40 percent of Ind. mortgage brokers lose licenses

Nearly 40 percent of Indiana's mortgage brokerages lost their licenses Wednesday because they haven't complied with a new law aimed at raising the standards of the industry in a state with one of the nation's highest foreclosure rates.
As of noon Wednesday, 361 of Indiana's 950 brokerages had failed to meet a Tuesday deadline for complying with a 2007 industry-backed law that requires each brokerage to name a principal broker with at least three years experience who has passed a state exam and will oversee his company's business affairs.
Another 143 brokerages have voluntarily surrendered their licenses, Indiana Secretary of State Todd Rokita said in a teleconference with reporters.
That means only about half of the 950 mortgage brokers licensed by the state on July 1 remain in business five weeks later.
The new law also requires background checks on brokers and raised their annual fees to $400 from $100, Rokita said.
"Some businesses said, `I don't even want to invest another $300 in this enterprise,'" he said.
The numbers of license forfeitures and revocations could change somewhat in the coming days because paperwork might still be in the mail, said Jim Gavin, a spokesman for Rokita.
Brokers act as third parties that match a borrower to a lender. They originate about two-thirds of the home and commercial loans in Indiana, Rokita said.
Investigators from the state Securities Division will investigate to see if unlicensed loan brokers still were operating in the state. Rokita called on mortgage lenders to tip off investigators if they suspected an unlicensed loan broker was still in business. Unlicensed brokers could face criminal charges or civil penalties.
The Indiana Association of Mortgage Brokers worked with Rokita's office and lawmakers in drafting the new law, said the group's president, Mike Monaco of Merrillville.
"Make no mistake about it, we had one of the easiest entrance barriers in the country," Monaco said. He said many of the brokers who have lost their licenses likely already had left the business because of the housing industry downturn.
The low standards likely were among the factors leading to Indiana consistently having one of the 10 highest foreclosure rates in the nation, Monaco said.
Rokita, however, downplayed the brokers' standards role in Indiana's high foreclosure rate.
"I don't think that was a very big piece of that," Rokita said, explaining that talks on the new law began before the subprime mortgage crisis began.
Karl Berron, chief executive of the Indiana Association of Realtors, said the license revocations could cause loan problems for a few prospective buyers, but he expected only minimal impact from Wednesday's action.
"The loans are still there for folks that want them," Berron said.
Consumers can see a list of unlicensed loan brokers on the Secretary of State's Web page -- http://www.in.gov/sos -- which was to be updated daily. The site also features a database where consumers can look up a specific company by name and confirm if it is licensed.
The 950 mortgage brokers licensed as of July 1 did not include 360 who are exempt from the new law until next Jan. 1. Those include companies that provide Veterans Administration loans and loans through other federal programs.