The number of mortgage broker licenses in Minnesota has declined from more than 4,000 a few years ago to fewer than 1,200 this year, according to Minnesota Department of Commerce Commissioner Glenn Wilson.
Before the subprime mortgage meltdown, it was possible to get a mortgage broker license in Minnesota for $850 and a bit of continuing education.
In other words, people with marginal qualifications could be licensed to sell mortgages, Wilson said.
"The biggest change is now you have to have $250,000 net worth and history in the business," said Wilson.
Besides net worth requirements, the license fee has nearly tripled to more than $2,100. New state laws don't require it, but the state is also doing background checks on everyone applying for a mortgage broker license.
The declining numbers apparently don't tell the whole story. Some mortgage brokers left the business when the subprime market collapsed last June.
However others are still around, says Gary Beatty, a former mortgage banker and vice president of the Greater Metropolitan Housing Corp.
"A lot of the people, a lot of these small companies that went out of business, they just moved into larger companies," Beatty said.
The Twin Cities nonprofit helps finance affordable housing, and is now one of the organizations in the forefront of helping owners and neighborhoods affected by foreclosures.
In fact, Beatty is one of those who last year gave up his mortgage brokers license. The reason is the same one that hit lots of other companies -- the credit crisis dried up resources for his nonprofit's mortgage business.
State officials say they're aware of questionable brokers seeking cover by moving their operations inside a larger companies, and the officials say they are watching the trend for abuses.
The Department of Commerce has stepped up enforcement of real estate malefactors, Commissioner Glenn Wilson says.
Last year, the department took 159 enforcement actions in real estate or mortgage related cases, and collected more than $600,000 in civil penalties. The numbers so far in 2008 are 61 enforcement actions and more than $66,000 in civil penalties.
The department's Web site contains the names of dozens of people who've lost their mortgage or other real estate-related license, because they lied, cheated or broke a rule.
The scammers face more than loss of license and a fine. The department pokes into the most egregious abuses, and hands the findings to law enforcement for possible criminal prosecution, Wilson says.
"We take these cases to the agency that we think have the best chance of a prosecution," Wilson said.
The department turned over to the FBI its file on the Roseville mortgage company recently accused by Minneapolis city officials of widespread loan fraud in the city. Even with new laws, enforcement and criminal charges, abuses are still happening, according to Gary Beatty.
One new regulation places a 5 percent cap on the amount of money a mortgage broker can charge for lender fees. However three weeks ago, a couple came to his office asking for help, Beatty says.
A lender sold them a mortgage and charged $12,000 in fees.
Apparently, all was legal even under the new state regulations, Beatty says. But it was not ethical, in his view, especially after learning from a banker friend who said he would have sold the couple a mortgage for $3,100 in fees.
"Is it any different than going from one car dealership to another, and somebody charging you $5,000 more for a car at another place?" Beatty said.
In other words, even with new rules and regulations which attempt to rein in mortgage lending abuses, borrowers must still be smart shoppers.