New mortgage law targets rogue brokers

TALLAHASSEE — Trying to shake Florida’s status as a capital of mortgage fraud, Gov. Charlie Crist is expected to sign sweeping legislation that calls for annual criminal background checks for people selling loans, strict bans on felons and a fund to help victims scammed by rogue brokers.

The new regulations — among the toughest in the country — represent the biggest changes to the state’s mortgage laws in a half century.

“We would like very much to lose our high ranking for mortgage fraud in the country,” said Rep. Ritch Workman, a Melbourne Republican who helped push the legislation that passed both chambers last week. “This will go a long ways toward doing that.”

Lawmakers said their goal was to improve oversight of an industry troubled by crooked brokers, especially during Florida’s historic housing boom when one in four mortgages was tainted by fraud, according to 2007 national industry analysis.

The legislation targets many of the problems revealed in a Miami Herald investigation last year that showed 10,000 people with criminal histories — including bank robbers and racketeers — were allowed to sell mortgages in Florida since 2000.

Some of those same brokers went on to rip off borrowers and lenders of nearly $100 million, the newspaper found.

Workman said the new rules will make it “much harder to masquerade as a mortgage broker if you are a criminal.”

Starting next year, brokers will have to submit to criminal background checks each year — with fingerprints screened by the state and FBI.

Those convicted of felonies, including fraud or money laundering, will be permanently barred from the industry. In pressing for the yearly checks, lawmakers hope to weed out brokers who are arrested after they are licensed — a growing problem identified in The Miami Herald investigation.

The newspaper found 564 people who were convicted of crimes after getting their licenses — including at least 20 convicted of mortgage fraud. All were allowed to keep selling loans.

For people convicted of felonies involving moral turpitude — including assault and drug trafficking — the state will impose a 15-year ban on licensing, and other felonies will draw a seven-year ban. Those found guilty of some misdemeanors, including fraud and theft, can be banned for five years.

The new legislation also mandates that everyone selling loans in Florida be part of a national registry mandated last year by Congress that tracks brokers while providing their employment histories to the public.

“It provides more transparency for people,” said state Sen. Garrett Richter, who cosponsored the legislation.

The new rules also require brokers to submit personal credit reports each year to the state and to disclose bankruptcies.

In addition to stricter licensing, the Florida legislation attempts to help people who have been defrauded by brokers.

A special state fund will be created to pay victims if they successfully sue their mortgage broker, but can’t collect because the broker becomes insolvent.

Each borrower would be eligible for up to $50,000. If there were multiple claims against the same broker, payouts would be capped at $250,000. The money will come from broker application fees.

Until now, nearly every state except Florida provided some help to compensate victims of loan fraud.