Florida Felons

July 28th, 2008

This is an open letter about mortgage fraud in Aurora, Colorado. Distribution on this letter is by email and also published on my blog.

Index of Attachments

This is an article dated 07/24/08 - published in the Miami Herald.

And/or - this article dated 7/22/08. Headline = Licensed to steal, with state's blessings.

Even by the standards of a state with a sordid history of land fraud and real-estate scams, the appalling scandal over the licensing of criminals as mortgage brokers is one for the books.

No possible excuse can justify the failure of state regulators who not only failed to protect homeowners and mortgage borrowers from fast-buck artists out to prey on the public, but actually gave the thieves a license to plunder. They opened the door to the henhouse so the fox could swoop in, displaying the state's approval as a seal of merit.

Ex-felons in the business

What a grand old time these thieves have had at the expense of Florida residents, courtesy of the state's Office of Financial Regulation. According to a series of articles in this newspaper, some 4,065 brokers cleared background checks from the OFR after committing crimes that state law specifically requires regulators to screen. In all, regulators allowed more than 10,000 people with criminal records to work in the mortgage profession. That includes the licensed brokers plus so-called loan originators, for whom no license is required.

Their haul: almost $85 million taken from thousands of victims in an epidemic of mortgage fraud that swept across Florida. It makes the mind reel. The state makes ex-felons jump through a series of hoops to regain their constitutional right to vote. Usually, it takes years to complete the process.

But ex-con mortgage brokers privy to the most sensitive financial information of borrowers can get or maintain a license with seemingly little trouble -- even, in one case, renewing it while sitting in prison. They can't be trusted to vote, but they can be trusted to handle a loan for your most valuable possession -- your home.

There's a reason that Florida is the national punchline for jokes about land fraud and mortgage scandals, and this is one of the worst examples to come along in a long time.

Alex Sink, the state's chief financial officer, has already called for a state investigation and the resignation of Commissioner Don Saxon. If Mr. Saxon doesn't resign forthwith, he should be fired. Not only did he fail to perform his duties in a satisfactory manner, but his office stood in the way of proposed legislation that would have protected consumers by requiring regulation of loan originators.

How to fix the problem

Fortunately, a bill poised for approval by Congress will probably contain minimum standards for loan originators. There is much more that the state of Florida can do, however. The state investigation Ms. Sink has proposed should determine what it takes to correct the deficiencies that allowed mortgages to become such a flourishing resource for criminals, and not only give regulators the tools to enforce better standards but make sure they get the job done.

Hanging Chad

Remember Florida's notorious 2000 election? It escaped a lot of press attention at the time, but before hanging chad and the butterfly ballot there was an effort to purge any and all convicted felons from the voting roles. The right to vote was yanked from some 50,000 alleged ex-convicts. (Many of those disenfranchised were the victims of mistaken identity or other non-felonious problems.)

Thus it is pretty well established that a felon's right to vote may be challenged by the state. So if felons are not allowed to vote in Florida, at least not without legal recourse; what can they do in the Sunshine State?

For little more than a $215 application fee, they could become licensed mortgage brokers in the state.

The Miami Herald's investigative team reported on Sunday that the state has approved over 10,000 mortgage broker licenses for convicted felons since 2000; over 4,000 were issued to individuals who had been convicted of crimes such as fraud, extortion, racketeering, and bank robbery - crimes that are specifically prohibited by the licensing statute - and a smattering of licenses are held by felons convicted of violent crimes including 15 murders. Collectively these felons were guilty of 2,821 financial crimes, including 922 larcenies, 752 frauds, 327 burglaries, 161 forgeries and 67 robberies. The list includes brokers arrested and convicted in Florida, those who had been imprisoned in other states, and those convicted in federal courts.

The rush for mortgage broker licenses was fueled, at least in part, by the superheated Florida real estate market. As home prices reached the highest levels in history and the rate of new construction, particularly of condominiums, soared, the possibility of easy money lured record numbers of people into the mortgage business. Regulators were hard pressed to keep up with the flood of applications; between 2002 and 2007 the number of mortgage broker licenses tripled. More than half the people who wrote mortgages in Florida during that period did not have any criminal background checks. Despite repeated pleas from industry leaders to screen them, Florida regulators have refused. During the boom period only 29 applicants were rejected based on their criminal records.

The investigative team uses the example of Scott Almeida who admitted on his license application that he had served time in federal prison for cocaine trafficking. Florida regulators asked for a character reference and the name of a reputable supervisor to oversee his mortgage business. He provided a note from his mother and the name of a guy he had met in the prison visitor room. What then ensued, after Almeida was approved and paid the license fee, was a crime spree that lasted three years, and stretched from Tampa to Miami. Almeida arranged nearly $3 million in fraudulent loans and fleeced 30 people.

The Florida Office of Financial Regulation -- which polices the mortgage industry - twice failed to act on information that Almeida was stealing from clients and his scam continued until the police caught up with him and threw him into jail.

State regulators allowed thousands of ex-convicts to enter a profession that gave them access to the most sensitive and personal financial information: credit cards, bank accounts and Social Security numbers. These criminals then went on to commit nearly $85 million in mortgage fraud, stealing customer identities, money, and sometimes their homes. Felons committed fraud which targeted both customers and banks, boosting reported borrower incomes and arranging for complicated sale and resale schemes using straw buyers and inflated appraisals.

The newspaper quoted Don Saxon, commissioner of the Office of Financial Regulation, who said he didn't know why his staff issued licenses to bank robbers and racketeers, but would look into the cases cited by The Herald.

"You're asking me to get into the heads of the people who made those choices," Saxon said. He added: "Certainly we are not proud of the fact that these people have gone on to do bad things."

OFR officials who do the screening said there is no single standard they use to decide who gets a license: The criminal background check is just one of many factors.

"We look at all the facets around, you know, whatever file, and we predicate on the fact that everybody deserves another chance," said Terry Straub, director of the OFR's Division of Finance, which regulates the mortgage industry in Florida.

Florida has been hit harder by the housing crisis than most other states, but the authors of the Herald article, Jack Dolan, Rob Barry, and Matthew Haggman, claim that other states such as Colorado and Alaska do not require a license and have had similar problems with mortgage fraud.

Disclaimer

Everything in this document is my interpretation of information found in the public records. It's my opinion, take it for what it's worth.

Sincerely,

Philip G Rice
11268 E Linvale Dr
Aurora, CO 80014
720-282-3376
phil.rice@mkgappraisal.com

ps - To all who have read this far, please take a minute and think creatively about something you can do. Make a positive difference. If you need help, call me at 720-282-3376 or send an email.

-- End of Letter --

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