The number of mortgage broker licenses revoked or suspended by the state has risen considerably, up four times the number of enforcement actions issued last year.
The state Department of Banking has yanked the licenses of about 20 companies, including eight last month alone, and industry observers expect more by year’s end.
The banking department’s regulatory proceedings are in stark contrast to the handful of enforcement measures it carried out through the entire year of 2006.
In most cases, the state’s current actions come on the heels of another reversal of fortune for mortgage broker companies. Bond companies are no longer willing to post bonds for the mortgage companies as required by Connecticut law. And without a bond, the state will not issue the required the mortgage broker license.
“For these recent orders, there have been a large number of bond cancellations,” said Kathleen Titsworth, Department of Banking spokesperson. “When the bonds are cancelled, we are notified and then we are aware. [The mortgage brokers] are given 30 days, but if they have had their bonds cancelled, they will lose their license.”
In most of the orders, the brokers and lenders cited by the state — including Access Mortgage Corporation of New Haven — did not respond to the state’s notice, an indication that the firm is likely out of business.
Norman Roos, the counsel for the Connecticut Mortgage Bankers Association, has represented independent brokers and lenders for more than three decades. “I would say, clearly, what you have seen does relate to the sea change, particularly in the subprime mortgage market,” he said. “It’s sort of a surge because of the market correction that is going on. When you have these actions and there is a failure to maintain bonds, these are clearly situations of someone shutting down.”
There could be another wave of companies failing in the next couple of months, Roos said, noting that the current lending conditions will make it difficult for brokers experiencing money troubles to remain financially sound.
“When these companies fail to even respond to a notice, it’s indicative of the market we’re facing,” said Roos. “It means one of two things: It means that they’re going out of business because they feel it is no longer profitable, or the market has moved into the credit crunch so far that they have financial obligations they can’t meet.”
If the mortgage brokers go out of business and fail to keep their loan commitments, Roos said it may become an issue to the state attorney general or banking officials.
The recent surge of suspensions and revocations is part of the department’s overall goal to combat the crisis.
“This has nothing to do with the economics of the crisis and everything to do with keeping sharp,” said Howard Pitkin, the state banking commissioner.
The mortgage market, specifically the subprime mortgage market, has been on state officials’ radar. In April, Gov. M. Jodi Rell convened a task force to examine the soaring rise of home mortgage foreclosures.