Criminal Record No Bar For Fla. Loan Business

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MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

If you think that you have heard every outrage imaginable about mortgage brokers and loan originators, listen to this. The Miami Herald has conducted an exhaustive eight-month long investigation of people who do those jobs in the state of Florida, and they found that from the year 2000 through 2007, some 10,529 people, either working as mortgage brokers or loan originators, actually had criminal records.

Jack Dolan is the lead investigative reporter for the Herald series which is called "Borrowers Betrayed," and he joins us from Miami.

And, first of all, we should describe the kind of work that the people do -these mortgage brokers, loan originators. Tell us about that first.

Mr. JACK DOLAN (Investigative Reporter, Miami Herald): Well, when most people are shopping for a home loan, they don't go down to the bank and meet the manager anymore. What they'll do is, they'll go online, maybe make some phone calls and shop for the best rate. And often, about 70 percent of the time over the last decade, they'll wind up in the hands of somebody who's a mortgage broker, and that's somebody who works independently and can negotiate, you know, the best rate with many different lenders.

SIEGEL: And it turns out that when we consider mortgage brokers and other people working as mortgage loan originators, there are 10,000 such people in Florida who have felony convictions in their record.

Mr. DOLAN: That's right. They're criminal convictions, and they're not necessarily for run-of-the-mill crimes. I mean, we found bank robbers were able to pass a criminal background check and get a license from the state. You know, the guy who is the lead example in our story, he went into federal prison as a convicted cocaine trafficker, met a guy in prison, they discussed the mortgage industry and then they went into business and were making a great deal of money in it. And so…

SIEGEL: You think the conversation was, forget about cocaine, there's a killing to be made out there in mortgages.

Mr. DOLAN: It's a possibility.

SIEGEL: Now, one startling fact about this is that when it comes to mortgage brokers, Florida, you report, was the first state to actually require a state license. So somebody, back in 1959, that was, someone in Florida thought that the state should oversee and regulate this kind of business. What happened that so many thousands could slip through?

Mr. DOLAN: Well, that's a very good question. And since 1959, there have been many people, you know, calling for stricter regulation. And there's this whole category of people who are known as loan originators, who the state has an idea of where they work, but they don't license them. And people have called for licensing them and forcing them to have educational requirements. But the state's regulators have repeatedly resisted requests to strengthen their own licensing standards.

SIEGEL: Almost half the 10,000 people you talk about are people who do have a state license and who somehow managed to get through it. Was it that state investigators looked at the same database that the Miami Herald did and they saw felony convictions for drug trafficking or bank robbery and decided it didn't matter or they didn't do that kind of due diligence?

Mr. DOLAN: We found cases of both. There's one gentleman who walked out of federal prison for fairly large-scale cocaine trafficking, admitted that on his application, submitted a letter of recommendation from his mom and omitted the police report that shows, you know, that he was caught with a small arsenal of assault weapons.

The state took all that information in, offered him the license, told him he would have to have a reputable broker to oversee his practice, but let him pick his own supervisor. And he picked the guy he met in the visitor room of the federal prison he'd been in. He went on to steal at least three million dollars from about 30 people, most of them elderly, many of them disabled. He specifically targeted them and left them in terrible straits.

SIEGEL: Which raises the question: Did former convicts turn out to be more unscrupulous or remarkably more unscrupulous about what they did with people's mortgage loans than brokers who didn't have any criminal records?

Mr. DOLAN: You know, that's a good question. And I'm afraid I don't have the answer to it.

SIEGEL: Your paper is the Miami Herald, so it's investigated the situation in Florida. Do you have any sense of whether Florida is egregious or whether the same thing is going on many other states or might it be worse elsewhere?

Mr. DOLAN: Well, there's sort of an axiom that, you know, whatever can go wrong will go wrong worst in Florida. But there are other states that have taken far more proactive measures to regulate the industry - Ohio, Illinois, New York, they have stricter background checks and they license this whole category of people known as loan originators. And then when you get licensed, that means you are submitted to a background check. So most other states, as far as we can tell, do a much, much better job.

SIEGEL: Well, Jack Dolan, thank you very much for talking with us about your series.

Mr. DOLAN: Thank you very much.

SIEGEL: The series is "Borrowers Betrayed," and Jack Dolan is the lead investigative reporter for that series which is appearing in the Miami Herald.

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