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

Like this analysis?    Subscribe to our client research report.     
Want to get blog updates via email?  Click HERE.       
Ready to buy or sell?  Schedule an appointment or call 303.746.6896. 
You can also like our Facebook page or follow us on Twitter.

As always, your referrals are deeply appreciated.  

The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.