Borrowers Betrayed

States act to license loan originators

To Illinois mortgage regulator Dean Martinez, too many loan people peddled home loans without licenses.

''It didn't make sense,'' said Martinez, secretary of Illinois' Department of Financial and Professional Regulation.

''The guy who owns the company was licensed, but the people who get the confidential information, who meet with the borrower, who originate the loans are not.''

Prompted by a rising number of predatory lending cases, Illinois legislators passed a sweeping law in 2003 requiring that loan originators get licensed. For the first time, the law imposed criminal background checks and exams. The result: The agency had 25,000 applicants, with about 15,000 approved.

''For us, that's 10,000 people who shouldn't have been in the business,'' Martinez said.


Facing a widening mortgage fraud crisis, an increasing number of states have ramped up oversight by creating minimum standards for originators -- with some even banning convicted felons.

Since 2005, more than a dozen states -- including New York, Pennsylvania, Colorado and Arizona -- passed laws requiring the licensing of all mortgage professionals, except those who work in banks.

One Michigan industry leader says the laws are part of a trend to clean up a profession that has been overrun by fraud this decade.

''We've been fighting for this for years,'' said Pava Leyrer, former president of the Michigan Mortgage Brokers Association. ''Now it's starting to happen because of the implosion of the industry.''


''All these new loan originators who weren't brokers were new in the field, and there was no way of regulating them,'' said New York Assemblyman Michael Benjamin, who co-sponsored the New York measure, which was passed last year.

Colorado's new law this year bars anyone convicted of fraud or misrepresentation in the last five years from selling home loans. Ohio passed a law, to be phased in over the next couple of years, that requires anyone writing mortgages to submit to a criminal background check every three years.

''This is not an industry that should be left unregulated,'' said Brent Diebert, a loan officer in Columbus, Ohio.

''You need a system that allows you to deal with reputable, legal people. By not having that, you are inviting the problems that happened over the last few years to happen again.''

Related stories from Miami Herald