Jul 12, 2006 11:00 pm US/Mountain
New Law Protects Against Shady Mortgage Brokers
by Ericka Lewis
DENVER (CBS4) ―
Mortgage fraud and foreclosures have reached crisis proportions in Colorado so lawmakers plan to focus on regulations to weed out shady mortgage brokers.
Starting January 1, all mortgage brokers will have to be registered with the state and will have to purchase a $25,000 bond to cover fraudulent fees.
Lawmakers said too many risky loans have led to a flood of homes in foreclosure and the new law won't do much to eliminate the problem if people don't do some homework themselves.
Richard Wood and his wife wish they would've done more homework before agreeing to the terms when he refinanced his home.
"I got blindsided that's all," Wood said. "They took me."
The Wood's contacted a mortgage broker after seeing an ad promising a lower interest rate for five years. They got the low rate but instead of for 5 years, they got a lower payment for one month.
Their payment doubled since they refinanced and now may be forced to sell their home.
"I blame myself for getting sucked in but I blame them for sucking me in," Wood said.
The Woods aren't alone. Colorado has the highest number of foreclosures in the country. In the Denver area, more than 9500 foreclosures have been filed in just the first six months of 2006.
The new law is expected to protect homeowners like Wood.
"One particular loan was actually closed, the broker was actually in jail and from behind bars he actually closed on the loan itself," said Rep. Val Vigil from Thornton.
Under the new law, brokers will have to undergo a national criminal background check and will be ineligible to practice if convicted of a crime of fraud in the past 5 years.
The verification process could take up to 10 weeks.
"Registration will be a good step towards weeding out the most unscrupulous of these brokers," said John Suthers, Colorado's attorney general.
The Woods said there's no guarantee the new rules would have helped them even though they may be forced to sell their home.
Their advice is to find someone to trust and always read the find print.
"Read every word and make sure you understand it," Wood said.
The new law also creates Colorado's first clearinghouse to take complaints which will be forwarded to the State Attorney General's office or the local District Attorney's office.
If brokers don't register, they could face up to a $5,000 fine, up to 2 years in jail, and be forced to pay restitution to any victims.
The laws will take effect January 1 of 2007.
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