Lender Regulation, Finally

by Osman Parvez
At the beginning of June, Gov. Bill Ritter signed legislation to crack down on mortgage fraud in the state. Prior to this action, Colorado had one of the least regulated mortgage broker industries in the country. In fact, Colorado and Alaska were the only two states to not require licensing. That's right, your hairdresser had more regulatory oversight than your mortgage broker. Think about that.

These are good changes. As I've written before, it's time to increase standards and raise the bar in real estate. This is a step in the right direction (and effective immediately).

Here's a summary of the new legislation:

HB 1322, Measures to Prevent Mortgage Fraud (Marshall/Groff) Expands the current regimen of registration for mortgage brokers by regulating the behavior of mortgage brokers and others involved in residential real estate transactions. Brokers must act for the benefit of the borrower, including making reasonable inquiry into the borrower’s financial situation and using best efforts to obtain a loan that takes into consideration the borrower’s situation.

SB 85, Protect Consumer Real Estate Transactions (Veiga/Massey) This bill addresses the relationship between mortgage brokers and real estate appraisers. Brokers are prohibited from trying to influence the judgment of a real estate appraiser through coercion, intimidation, or compensation.

SB 203, Mortgage Broker Licensing (Groff/Marshall) The bill creates the “Mortgage Broker Licensing Act.” Brokers must now be licensed by the Division of Real Estate; must get adequate training, testing, and receive continuing professional education; and are now prohibited from engaging in 24 specific activities (misrepresentation, fraud, conflicts of interest, and obligations to the consumer). A broker who has had his license revoked for violating this legislation would not be eligible to get re-instated unless he provides full restitution to those individuals he has harmed.

SB 216, Mortgage Loan Acts Practices (Veiga/Marshall) Imposes on a mortgage broker a statutory duty of good faith and fair dealing toward a borrower. These duties include:
  • Not to recommend the borrower to enter into a transaction “that does not have a reasonable, tangible net benefit to the borrower” considering his circumstances.
  • To make reasonable inquiry into the borrower’s financial circumstances and use best efforts to obtain a mortgage loan taking those circumstances into account.
  • Not to engage in a pattern or practice of providing mortgage loans based on acquiring the foreclosure or liquidation value of the collateral without regard to ability to repay, or entering into a loan transaction knowing there was no reasonable probability of repayment by the borrower.
Violation of this duty of good faith and fair dealing is made a deceptive trade practice under the Colorado Consumer Protection Act.

SB 249, Real Estate Title Escrow Settlement (Veiga/Rice) Directs the Division of Insurance to provide annual reports to the JBC and other specified legislative committees, and to post on the DOI website, a statistical report of the number of enforcement actions taken, the market trends associated with title insurance and real estate transactions, and consumer complaints generated by market analysis, investigation and enforcement efforts regarding title insurance.

source: Gov. Ritter's office
hat tip: Phil Leto
image: Gare and Kitty

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  1. Note that you can see the full text of the bills online at http://www.leg.state.co.us/

  2. What about the appraisers who have lost their rights to due process in order to quickly get rid of all these "fraud" cases. No everyone is guilty, but the inocent have no recourse!

  3. I gave a quick read of SB 85 (thanks to Anon for his link) and I don't see where appraisers have lost any rights. Cassi, could you explain further?

  4. As a honest and ethical mortgage broker in Colorado I agree that some thing needed to be done. However, to believe that licensing and adding regulations is the solution to our problem, your mistaken. California and Florida which are two of the most regulated states, also are at the top of the list for mortgage and real estate fraud. The problem are not the laws, but the enforcement of the laws. We can continue to implement more laws, license all brokers, but if we don't enforce the law it won't make a difference.
    Also, a huge over sight with the new bills that were passed and signed in to law by our Governor, they don't include loan officers that are employed by banks. Why would are we only regulating half of the industry? I know banks have their own regulations, but a majority of the new regulations don't over lap with current bank regulations.

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