March 22, 2010 09:46 PM UTC

Erin Toll and the gutting of regulation

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• by: allyncooper

(Some good inside baseball on the story that has shocked me out of my complacency – promoted by Danny the Red (hair))

The sacking of Erin Toll as Director of the Colorado Real Estate Division last week created quite a stir and was linked to the escalating dispute between Sen. Ted Harvey and his company American Home Funding and the Division’s reported investigation into deceptive advertising flyers.

While it seems this may have been the straw that broke the camels back, and there’s some very real issues raised about Harvey’s attempt to change the law involving the regulatory proceedures regarding licensed mortgage brokers, the Colorado Senate seems quite compliant in marching to the tune of the mortgage brokerage business.

Attached as Senate amendments to HB 10-1141 and passed on second reading on March 12 were two amendments which strips the current authority of the Director to investigate and fine mortgage broker scofflaws and instead establishes a board system, and another amendment that requires that complaints about mortgage brokers be closed to public inspection.

HB 10-1141 sponsored by Rep. Terrance Carroll is a consumer friendly bill which established the requirement for mortgage companies to be registered by the division of real estate. The bill passed the House, it was sent to the Senate, and reported out of committee to the Committee of the Whole.

But on March 12 on the floor, an amendment was added by Republican Sen. Mark Scheffle which strips the Director of all the rulemaking, enforcement, and administrative authority over mortgage brokers and placces it in the hands of a seven member board – five of which are required to be mortgage brokers.

This is clearly a case of the fox guarding the hen house. Boards also regulate real estate brokers and appraisers, but the proposed mortgage broker board would have a higher concentration of industry board members than any of the other boards.

At issue is the question of effective enforcement. Director Toll has been able to issue subpoenas in the investigation of mortgage fraud, and in fact if you are investigating financial crimes it is critical to do so. Under the amendment, the authority to approve issuance of subpoenas would transfer to the board, which would then only approve issuance upon a majority vote of the board which is dominated by industry board members.

Erin Toll has not been reluctant to use the power of subpoena (which by current law she clearly has) to investigate mortgage fraud. The reality is, the proposed legislation would gut a key element used in the investigation and prosecution of mortgage fraud because as a practical matter the industry dominated board will be far less likely to approve issuance, and even when doing so would need a majority vote of the board.

The other amendment was introduced by Republican Shawn Mitchell, and it requires that complaints and investigations be closed to public inspection (currently they may be closed at the discretion of the Director). While there may be some legitimate privacy concerns here, this clearly travels the path of less transparency.  And since mortgage fraud is one of the primary reasons behind the collapse of the housing market and subsequent recession, is less transparency appropriate here?

Sen. Scheffel is firmly ensconced in the mortgage industry – he is founder and one of the owners of Champion Bank in Parker, and in 2008 his third highest campaign contribution by sector came from the Finance, Insurance & Real Estate industry, so there’s little doubt why he’s doing Ted Harvey’s bidding. In 2008 Shawn Mitchell received $ 18,125 from the Finance, Insurance & Real Estate industry (his highest amount from any sector), so even Stevie Wonder can see through him.  

But what is disturbing is a Democrat controlled Senate allowing these amendments to be rolled right into a bill on second reading. There was no committee hearing on these rather contentious proposals, no opportunity for parties in interest to testify at hearing or otherwise make their views known.

Spring is in the air (even after our little snowstorm), and with it comes the pleasant fragrances of warm weather. But down at the Capitol, the ever present smell of money overpowers all.