States Cracking Down On Mortgage Fraud
By Michelle Singletary
Concerned about mortgage fraud and predatory lending practices, many states have toughened their laws by requiring loan officers or originators to undergo extensive background checks and show proof of professional experience and training.
Still, attracted by the lucrative mortgage business, many individuals are originating loans without being properly licensed. To combat this problem, state banking authorities have stepped up their enforcement actions against operations that do business with unlicensed mortgage brokers, loan officers or loan originators. Most recently, 10 states took action against Apex Financial Group, which went by the name of Apex Mortgage. Apex was doing business with multiple unlicensed entities, leaving consumers unprotected, the states allege.
One individual who worked with Apex was Frederick C. Lee Jr., founder of Financial Independence Group and other mortgage companies, whom I wrote about in an earlier column.
Former workers, with intimate knowledge of Lee's multistate mortgage operation, said he has assembled a network of people who are not properly trained or, in some cases, not licensed as required by the state law. They arrange loans sometimes under the auspices of a licensed lender or broker through a system known as net branching.
In an interview, Lee denied that he or his companies were involved in facilitating mortgage loans. "I'm not a mortgage guy," he said.
Yet documents I obtained indicate that Lee is brokering mortgage loans. In one case, a $504,000 residential loan in Maryland lists North American Real Estate Services as the broker. The contact number listed is Lee's cell phone.
Neither Lee nor his attorney would return e-mails or telephone calls for further comment.
Other documents indicate that the people who work for Lee are originating loans in Washington state, California, Colorado, Michigan, Arizona, Alabama, New Jersey, Georgia, North Carolina, and the Washington, D.C., metro area.
Former insiders say Lee tells his companies' members (you have to pay $100 to join) that they don't need to be licensed because they are "document collectors."
The Georgia Department of Banking and Finance has issued cease-and-desist orders for Lee and two of his companies for operating a mortgage business without being licensed. The companies Lee operated in Georgia were Debt Management Consultants, also known as DMC and DMC Processing, and Debt Elimination Group, which also did business under the name The Processing Center. Financial Independence, Lee's newest company, is doing business out of the same office where Debt Management Consultants and Debt Elimination Group operated.
Lee did get a license to operate as a loan officer in North Carolina in 2002. But the North Carolina Banking Commission revoked the license after discovering he had failed to disclose misdemeanor convictions for assault on a female. The revocation was overturned on appeal and Lee regained his license, although it expired two years ago.
As part of the appeal, investigators discovered Lee had an outstanding judgment on his credit report related to a 2002 unpaid appraisal fee in Virginia. Lee testified that the fee, which was later paid, arose because he had "co-brokered loans" with a broker in Virginia.
In Virginia, if you act as a mortgage broker, you need a license to originate even one loan.
There is no record that Lee or any of his companies – Financial Independence Group, Debt Management Consultant or Debt Elimination Group – were ever licensed in Virginia, according to Ken Schrad, a spokesman for the Virginia State Corporation Commission.
Typically, the term "co-brokered loan" is used when two brokers are involved in a transaction and the fees are divided between them, Schrad said.
One of the things states take into account in granting a license to arrange mortgages is how the company and its owner have acted in other jurisdictions.
Without specifically referring to Lee or any of his companies, Schrad said if a business has been barred from doing mortgages in another state, that entity or individual would have difficulty obtaining a license in Virginia.
"Through the application process, we investigate the experience and integrity of the principals behind the company," he said.
Mark Pearce, deputy banking commissioner in North Carolina, was more direct.
"In North Carolina and in most other states, the existences of orders against an individual or company are reasons to support the denial of licensure," he said.
As a borrower, I would want to know if the person or mortgage broker handling my loan is licensed.
"If they tell you they don't need one, check with the state banking department to see if that is true," Pearce said. "Every state requires mortgage companies to be licensed. And many states are increasingly requiring individuals to be licensed."
Often state regulators cannot catch and prosecute unlicensed operations and individuals because borrowers don't come forward to complain.
"We need the public to let us know about these things," Pearce said.
States need to know because these transactions involve people's homes, which for many are their largest assets.
But as Schrad said, "When you deal with an unlicensed entity, you are kind of on your own."