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Regulator now seeks reforms

Under severe criticism for allowing bank robbers and racketeers to sell loans in Florida, the state's top mortgage industry regulator is calling for sweeping emergency changes to bar people convicted of financial crimes from peddling loans and running mortgage businesses.

Commissioner Don Saxon, under pressure to resign, will ask Gov. Charlie Crist and Cabinet members at a meeting Tuesday to grant the changes -- the toughest bans ever proposed in Florida, a state reeling from the highest fraud rate in the country.

"There is ample evidence to show that crime in the mortgage lending industry has reached record levels, " said a draft of an emergency rule change Saxon is expected to introduce to the Cabinet on Tuesday.

The request comes three weeks after a Miami Herald series showed the Office of Financial Regulation has allowed more than 10,000 people with criminal histories -- including armed robbers and cocaine traffickers -- to work in the mortgage industry since 2000. The newspaper found that convicted felons went on to fleece consumers and lenders of at least $85 million.


The proposal represents a reversal for the longtime state regulator who has defended his agency's licensing practices since publication of The Herald's investigation. In his appearance before the Cabinet two weeks ago, Saxon insisted that "we do not have a systemic problem of licensing felons."

But in his 30-page proposal -- which calls for an overhaul of the OFR's licensing system -- he acknowledged the standards for mortgage professionals "have not kept pace with the increasing sophistication of the mortgage industry."

Saxon, who was ordered by the governor and Cabinet two weeks ago to come up with the changes, did not return phone calls for comment Monday.

His proposal asserts that Florida's mortgage crisis constitutes "an immediate danger" to the public and requires emergency measures to protect consumers from fraud and predatory lending.

The measures present a host of restrictions on former criminals trying to enter the once-freewheeling industry, including:

* Banning anyone convicted of a felony involving fraud, money laundering, dishonesty and breach of trust from becoming a broker. The Herald found that despite a requirement to screen criminal backgrounds, Saxon's agency allowed people into the industry who were guilty of 2,821 financial crimes, including 922 larcenies, 752 frauds and 161 forgeries.

* Requiring former criminals such as murderers and rapists to wait 15 years from their conviction date before getting a mortgage broker license.

* Barring people guilty of misdemeanors involving fraud, dishonest dealing and moral turpitude from getting a license until five years after their conviction.

The proposal also requires that regulators suspend or revoke a license if they discover someone lied on their application. The Herald investigation found numerous cases of brokers who got their licenses even after regulators caught them lying, including one man who omitted his conviction and 17-year prison sentence for strangling his wife and dumping her into Tampa Bay.

While the report addresses several problems raised in The Herald's series, the proposal stops short of addressing other problems that have long undermined the state's troubled mortgage industry.


For example, the new rules do not include criminal background checks when mortgage brokers renew their licenses, a key to weeding out professionals who break the law after entering the industry. The Herald found scores of brokers who were convicted of financial crimes -- including mortgage fraud -- but continued peddling loans without the threat of state sanctions.

The measures also do not address the licensing of loan originators -- those who do the same job as mortgage brokers with the same access to consumers' personal financial information. The Herald found more than 5,000 people with criminal histories working in Florida as loan originators, many of whom went on to scam consumers and lenders out of millions.

State leaders involved in mortgage industry legislation over the past five years said they favored the new proposals, but questioned why the agency took so long to press for changes.

Lawmakers have complained that Saxon showed a lack of urgency in pushing for reforms and did not alert them about the need for tougher regulatory oversight.

"There is a huge question mark as to why none of this was brought up before when it really mattered, " said House Minority Leader Dan Gelber, D-Miami Beach.

"This should have been done before the cow left the barn."

Sen. Bill Posey, R-Rockledge, who chairs the committee that oversees the OFR, said he wished Saxon had proposed the changes earlier. "We never suspected that someone could have been guilty of a felony for fraud and still have a license, " he said.


Florida's chief financial officer, Alex Sink -- and consumer groups like AARP -- have called for Saxon's ouster.

But the three other members of Florida's Cabinet -- Crist, Attorney General Bill McCollum and Agriculture Commissioner Charles Bronson -- have said they want to wait until an internal review is completed.

A status report of the review determining how many former criminals were allowed into the industry is expected Tuesday.