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Mortgage-fraud relief is urged

With Florida's mortgage industry reeling from its worst crisis, two statewide organizations are pressing lawmakers to restore a program to reimburse people ripped off by crooked loan brokers.

The Florida Association of Mortgage Brokers and AARP are pushing for the revival of a special fund that was quietly killed by regulators a decade ago, saying it could help thousands of people who have lost their homes and savings.

"We should never have gotten rid of it, " said Ritch Workman, president of the FAMB. "We are going to fight to bring it back."

The push comes a week after The Miami Herald reported that Florida is one of only three states in the nation that does not offer protections for borrowers scammed in home loan frauds.

Key lawmakers said they didn't know the state had stripped away safeguards that could have helped consumers recover losses during record years of fraud.

"It's a sorry statement about our state, " said House Minority Leader Dan Gelber, D-Miami Beach, who is running for state Senate. "It's a big gaping sore that we have left untouched, which is a mistake."


Workman and AARP spokesman Dave Bruns said their groups will press to reinstate the Mortgage Brokerage Guaranty Fund, which paid up to $20,000 to individual victims before it was shut down in the 1990s.

Though recent federal legislation requires states to provide some protection, there's no requirement to create a victims fund.

The effort to resurrect the program comes as Florida leaders prepare for sweeping changes in state law that governs the mortgage industry, including tougher restrictions on people who apply for broker licenses and stiffer penalties for those who commit fraud and other crimes.

Just last week, a state Cabinet report blasted the state's oversight of the mortgage industry, saying Florida regulators allowed hundreds of people with criminal histories to peddle loans, failed to alert police agencies to rogue mortgage operations, and ignored citizen complaints.

With Florida steeped in the nation's highest level of mortgage fraud, several lawmakers overseeing the home loan industry said they'll support legislation that brings the kinds of protection now being pushed by the two statewide groups.

Currently 47 other states require mortgage brokers and loan companies to either buy insurance that pays fraud victims or pay into a fund that reimburses victims. Florida does neither.

Today, one in four fraudulent loans across the country are in Florida, according to industry analysts.

Proponents say a guaranty fund -- also called a recovery fund in states like Texas and California -- would provide relief for fraud victims who have had few places to turn for help during the latest crisis.

For many, the only recourse is the courts, but thousands of mortgage businesses have shut down and in some cases, brokers have skipped town, industry leaders say.


FAMB's Workman, also a Republican candidate for the state's House of Representatives, said he hopes to introduce the legislation himself next year -- even though such a measure could mean higher fees for mortgage brokers.

Typically, most of the money that goes into victims funds comes from fees paid by the industry, not taxpayers.

"The industry should put its money where its mouth is, " said Workman, a Melbourne mortgage broker.

Rep. Carlos Lopez-Cantera, who authored anti-mortgage fraud legislation that passed a year ago, questioned why builders and stock brokers have recovery funds, but not people selling home loans.

The Miami Republican said a guaranty fund is "definitely something we are going to look at, especially since the money is already there."

In recent years, as people rushed into the mortgage industry, the state Office of Financial Regulation took in much more in licensing fees -- with a trust fund that now shows a balance of $24.7 million. The money goes to cover the agency's operating expenses.

Bruns of the AARP -- the state's largest advocacy group for seniors -- said in a written statement it was "dismaying" that state officials allowed $24 million to accumulate in a fund "that could have helped victims of mortgage fraud years ago, but did nothing."

From 1977 to 1991 Florida operated a guaranty fund, paying more than $7 million to more than 100 victims.

When the state's mortgage law came up for review in 1991, a task force recommended the victims' program be continued, but more focused on helping borrowers than investors.

However, instead of keeping the fund, regulators re-wrote the law and phased out the program -- with the last reimbursement in 1997.


Now, a decade later, Gov. Charlie Crist and state CFO Alex Sink say they support the idea of resurrecting a victims program, but have not yet endorsed a plan.

Such plans include a guaranty fund or requiring brokers to take out a bond that insures against fraud.

If they chose a fund, there are questions about how to pay for it. Previously, a $10 fee attached to license application costs was the funding source. But some argue it's more effective to charge a fee on each mortgage transaction.

FAMB's Workman said he opposes such a scenario, saying it would put the burden on consumers.

"The bottom line is, " Workman said, "we are absolutely in favor bringing this fund back and having the industry pay for it."