The fight against requirements for state background checks and licensing was led by lobbyists for the powerful mortgage banking industry. One reason: The nation’s federally chartered banks have long fought against any type of state regulation of their industry, preferring federal oversight. At the same time, state-chartered mortgage lenders didn’t want an added layer of regulation that was not imposed on their federally regulated competitors.

Even today, many other states don’t require licensing or background checks, though a federal law passed last year by Congress will soon require all of them to impose licensing and backgrounding of loan originators.

Naff said he became so alarmed at the blatant law violations he witnessed three years ago, he asked a priest who was a friend whether he should quit the business. The priest suggested he stay and try to reform it from within. But Naff found it an impossible task.

“The lack of regulation made it hard for an individual, conscientious mortgage broker to enforce as many standards as we would like,” said Naff, whose former company, Abacus, came through a state examination cleanly. “Loan originators would simply go to someone who had no standards, or lower standards.”

More than 13,000 loan originators worked in the state during the height of the boom, a number cut to 4,400 under licensing and the mortgage bust. The state polices them as well as brokers and lending institutions with only 11 investigators, many of them lawyers, and two supervisors. Two investigators handled the task in 2002.