
‘everyone’ inside the regulatory tent.”
To that end CMLA is working to support the proposed
Mortgage Enforcement Act which calls for less stringent requirements
than the Mortgage Broker Registration Act recommended by DORA.
The Mortgage Enforcement Act proposes a $75
registration fee for every three years with no bonding requirement at
all. CMLA’s newsletter article about the Mortgage Enforcement Act
did not cover the subject of criminal background checks or actions to
be taken against brokers who practice without registration.
A January 20th article in the Denver Post reported
that both groups “take issue” with the proposed bonding requirement and
CMLA states in their current newsletter that a $100,000 bonding
requirement “translates to $1,000 to $1,500 per year per individual,” a
quote that seemed overstated since as an appraiser I carry one million
dollars of coverage for which I pay $1,330 annually. However, it
was explained to me by CAMB’s G. Glen Bartholomew that, as written, the
$100,000 bond is required to be in the form of cash and not the more
cost effective and less prohibitive to independent business people form
as that of E&O insurance.
If one looks at a very conservative estimate that a
typical loan originator makes 1% of the loan amount on the mortgage of
a property, then he or she would make $2,000 on a $200,000 loan.
The prospect of making a lot of money as a mortgage broker is
substantial, which is the reason there are so many unethical mortgage
brokers out there.
It is logical to believe that no bonding requirement
and a registration fee that averages out to only $25 a year will be
little deterrent to unethical behavior. And although the method
of bonding would certainly be more reasonable and equitable in the form
of E&O insurance, it must be remembered that E&O is not
effective in the incidence of fraud.
Chris Holbert, president of CMLA, is quoted in the Post article that, “Bonding
probably does less to the bad person of good means than the good person
of limited means. To collect on a bond, you need a conviction in
court.” And adds “People who have been taken advantage of
don’t have the means to go to court.” This seems faulty rhetoric
as the people who have been taken advantage of and have no money to
pursue settlement through the court system were put in that position by
an unethical mortgage broker.
The innovative part of the Mortgage Enforcement Act
is a proposal to implement a fee paid by the lender, and not to exceed
$5, on every closing on every loan on any property in Colorado.
If this proposal becomes actuality CMLA states the moneys collected
“would be earmarked for enforcement against any loan originator,
regardless of what type of company they work under, who commits a crime
in relation to a mortgage loan.”
CMLA has long maintained that enforcement is the
only way to effectively combat mortgage fraud
and this decisive move is a solid step in making that belief a
reality. CMLA comprehensively covers their views on this topic
and others on their website www.cmla.com.
In the fight to prevent mortgage fraud, we all
continue to struggle. This challenge is not unique to Colorado as
all states grapple to try and find a faultless solution to stop the
mortgage fraud epidemic caused by the greed of unethical persons.
The debate rages on, not only at the states level
but nationally as well. As the industry-backed Ney-Kanjorski bill
and the consumer advocate-backed Miller-Watt bill appear to be bogged
down in the legislative process, Representative Lacy Clay from Missouri
has crafted H.R. 4471, a bill that attempts to bridge the differences
between the two and bring more individuals into agreement.
The first line of defense against greed motivated
unethical real estate practice is refusal to take part in inappropriate
transactions, and the only participant not commission based in a
position to take this stance is the appraiser. We then must look
to highly ethical realtors and mortgage brokers to adequately “self
police” and follow through with appropriate complaints. It is in
this aspect that registration and/or licensing will help in the
mortgage brokerage environment.
And although the process seems slow going, it is
important to support the positive steps taken by diverse interests who
resolve to continue working together to protect both the consumer and
the health of our economy and respective business interests.
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