SACRAMENTO — Corrupt mortgage brokers who defraud homeowners and lenders would face stiffer penalties under legislation introduced Tuesday by state Sen. Fran Pavley, D-Santa Monica.

The nation’s foreclosure crisis has uncovered an all too widespread practice of mortgage brokers using false information to obtain loans for borrowers, who are in turn often misled about the terms of those loans, Pavley said.

Reports of mortgage fraud nationwide rose by more than 1,400 percent between 2000 and 2008. California’s current law, which defines mortgage fraud as a misdemeanor, doesn’t do enough to deter these offenders, Pavley said.

California currently ranks fourth in the nation in a population-adjusted measure of suspected mortgage fraud. Among the 56 FBI regions in the country, Los Angeles, San Francisco and Sacramento ranked first, third and seventh respectively in mortgage fraud complaints.

“Dishonest mortgage brokers often prey on the most vulnerable people in our society,” Pavley said. “They have abused elderly, low-income and non-English speaking borrowers, deceiving them into taking out expensive sub-prime loans they cannot afford.

“Whole neighborhoods have been decimated by rampant foreclosures as a result. We need to take action now to prevent another mortgage foreclosure crisis in the future.”

Today, a mortgage broker charged with stealing or vandalizing an item worth $500 from a house would face more potential time behind bars than if he was charged with facilitating a $500,000 fraudulent mortgage loan on the same property. California’s only dedicated mortgage fraud law currently defines the practice as a misdemeanor, punishable only by fines.

Senate Bill 239, sponsored by the California District Attorneys Association, would make it a felony to commit fraud in connection with a mortgage application. Brokers convicted of making deliberate misstatements, misrepresentations and omissions during the mortgage lending process could be punished by a prison term of two, three or four years. Those who engaged in a pattern of fraud could face up to five years of additional time.

The bill also will allow law enforcement to obtain crucial real estate records more quickly via a court order.

“Look at the flood of foreclosures and the state of our economy and ask yourself whether mortgage fraud should be a misdemeanor and punished on a par with stealing a pack of gum. It’s time for California to start taking this crime seriously,” said Mike Fitzsimmons, Santa Clara County deputy district attorney, who also chairs the California District Attorneys Association’s real estate fraud committee.

If Pavley’s bill becomes law, California will follow the lead of Georgia, Arizona, Nevada and North Carolina, which have all adopted similar legislation in recent years. Georgia once led the nation in mortgage fraud. But since the passage of its law in 2005, the state’s mortgage fraud rate has fallen to a point where California’s problem now exceeds it. Georgia’s statute provides for as much as 10 years in prison for a one-time offender and up to 20 years for multiple offenders.

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