Commentary

Protecting Homebuyers - The Fresno Bee

Starting this week, Californians can make more informed, careful decisions when hiring a mortgage broker to help navigate the complex process of purchasing a home.

That's because California now requires all mortgage brokers and lenders to be licensed, as mandated by the SAFE Mortgage Licensing Act. This federal law, which I sponsored with then-Sen. Mel Martinez in 2008, directs all states to establish professional and ethical standards for the mortgage industry. As of July 31, every mortgage broker and lender in California must have a license, which can only be obtained after a full background check.

Shockingly, before this bill became law, some brokers sold mortgages with no license or training, some even had criminal backgrounds. This was a recipe for disaster, as we found out when the subprime market collapsed in 2008.

In the aftermath of this crisis, we learned that many homeowners had been sold mortgages they couldn't afford because their financial qualifications were never verified. Others were enticed into refinancing their homes with bogus offers of quick cash from crooked lenders, without being told that their subprime loan rates would reset.

As a result, many homeowners were left with toxic mortgages they couldn't pay. Some were forced to let banks foreclose on their homes.

California has been particularly hard hit by the foreclosure crisis, with 340,740 foreclosures filed so far this year, and 1.4 million since 2009.

California's new regulations will help clean up this troubled industry and restore confidence in homeownership.

In order to qualify for a license, all brokers and lenders now must have a demonstrated record of financial responsibility and complete basic education requirements -- and have a clean criminal record. Brokers employed by federally regulated national banks must register with the nationwide licensing system in lieu of obtaining a state license. All this information is now publicly available online at: http://www.nmlsconsumeraccess.org/.

This law was inspired by the stories I heard from Californians who were victimized by unscrupulous brokers and lenders. One story from Fresno -- a family of four -- stands out.

The husband worked on an assembly line, and his wife was an office assistant. The couple had two teenaged daughters, and money was tight.

When they saw their dream home listed at more than $250,000, they thought it was out of their reach. The year before, a bank had told them their finances could only support a mortgage of up to $135,000.

But an unlicensed broker promised them that their bad credit wasn't a problem and steered them into two adjustable-rate mortgages totaling $250,000, with only $1,000 down.

The couple set aside their concerns and signed the loan at the urging of the broker, who pocketed a fee of $10,000. But almost as soon as they moved into their new home, they were overwhelmed by enormous monthly payments and unexpected tax bills.

When their story came to my attention, the family was behind on their payments and facing foreclosure. We were able to help the family save their home and obtain more reasonable terms for their mortgage.

But unfortunately, this case is not unique. The Federal Bureau of Investigation reports that complaints of mortgage fraud increased by 71% between 2008 and 2009.

The problem is particularly acute in California, which last year was considered the top state for mortgage fraud. In fact, seven of the top 10 mortgage fraud "hotspots" were in California, many of them in the Central Valley: Stockton (1), Modesto (2), Riverside (4), Merced (5), Vallejo (7), Bakersfield (8), and Fresno (9).

To be sure, many mortgage brokers and lenders are responsible professionals. But buying a home is too important a transaction to entrust to the wrong person.

That's why I encourage everyone who is looking to buy their dream home or refinance an existing property to go online today and confirm that your broker or lender is a licensed professional. You deserve to know the facts.