Purpose


The Financial Services Commission and the Office of Financial Regulation hereby state that the following circumstances constitute an immediate danger to the public health, safety, or welfare: Preserving the American dream of home ownership is vitally important to Floridians and Florida’s economy. The purchase of a home is the most important financial decision many Floridians will make in their lifetime. The current housing crisis that has swept across the nation has been the subject of daily reporting for the past several months. Foreclosures, mortgage fraud, and predatory lending have reached record levels. For the past year, Congress has been working on legislation to strengthen the nation's housing industry and clean up the mortgage industry. On July 30, 2008, President George Bush signed into law major housing reform legislation (H.R. 3221) that includes a measure to establish minimum national licensing and oversight standards for America’s mortgage brokers and loan originators. This measure is titled "The Secure and Fair Enforcement in Mortgage Licensing Act of 2008,” or “The SAFE Mortgage Licensing Act of 2008.” The SAFE Mortgage Licensing Act of 2008 is intended to eliminate those persons with a history of certain criminal activity or specific misconduct relating to loan origination from the mortgage industry and require mortgage brokers and loan originators to meet minimum national standards to ensure they are professional, competent and trustworthy. The broader legislation is designed to prevent foreclosures, stabilize the declining housing market, and reform the government-sponsored enterprises Fannie Mae and Freddie Mac. The SAFE Mortgage Licensing Act of 2008 was introduced by Senator Feinstein of California and Senator Martinez of Florida in response to growing reports of abusive lending practices by unscrupulous persons in the mortgage lending industry in their states. In a press release, Senators Feinstein and Martinez commented on the need for the legislation. Senator Feinstein stated: “America’s housing crisis has caused significant harm to our economy, and put millions of Americans at risk of losing their homes. This legislation will bring much-needed relief to millions of Americans, and will help clean up the mortgage industry." She also stated: “The SAFE Mortgage Licensing Act will help restore confidence in the American Dream of home ownership, ensuring that all brokers and lenders meet basic standards and earn a license.” Senator Martinez commented: "The current housing crisis has shown us that while some homeowners unfortunately made poor financial decisions, others were clearly taken advantage of by bad actors in the housing industry. National licensing standards will help decrease the number of unscrupulous loan originators and predatory mortgages. He also stated that “The SAFE Act will give home buyers added confidence at a time when they’re making what is probably their most significant financial investment.” The press release provided further insight into the impetus for the legislation. The background information indicates that millions of Americans – including those with weak credit scores – have used sub-prime and exotic mortgages to purchase homes using adjustable-rate loans with low initial monthly payments. Some of these mortgages require little or no down payment. Many mortgage lenders and brokers offering these mortgages act responsibly. However, some have used predatory lending tactics, resulting in unsuspecting borrowers assuming mortgages they cannot afford. Also, the standards of accountability for mortgage brokers and loan originators have not kept pace with the increasing sophistication of the mortgage industry. The FBI recently announced that between March 1 and June 18, 2008, 406 defendants were charged in 144 mortgage fraud-related cases. Mortgage fraud charges were brought in more than 50 judicial districts, and approximately $1 billion in losses can be attributed to these mortgage fraud schemes. Last year, more than 2.2 million foreclosures were filed in the United States, a jump of 75 percent over 2006, according to data released by RealtyTrac. Foreclosure rates are expected to remain high, as 1.8 million adjustable-rate mortgages across the nation will reset to higher rates in the next two years. Florida has been especially hard hit by the housing crisis. According to the Mortgage Bankers Association, Florida accounts for a disproportionate share of the nation’s foreclosures. Florida accounts for 8 percent of all U.S. mortgages and 15 percent of the nation’s foreclosures. Florida also had the nation’s second-highest number of homes in some state of foreclosure last year. There were 279,325 filings issued on 165,291 properties last year, a nearly 124 percent increase over the number of filings in 2006. More than 2 percent of Florida households entered some stage of foreclosure last year. In other reports, the Mortgage Asset Research Institute ranked Florida first in the United States last year for mortgage loans that contained alleged fraud against lenders. Fannie Mae reports that Florida ranks in the top 10 for states with mortgage loans that have significant misrepresentations. The FBI reports that suspicious activity reports filed by financial institutions concerning suspected mortgage fraud have increased from approximately 7,000 in fiscal year 2003 to over 46,000 in fiscal year 2007. And, recent new articles have indicated that persons with prior criminal backgrounds who obtained licenses through the Office of Financial Regulation have subsequently committed mortgage fraud and other serious crimes. The SAFE Mortgage Licensing Act of 2008 contains a number of important provisions that will assist regulators in preventing certain individuals from entering the mortgage industry. The law provides that a person is not eligible for licensure within 7-years of a felony conviction. If that felony involved fraud, dishonest dealing, breach of trust or money laundering, the federal law precludes that person from receiving a license. Under Chapter 494, Florida Statutes, the Office may deny an applicant a license if the person has committed a crime involving fraud, dishonest dealing, or moral turpitude. The new federal legislation establishes strict minimum standards for licensure. A federal agency, the Department of Housing and Urban Development, is directed to establish a federal licensing regimen in any state that fails to adopt these standards within a prescribed period of time. Another reason why these stricter standards need to be applied in Florida is that studies conducted by the Florida Department of Corrections have shown that approximately 49 percent of inmates released from prison will commit new offenses within five years. The Financial Services Commission and Office of Financial Regulation find that immediate action is needed to strengthen the implementing regulations adopted under Chapter 494, Florida Statutes, to better protect Floridians in the purchase of their most significant asset; and to the extent permissible under current Florida law, reflect the policies and intent of the new federal legislation. Such action also will assist in stabilizing the housing market in Florida by restoring confidence to borrowers when engaging in mortgage lending transactions.