The "Show Me" State: Land Of Opportunity

Everything's up to date in Kansas City, except, apparently, one small item. The home state of the late, great robber of banks and an "insurgent" before "insurgency" was cool, Jesse James, carries on its historic tradition of providing succor for bushwhackers. These days, however, instead of killing jayhawkers in cross-border raids into Kansas, Missourians of a criminal bent prefer to stay at home and make money the old fashioned way: mortgage brokerage.

Among the ranks of Missouri's mortgage brokers are convicted drug dealers and bank robbers, according to the Federal Bureau of Investigation.

Julia Jensen, an FBI special agent who investigates mortgage fraud cases, said serious criminal and civil actions have not prevented some mortgage brokers from remaining active in the business.

"There's nothing that keeps them from going to work as a mortgage broker," Jensen said. "What I've seen is people who might not pass a background check for a license are not going through one."

That's because Missouri has no licensing requirement for individual mortgage brokers. Experts and law enforcement officials say this lack of a licensing system contributes to Missouri's reputation as one of the nation's hotbeds for mortgage fraud.

I understand why a state whose motto is "Salus populi suprema lex esto" ("The welfare of the people shall be the supreme law") wouldn't want to crimp the style of crack dealers and pedophiles by barring them from gainful employment in the high-status world of mortgage banking. That makes sense. Moreover, since the state animal is the mule, the populace doesn't like being pushed, and certainly not into adopting unnecessary laws when there's no demonstrated need for them. I mean, what's the big deal with licensing or not licensing mortgage brokers, I ask you?

Between 2001 and 2005, Missouri ranked among the top 10 states in the Mortgage Asset Research Institute's fraud index. The state dropped out of the top 10 in the institute's 2006 rankings, issued in May, but the FBI still reports that Missouri is among "problematic mortgage fraud areas."

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Experts say a licensing system might have weeded out some brokers involved in high-profile mortgage fraud cases.

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Rebecca Yocum, a Stinson Morrison Hecker LLP lawyer whose practice includes real estate matters, said individual brokers in Missouri can easily set up one or more companies to do their business.

"They start up one, they get in trouble, they start another one. They're easy to incorporate," Yocum said. "The big thing is there's no control. Anybody can go out and be a broker."

Authorities say the mortgage fraud problem is spreading beyond low-income neighborhoods.

"Now, you're seeing it move into the suburbs," said John Wood, U.S. attorney for the Western District of Missouri.

On Aug. 16, a jury found former Kansas City Councilwoman Saundra McFadden-Weaver guilty of a mortgage fraud scheme that involved obtaining fraudulent loans for a house in Lee's Summit.

Money skimmed from the fraudulent loans was used to renovate a house in Kansas City owned by a church that employed McFadden-Weaver.

As mortgage fraud spreads, so does its negative effects on the housing industry.

"Higher rates and expenses to obtain a mortgage begin to be realized," Louks said. "Fewer mortgage products and programs stay available, making it more difficult for some needy borrowers to qualify. Builders will find it harder to sell their homes and will reduce the number of projects they start or complete."

Oh. Maybe there is a demonstrated need for mortgage licensing in Missouri, after all.

Come to think of it, the last time I was in Missouri, I had a rather close encounter with a wild Missouri mortgage broker named Munny, whose partner Ned had been put on display in the local saloon, as an example to other miscreant subprime brokers. Munny didn't take well to that, and threw quite a little hissy fit. Frankly, he appeared to be a man in severe need of "licensing."

Luckily, I had my trusty cell phone camera with me and recorded the entire episode.