Loan Fraud Registry Planned

Concerned about rising mortgage fraud, state regulators are developing plans to create a national registry that would show enforcement actions against lending industry insiders.

The database is expected to include disciplinary actions and license revocations imposed on industry workers including mortgage brokers, finance company loan officers and appraisers.

The need for the registry, experts say, is being driven largely by the rapid expansion of independent mortgage brokers.

Mortgage brokers work as intermediaries between borrowers and a variety of lenders, unlike staff loan officers who work for a single bank or finance company. These independent brokers now write a majority of the home loans in the country, up from an estimated 20% in the late 1980s.

Industry officials acknowledge that brokers have played a role in rising mortgage fraud, such as falsifying appraisals and income statements, and they say they support efforts to rein in offenders.

“There have been examples all over the country of people who have either wittingly or unwittingly run afoul of the law, and we’d like to see those people out of the business,” said Joseph Falk, chairman of the National Assn. of Mortgage Brokers’ government affairs committee. “Repeat offenders,” he added, “are responsible for a significant percentage of the problems in the industry.”

Mortgage lending activity has surged in recent years as property values have shot up and homeowners have refinanced to take cash out of their homes. But fraud is also on the upswing. According to the FBI, reports of mortgage fraud have tripled to 21,994 over the last two years, with the dollar value of alleged crimes topping $1 billion.

The effort to create a national database is being spearheaded by the Conference of State Bank Supervisors and the American Assn. of Residential Mortgage Regulators, groups that represent regulators at the state level.

A goal of the database is to take information that is currently scattered among regulatory bodies, sometimes within the same state, and make it more easily available to consumers and enforcement authorities.

“It will hold companies and professionals more accountable,” said Bill Matthews, senior vice president at the Conference of State Bank Supervisors. “People who don’t play by the rules and aren’t honest will get kicked out of the industry.”

The two organizations hope to have the database running in 2006.

Independent brokers account for 68% of U.S. home loans and employ 418,700 people, according to Wholesale Access, a research firm that specializes in the mortgage industry.

“They’ve taken over the mortgage market, for all intents and purposes,” said Tom LaMalfa, managing director of Wholesale Access.

In California, there are about 25,000 mortgage brokers who account for perhaps 80% of the loans in the state, according to the California Assn. of Mortgage Brokers.

Brokers licensed by the California Department of Real Estate must undergo a criminal background check. Consumers can also see whether there has been disciplinary action against a broker in California by visiting the department’s website at www.dre.ca.gov and entering the broker’s name after clicking on “Check license status.”

California is considered to have one of the nation’s tougher regulatory regimes, but critics say the rules are inconsistent. For example, independent brokers must be licensed, but loan officers working for companies that hold a financial lender’s license from the state Department of Corporations do not have to be registered and do not have to undergo background checks.

John Marcell Jr., president of the California Assn. of Mortgage Brokers, said he was recently getting his Lexus repaired when a salesman at the dealership tried to interest him in a new car.

“He said, ‘I sell cars on the weekends and do mortgages during the week.’ ” recalled Marcell, who runs Better Mortgage Brokers in Upland. “I said, ‘Do you have a license?’ He said no.”

To Marcell, it makes more sense for anyone making loans to be licensed. Until then, he said, creating a national database “is a very needed step in the right direction” because it will help prevent crooks from moving from state to state.