In a bit of a surprise to me, the newest legislative trend in mortgage banking appears to actually be a positive one. The Arizona Senate voted 26-0 to approve legislation that makes mortgage fraud a felony offense
[The bill] would make residential mortgage fraud a felony punishable by up three years in prison for a first offense, with tougher penalties imposed if a person engages in a pattern - or conspires to do so - of residential mortgage fraud.
State regulators have described cash-back schemes in which buyers use inflated appraisals to obtain mortgages for more than homes are worth, splitting the extra money in cash with real estate agents, appraisers and mortgage brokers.
By creating statewide statutes on mortgage fraud -- a crime most of us who have worked in the industry know is more common than we'd probably like to admit -- lenders have a "path of least resistance" to legal recourse, which may help not only keep fraud at bay, but help keep the legal costs of pursuing fraud down. While lenders aren't often regulated by patchwork state legislation, borrowers perping fraud are.
Felicia Rotellini, superintendent of the Department of Financial Institutions and head of a mortgage fraud task force of state and federal agencies, said having the specific statute helps law enforcement by creating an "efficient path" from investigation through prosecution, partly by clearly stating specific elements of the crime for the benefit of law enforcement officials and jurors.
It also sends a clear message to potential perpetrators that they face prosecution if they commit the proposed law's specific elements, Rotellini said in a briefing paper on the bill.
"When mortgage fraud is clear, and the penalties are evident, the fraudsters will accept a plea bargain much more readily. This is because the facts themselves will prove the case," Rotellini said.
Both Georgia and Nevada have taken similar paths, so this may be one trend in the regulatory environment that may really help lenders (and honest borrowers).
Well, I did say this was a trend, right? Boston governor Deval Patrick filed a similar bill today
with state legislators.