Some Mortgage Originators Skip State Licensing

The revocation was overturned on appeal, and Lee regained his license, though it expired two years ago. As part of the appeal, investigators discovered that Lee had several outstanding judgments on his credit report related to unpaid appraisal fees in Virginia from 2002.

Lee testified that the fees, which were later paid, arose because he had "co-brokered loans" with a broker in Virginia.

In Virginia, if you act as a mortgage broker, you need a license to originate even one loan. There is no record that Lee or any of his companies -- Financial Independence, Debt Management Consultants or Debt Elimination Group -- were ever licensed in Virginia, according to Ken Schrad, a spokesman for the Virginia State Corporation Commission.

Typically, the term "co-brokered loan" is used when two brokers are involved in a transaction and the fees are divided between them, Schrad said.

One of the criteria that states consider in granting a license to arrange mortgages is how the company and its owner have acted in other jurisdictions. Without specifically referring to Lee or any of his companies, Schrad said if a business has been barred from doing mortgages in another state, that entity or individual would have difficulty obtaining a license in Virginia.

"Through the application process, we investigate the experience and integrity of the principals behind the company," he said.

Mark E. Pearce, deputy banking commissioner in North Carolina, was more direct.

"In North Carolina and in most other states, the existences of orders against an individual or company are reasons to support the denial of licensure," he said.

As a borrower, I would want to know if the person or mortgage broker handling my loan is supposed to be licensed.

"If they tell you they don't need one, check with the state banking department to see if that is true," Pearce said. "Every state requires mortgage companies to be licensed. And many states are increasingly requiring individuals to be licensed."

Often state regulators cannot catch and prosecute unlicensed operations and individuals because borrowers don't come forward to complain.

"We need the public to let us know about these things," Pearce said.

States need to know because these transactions involve homes, which for many people are their largest assets. If you are put into the wrong loan, you could lose your house.

But as Schrad said, "When you deal with an unlicensed entity, you are kind of on your own."

? On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.She also has a new personal finance call-in show that airs Sundays on XM Satellite Radio, Channel 169 "The Power," at 8 to 10 p.m.

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