Unlicensed brokers cause for concern

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.

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.”

There is no record that Lee or any of his companies were ever licensed in Virginia, according to Ken Schrad, a spokesman for the Virginia State Corporation Commission.

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.

Mark Pearce, deputy banking commissioner in North Carolina, said: “In North Carolina and in most other states, the existence of orders against an individual or company are reasons to support the denial of licensure.”

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.

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.”