The newspaper found that convicted criminals went on to steal at least $85 million from consumers and lenders.

In fact, the state report showed, there were even more problems with the background checks.

Auditors found that state regulators failed to conduct federal background checks or submit fingerprint cards of the applicants to the Florida Department of Law Enforcement until March of this year -- just days after The Herald made a series of requests for the criminal histories of mortgage brokers.

The auditors found the agency was relying on birthdates and Social Security numbers to do background checks, leaving fingerprint cards -- crucial to determining criminal histories -- in office files, unused.

The auditors wrote that Saxon said he was "not aware of the strict language" of the law and "did not believe" the Legislature meant for him to immediately implement the federal background checks required by law in 2006.

The Miami Herald found 88 former federal criminals were licensed by regulators, including former bank robbers.

While state auditors found 588 people with serious criminal backgrounds who were granted licenses since 2003, The Herald examined brokers from the entire decade, finding 2,000 with felonies, and another 2,000 guilty of lesser crimes.

The Herald's investigation also found scores of brokers were able to commit crimes while licensed -- including mortgage fraud -- and stay in the business.

Saxon said it would have been difficult to catch brokers convicted of crimes after they were licensed because the law didn't require the agency to do background checks once they were in the industry.

But auditors found regulators could have taken a more proactive approach by conducting the checks.

The probe also described an agency fraught with "internal tension" that led to breakdowns in its ability to police the industry.

The two enforcement arms -- administrative and criminal -- rarely communicated, the report found. Agency examiners were often kept in the dark on law enforcement investigations, and as a result, rarely pulled brokers from the business. Of the 51 criminal cases closed by the office between 2003 and 2007, the report found only one resulted in a license revocation. In addition, investigators found a 40 percent decrease in examinations of licensed mortgage brokers between 2003 and 2007 -- even as the numbers of brokers nearly tripled.

Further, auditors found that, in some cases, the agency failed to warn law enforcement of crooked brokers and boiler rooms, and that penalties imposed on bad brokers were often inadequate and far lower than proceeds from a single illicit mortgage transaction.

"These practices detract from the performance of the office's regulatory responsibilities, " auditors wrote.

The report also noted that telephone complaints about bad brokers were not recorded by state agents or even acted upon.

Separately, the report found that loan originators -- the largest segment of mortgage professionals in Florida -- do the same work as mortgage brokers but aren't licensed. Saxon told auditors that licensing loan originators would be next to impossible because of the "influence of the industry."

But industry leaders in Florida told The Miami Herald they had asked Saxon's office in 2002 and 2006 to license loan originators -- but regulators refused.

The Herald obtained agency e-mails that showed top leaders of Saxon's staff opposed the licensing of loan originators and, in one case, even removed a provision in a legal draft to license them.

Terry Straub, who oversees OFR's division of finance, acknowledged the agency "could have done a better job, " and said a massive rewrite of the state's mortgage law is in the works for the next legislative session.

Miami Herald investigations editor Michael Sallah contributed to this report.