Some Mortgage Originators Skip State Licensing

By Michelle Singletary
Sunday, September 9, 2007

Concerned about mortgage fraud and predatory lending practices, many states have toughened their laws by requiring loan officers or originators to undergo extensive background checks and show proof of professional experience and training. Still, attracted by the lucrative mortgage business, many individuals are originating loans without being properly licensed.

In a relatively new arrangement, some skirt the law by paying to become part of a "net branch" operation. Net-branching is similar to franchising. It allows individuals to operate their own mortgage loan origination branch using the mortgage-lending or broker license of the branching company. Individuals get assistance in running their businesses and gain access to a network of lenders.

Although state laws vary, many jurisdictions require loan originators working in a net branch operation to have their own license. For example, in Maryland, individual loan officers are required to obtain a license as of January 2007.

Because of problems with net branching, some states don't allow it. In states where it is allowed, operations can run afoul of the law if loan officers aren't properly supervised or aren't licensed as required.

The authorities have stepped up their enforcement actions against operations that do business with unlicensed mortgage brokers, loan officers or loan originators. Most recently, 10 states took action against Apex Financial Group, also called Apex Mortgage. Apex was doing business with multiple unlicensed entities, leaving consumers unprotected, the states allege.

One person who worked with Apex was Frederick C. Lee Jr., founder of Financial Independence Group and other mortgage companies, whom I wrote about in an earlier column. Former insiders, with knowledge of the inner workings of Lee's multi-state mortgage operation, said he has assembled a network of people who arrange mortgages, sometimes through net-branching, even though the officers are not properly trained or in some cases licensed as required by the states.

In an interview, Lee denied that he or his company was involved in facilitating mortgage loans. "I'm not a mortgage guy," he said.

Yet loan documents I obtained suggest that Lee is acting as a mortgage broker. In one case, a $504,000 residential loan in Maryland lists North American Real Estate Services as the broker. Lee's cellphone number is listed as the originator's contact number. Lee is not licensed as a mortgage broker in Maryland.

Neither Lee nor his attorney would return e-mails or telephone calls for further comment.

Other documents show that people who work for Lee are originating loans in Maryland, Virginia, the District, California, Colorado, Michigan, Arizona, Alabama, New Jersey, Georgia and North Carolina.

Some current members of Financial Independence, including some who also worked for Lee when the company was called Debt Management Consultants, are trying to obtain licenses through a net-branching company, sources said.

One top person at Financial Independence, regional manager Angela Garnett, has applied to become a loan officer in Maryland under a license for Florida-based 1st Continental Mortgage, according to her Maryland application obtained through the Maryland Public Information Act. Internal documents from Financial Independence indicate that Garnett is already helping arrange loans in Maryland.

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