By Scott Miller
Staff Writer

Since 2005, several hundred convicted criminals have applied to the South Carolina Department of Consumer Affairs to become mortgage brokers, according to staff attorney Charles Knight.

The department rejected them all.

Yet the very existence of the applications themselves attests to the beleaguered state of the mortgage industry, now the target of state and federal legislation that would curb unregulated “deceptive” or “unfair” lending practices. The Federal Reserve Board also joined the fight, proposing a series of rule changes Chairman Ben Bernanke says would cut deceptive lending.

But consumer advocates claim Bernanke and the Fed must go further.

“The FRB’s proposed rules are riddled with loopholes,” said Michael Calhoun, president of the Center for Responsible Lending, a Durham, N.C.-based nonprofit. “Rather than eliminating the root causes of the subprime foreclosure process, which in turn would encourage a truly competitive market for home loans, the FRB’s proposal permits many dangerous subprime lending practices to stand.”

Foreclosures across the nation are on the rise as borrowers can’t afford the rising payments and interest rates.

The consumer affairs department has drafted legislation, S.C. Senate bill 924, that would require all mortgage lenders, loan officers, limited loan officers or anyone acting as a mortgage lender to get a state license, he said. The state does not now regulate first mortgage lenders that aren’t banks. Federally chartered banks would be exempt from the requirement.

Licensing procedures would give the state more oversight over lending practices and would provide an avenue to punish lenders for anything deemed deceptive.

The state in 2005 began requiring certain brokers, but not all, to apply for licenses.

Companies that originate loans in their own names are not regulated.

The state legislation also would make mortgage fraud a felony.

Congress also is contemplating stricter regulation of the financial industry. The U.S. House of Representatives has OK’d  legislation requiring lenders to ensure borrowers can afford to repay. If it is approved, mortgage brokers would submit to more rigorous federal oversight. Similar legislation is pending in the Senate.

Another bill would reform the Federal Housing Administration to allow more subprime mortgage holders to refinance to more affordable loans.

In addition, President Bush reached a deal with the mortgage industry to freeze the adjustable rates of loans to subprime borrowers. Officials now are working on extending that five-year freeze to borrowers of prime loans.

The Federal Reserve Bank has also proposed a series of mortgage regulations to help curb rising foreclosure rates and “deceptive” lending habits.

Scott Miller is a staff writer for the Business Journal. E-mail him at smiller@setcommedia.com.

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