Florida To Pass Tighter Regulations On Mortgage Lenders

In recent years, roughly one of every four mortgages in Florida was somehow tainted by fraud. In response to this, the state legislature has passed bills intended to provide tighter regulation of Florida mortgage brokers. The legislation will require background checks on those selling mortgages, bans on felons, and a fund to help victims of mortgage fraud.

An investigation by the Miami Herald found that 10,000 people with criminal backgrounds ranging from bank robbery to racketeering had been selling mortgages in the state. The result was that borrowers and lenders were defrauded out of nearly $100 million.

Beginning in 2009, Florida mortgage brokers will be subject to annual criminal background checks, including fingerprinting. Anyone with a felony conviction will be barred from working in the mortgage industry.

The need for annual background checks was highlighted by the Miami Herald investigation, which found that 564 Florida mortgage brokers were convicted of crimes after they obtained their licenses, and that all were allowed to continue to sell mortgages.

The new law will impose a 15 year ban on licensing for those convicted of felonies involving moral turpitude, such as assault or drug dealing. Other felony convictions will result in a seven year ban, and certain misdemeanors, such as fraud and theft, can prohibit a person from being licensed for five years.

The new legislation would require that Florida mortgage brokers be listed on a national registry that has been proposed by Congress to track brokers. The new rules also require brokers to submit personal credit reports and disclose bankruptcies to the state.

Beyond regulating Florida mortgage brokers, the new legislation also aims to help those who have been victimized by mortgage fraud. A state fund will be created to pay victims if they win a lawsuit against a broker, but are unable to collect damages because the broker has become insolvent.

Each borrower would be eligible for up to $50,000 from the fund. If there are multiple claims against a broker, payouts from the fund would be capped at $250,000. The fund would not rely upon tax revenues, but would get its revenue from mortgage broker application fees.

The Florida legislation follows on the heels of legislation affecting New York mortgage lenders, as well as lenders in nearly all states.