When there are loopholes in the system, even criminals can slip through. And unfortunately for hundreds of unsuspecting borrowers, that’s exactly what happened in Florida when state regulators approved mortgage brokerage licenses for thousands of ex-cons. And if that didn’t work, thousands of others were allowed to squeeze by as unlicensed loan originators not subject to the same standards as licensed mortgage brokers, but able to perform the same service.
What Happened in Florida
What state regulators did was unfathomable, from turning a blind eye to obvious past criminal activity uncovered in background investigations to accepting a written character reference from an applicant’s mother. The state of Florida allowed “thousands of ex-convicts to enter a profession that gave them access to the most sensitive and personal financial information: credit cards, bank accounts and Social Security numbers,” according to a Miami Herald report. What ultimately happened was that these criminals went on to commit nearly $85 million in mortgage fraud by stealing their clients' identities, money and homes.
“Since 2000, regulators failed to weed out people with criminal histories, monitor scam operations and discipline crooked brokers,” the Miami Herald investigation found.
And even though the mission statement for the Florida Office of Financial Regulation (OFR) states that it is dedicated to safeguarding the public from fraud, they allowed a group of cons, guilty of 2,821 financial crimes, “including 922 larcenies, 752 frauds, 327 burglaries, 161 forgeries and 67 robberies,” to reign down upon unsuspecting borrowers.
How Home Buyers Can Protect Themselves
For anyone who is in need of home refinancing or is a first-time home buyer, there are reputable organizations – such as the American Association of Residential Mortgage Regulators (AARMR) or the National Association of Mortgage Brokers (NAMB) -- that regulate the mortgage industry and can provide brokers with membership or certificates based on meeting minimum criteria. Homebuyers should make sure the broker they deal with has the proper membership or credentials and is qualified to finance home mortgages.
To help home buyers select the right mortgage broker, here are five tips from Jack Guttentag, the mortgage professor, as to what makes a good mortgage broker.
- First and foremost, good brokers are selected by borrowers, not the other way around. That means referrals -- and lots of them – from past customers, real estate agents, Realtors®, and others. It’s not that they never solicit business; it’s that they are less likely to need to.
- Second, good brokers consider the home buyer’s needs. Is this refinance in the home buyer’s best interest? Does this loan fit into home buyer’s current financial situation? They are genuinely interested in seeing that whatever action their client takes is for the better.
- Third, good brokers are good listeners. They really hear what each client has to say about their concerns and desires and consider these before presuming to know what kind of loan package works best for them.
- Fourth, good brokers act on their client’s behalf when dealing with a lender or third party by guaranteeing the lender fees in a Good Faith Estimate or seeking out the best possible prices.
- Finally, good brokers keep the home buyer in the loop; no hidden agendas. They have their client’s best interest in mind.
Before seeking financing for a new home, home buyers need to make sure they know who they are dealing with. Do research, get references and referrals. Don’t get conned into signing on the dotted line.
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