Another lending commission? Forget it - we need to enforce existing laws
When Treasury Secretary Henry M. Paulson released the government's blueprint for overhauling the nation's financial regulations, he promised to direct more attention toward the front-line people who arrange mortgages.
"Simply put, that process was broken," Paulson said.
To protect consumers from predatory lending and deceptive disclosure practices, Paulson proposed the creation of a federal Mortgage Origination Commission, which would establish minimum standards for loan officers. It would also evaluate, rate, and report on each state's efforts to license and regulate them.
Yet based on my investigation of one mortgage operation - which has continued to arrange loans despite state sanctions - what's needed is more criminal prosecution, not another commission with little power. After all, we're talking about loan officers responsible for explaining products with complicated terms and high fees - the types of products that have led this nation into its economic mudslide.
The problems with the system can be illustrated by looking at CashFlow Strategies, formerly called Financial Independence Group, which was run by Georgia-based businessman Frederick C. Lee Jr. This case highlights serious holes in how state and nationally regulated financial institutions can fail to verify that borrowers are working with licensed loan officers.
Lee has been banned from arranging loans in Maryland and Georgia because neither he nor his companies were licensed for such activity. And yet people working for Lee have continued to arrange mortgage loans that for many borrowers are inappropriate, according to sources and company documents. Equally disturbing is that these borrowers are paying fees many consumer advocacy groups would label as predatory.
Lee said he has nothing to do with CashFlow, although the company has the same Georgia address and telephone number as Financial Independence. One CashFlow document welcoming new team members says Lee is its founder.
With Lee's history of regulatory run-ins, one would think financial institutions would avoid doing business with him. And yet Lee has continued to work with banks and licensed mortgage brokers.
Last year, Wachovia, the fourth-largest US bank, funded 196 loans totaling about $54.2 million that Lee brought to the institution, according to an e-mail sent to Lee by Scott Davenport, a former national account executive with Wachovia.
"Let's keep up the great work and push for a great 2008," Davenport wrote in the e-mail. It was sent several months after publications reported that cease-and-desist orders had been issued against Lee in Maryland and Georgia.
With major financial institutions failing to vet the people who bring them loan applicants, it's no wonder we ended up in this mortgage mess.
Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com.
