After months of stinging criticism for letting crooks and con artists prey on Florida borrowers, regulators have proposed sweeping changes in state law that would make Florida one of the most tightly regulated mortgage markets in the country.
The provisions call for annual criminal background checks for everyone selling mortgages in Florida, a ban on the most toxic types of loans and reviving a state fund that used to compensate victims of mortgage fraud.
The fund would provide up to $50,000 for people who can prove they were scammed by rogue brokers. Regulators quietly killed a similar fund more than 10 years ago, then used the money to pay for operating expenses, like salaries and conferences at five-star hotels, the Miami Herald reported in September.
The measures would add to a regulatory overhaul that began in September after a Miami Herald investigation showed the Office of Financial Regulation allowed more than 10,000 people with criminal records to work in the mortgage profession between 2000 and 2007.
The Florida Cabinet imposed emergency rules, including a lifetime ban on anyone convicted of a felony involving fraud or financial wrongdoing.
The latest proposals — making the emergency rules harder to undo — will be debated when the legislative session begins in March. But many of the changes already have the support of top elected leaders.
"We are looking for more of an enforcement mentality," said state Chief Financial Officer Alex Sink, who joined with Gov. Charlie Crist in forcing the state's top mortgage regulator to resign in response to the newspaper series.
The Herald found that thousands cleared criminal background checks despite committing crimes state law specifically required regulators to screen, including fraud, bank robbery, racketeering and extortion.
In addition, more than half of the criminals selling mortgages during the land boom — 5,306 — were not subjected to any background check. In fact, the state refused to license and screen them for years, despite repeated pleas from industry leaders.
In their new bill, state regulators are pushing to screen and license everyone.
The proposals, which reach far beyond a federal mortgage law passed in the summer, also would require fresh nationwide criminal background checks every year, when licenses are renewed. Under current state law, brokers are screened only when they apply the first time.
The Herald found 564 brokers who were convicted of crimes after getting their licenses — including at least 20 convicted of mortgage fraud. All were allowed to keep selling loans.
Florida's fraud rate has climbed to the highest in the nation — one of every four fraudulent loan applications in the United States now comes from Florida, according to the Mortgage Asset Research Institute.
The old victims' fund was financed by a portion of mortgage broker license fees.
Regulators have continued to collect the money but have not compensated a victim since 1997, the newspaper found.
The new bill proposes creation of a fund that would pay victims if they successfully sue their mortgage broker but can't collect because the broker becomes insolvent.
Each borrower would be eligible for up to $50,000. If there were multiple claims against the same broker, payouts would be capped at $250,000.
All states are required to come up with a program to help compensate victims of mortgage fraud under the new federal law.
But Ritch Workman, president of the Florida Association of Mortgage Brokers, who won a seat in the Florida House in November, is wavering on a campaign pledge to push for the fund.
The Melbourne Republican said lawmakers are leaning toward requiring brokers to buy bonds instead.
"What I want to do is dig deeper into bonding and see what that entails before I make a decision on whether I will stick to my guns on the guaranty fund," Workman said.