Real Estate Community Regulate Thyself

In 2006, the Rocky Mountain News has published an occasional series on Colorado’s foreclosure crisis. Chapters have shined an unfavorable spotlight on every aspect of the real estate industry; builders, Realtors, mortgage lenders and title companies. The common thread in every case is the lack of professionalism by the service providers who received commissions and fees establishing a fiduciary responsibility to the consumer. It is clear that in the great majority of foreclosure cases chronicled, the desire to close the transaction outweighed the concern for the best interest of the buyer and the real estate community as a whole.

It is time for the collective real estate industry to practice self regulation or suffer under the weight of bureaucratic efforts to stem the tide of fraud which has resulted in our status as the number one state for foreclosures throughout much of 2006. The new mortgage broker licensing law will only result in the most egregious of offenders; those convicted of a felony within the past five years to be removed from the industry. There are loop holes in the legislation and as the law is remiss by not requiring education or experience standards, no guaranty exist that the registered mortgage broker is competent to work in the mortgage industry.

The Colorado Mortgage Lenders Association (CMLA) has been a leader in self regulation among mortgage professionals. Mortgage bankers and brokers who carry the CML (Certified Mortgage Lender) credential have demonstrated through education and documented industry experience that they are qualified to consult consumers and originate mortgage loans. Mortgage originators that carry the CML designation also have agreed to a code of ethics. There are several steps that the mortgage industry can take to eliminate incompetent and unethical mortgage originators from the industry such as setting higher standards in hiring practices, completing independent background checks, requiring membership in an organization such as the CMLA, which provides a place for consumers to turn to file a complaint and force accountability.

The real estate industry has done a far better job of self regulation through licensing, enforcement, and the promotion of the Realtor designation in association with various Boards of Realtor. Real estate agents who carry the Realtor designation agree to adhere to a code of ethics and consumers must understand that not all real estate agents are Realtors. The industry could still do more to protect the public and managing brokers should bare more of the responsibility when hiring agents to their firms. In addition to the established consumer safeguards, agents should police themselves by reporting unethical practices when dealing with unethical agents.

Real estate appraisers often are subjected to tremendous pressure to “make the deal work,” when appraising a property under contract or as part of a refinance transaction. During my tenure as Chairman of the Colorado Real Estate Appraiser’s Board, I oversaw the discipline of many practitioners who were victim to the threat from mortgage lenders and real estate agents who pressured them to achieve a predetermined value for a subject property. Inflated appraisals are among the primary factors resulting in foreclosures in Colorado. As with the real estate industry the legislative structure and professional associations exist to address the most egregious offenders, the industry could benefit from more aggressive reporting of poor appraisal practices from real estate agents and mortgage lenders.

Title companies and closing agents are on the front lines in witnessing the pressure placed upon the consumer when deceptive practices come to light at the closing table. When a borrower learns that the interest rate and closing cost promised are not being delivered the closing agent is left to manage the closing and protect the borrower. Unfortunately this does not always happen as many do not feel it is their role to advocate for the consumer. I believe if a title company or closing agent recognizes a pattern of unethical practices from a real estate agent or mortgage lender; they should act to protect the consumer and title insurer by reporting those involved to the Colorado Real Estate Commission and the employing brokers.

The Bottom Line: New legislation aimed at regulation is only as effective as the enforcement, which in Colorado is limited by budgetary restrictions. If we act as an industry to raise the bar of professional practice and ethical behavior; we can accomplish the goal of cleaning up our industry in a responsible manner and elevate our professions in the eyes of those we seek to serve.

Resources:

Colorado Mortgage Lenders Association - http://www.cmla.com/
Colorado Department of Regulatory Agencies - http://www.dora.state.co.us/