Jumble of state level efforts to curb mortgage fraud

Our constitutional system leaves many – most – things to the states to regulate. Even USPAP and appraiser regulations are state-level laws. Congress has no constitutional authority to regulate the practice of real estate appraisal. So what FIRREA did was to provide that if banks wanted federal entities like Fannie Mae or FHA to buy or insure loans, or if the banks themselves were federally chartered, they had to use real estate appraisers who had minimum qualifications.

Because so much of residential mortgage finance involved national banks, Fannie and Freddie or the FHA, this made it necessary for states to enact these standards as state law. But the point is that the federal government can't always reach real estate or commercial activity confined to a single state.

As mortgage fraud becomes a hotter and hotter topic, though, there is an increasing clamor for uniform federal regulations. Recently hearings were held in the House of Representatives to consider whether a national registry of mortgage brokers would be appropriate – the kind that keeps track of appraisers authorized to work "federally related transactions."

A review of recent state efforts to rein in mortgage fraud shows the kind of jumble banks which do business across state lines and national advocates have to keep up with.

Last week in Chicago, Illinois legislators announced the creation of a mortgage fraud task force. New bills were promised to help crack down on fraud, including a bill that would make it easier and quicker to discipline appraisers who go along with the schemes.

Ohio is dealing with being the number one foreclosure state in the union with a lame duck governor and a legislature that has considered measures inthe recent past but never acted on them. Gov. Taft recently urged state lawmakers to consider, among other fraud fighting measures, mandatory licensing of appraisers. At the same time, the U.S. Attorney's office in Cincinnati created a task force to work with the state to curb fraud.

This fall a bill was introduced in Utah that would allow prosecutors to charge participants in mortgage fraud with racketeering. The same bill would ask the state Attorney General to hire a special prosecutor to concentrate only on mortgage fraud cases. The FBI in Salt Lake City said it had more than 250 mortgage fraud-related cases pending in the state.

Colorado is among states considering licensing mortgage brokers. Its top regulatory agency recommends brokers undergo criminal and regulatory background checks and post $100,000 bond. The same agency rejected calls for a licensing scheme in 2001. Maryland had a broker licensing law go into effect October 1.

Fannie Mae and Freddie Mac are among the most strident advocates for uniform federal predatory lending and mortgage fraud laws. The cost of compliance with 50 different state laws as well as laws and regulations unique to large urban areas would be drastically cut if there were one law for the whole country.

As the historic mortgage boom of the first half of this decade recedes, the call for uniform laws will reach a fever pitch. Among the topics we'll cover in our second annual Winter Convention in Las Vegas next month is how best to promote and guarantee appraisers' rights in inevitable discussions about how to curb mortgage fraud nationally.