Erin Toll and the gutting of regulation

(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.  


15 Community Comments, Facebook Comments

  1. Old Rep says:

    If we had more regulators like Toll, the countries real estate problems would not have been so damaging.  It is amazing how we can reward deceptive people and discourage innovative, hard working business citizens.

    • Libertad says:

      The sacking of Erin Toll as Director of the Colorado Real Estate Division last week

      Does this mean she’s been fired? What’s her status?

      • allyncooper says:

        And as of yet, they haven’t really been answered because nobody is talking.

        Most sources refer to her as “on leave”. Nobody will say if this leave is voluntary or involuntary. As I understand it, she can only be fired for specific causes like gross incompetence, malfeasance, etc.

        She has hired an employment attorney to represent her.

        • Libertad says:

          My right wing real estate agent neighbor loves Toll.

          On the other hand I understand from a former co-worker (and hardcore Democrat) that Toll stepped way over the administrative malfeasance standard of improper comments/treatment of colleagues and staff.

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  2. ajb says:

    Regardless of which scumbag introduced the amendments, they had to be voted on.

  3. DavidThi808 says:

    Yes there will be a board – but it can only have one person from the mortgage industry on it. If you’re going toa make it a system to never find problems – then just say there will be no regulation.

  4. greengrrl says:

    I’ve been befuddled by what little I’ve read about this.

    Anyone know the status of the bill at the point?

    After the recent financial meltdown, did we not learn that we need more and better regulation?

  5. GregKing says:

    We always do the same thing: the public gets ripped off, everyone wonders “how can this happen”, then we create or empower regulatory agencies to ensure whatever abomination we are whining about never happens again.

    Then we put someone in place to manage the operation and ensure consumers never get fleeced again; someone like Toll.

    Of course, we all know that the minute someone like Toll actually does her job really well, the people most guilty and in need of enforcement are the first to complain and usually get their way.

    I think creating a board when you already have an agency in place and someone at the helm with the moxie and teeth to police the industry is a very, very bad idea.  A board would have much less power, would be much slower to respond and would end up being much less effective, if at all.  A board is a bad, bad idea.

    Business people oftentimes have epiphanies resulting in “brilliant” yet unethical ideas to garner more money from consumers – we need people like Erin Toll to do the job she was doing without being subjected to this kind of railroading for doing her job.

    I am most disappointed in the treatment that Erin Toll is receiving for doing her job as well as hobbling the effectiveness of HB 10-1141 and the Real Estate Division.

    Why do we continually live through an endless cycle of (a) being shocked about lack of ethics; (b) fixing the problem; and finally, (c) making sure we dismantle the fix so we can again be shocked by a lack of ethics?

  6. GregKing says:

    If you have a board, it should be made up of people from different industries, different walks of life as well as a couple of people with no vested interest one way or the other.  

    Something like 3 consumers that have experienced getting fleeced, 3 industry representatives that have experience in fleecing the weak minded and 3 disinterested people to help balance the other two groups.

    Nah, a board is just a bad idea – hell, just the idea of trying to coordinate all those individual schedules so they could meet?  …and how often would they meet? …and who would do the actual paper work?  …and how much would we have to pay these individuals for the time they would spend duplicating the effort of an existing agency?

    hmmm… the idea of a board seems to be sort of stupid… who came up with such a stupid, costly idea anyway?  Please don’t tell me it was a fiscally responsible Republican…

  7. Danny the Red (hair) says:

    Toll tells Harvey and the other legislators that the package of changes came at the request of the Colorado Bankers Association, which is why the new version “looks so different.”

    At 10:54, Harvey responds: “Thank you Madame Chair. Director Toll, I have a problem with the director model, I was wondering if you can go further about who would be opposed to that, I think when you have a board that has the ability to be a buffer between the industry and a director, kind of an appeals process, if you will, you have a board that is accountable to the community at large, the business community at large. … When you have director scenario, you don’t. I think you can see that come into play with the appraisal board, with the realtor board, … when you have a director model as you do with the mortgage industry, you don’t have an appeals process, you have a dictatorial process where whatever the director says go, and I have a problem with that.

    Toll then counters: “First of all, Sen. Harvey, there is a trend across the country and shows the board and commission models aren’t working because it’s foxes watching the henhouse. … You know I’m a robust regulator, this is not my idea, this was originally a board model, this request … was made by the bankers, they felt strongly and I understand that because there are appraisers on the board of real estate appraisers who are not friendly … toward … appraisal management companies, they felt that the appraisal management companies are not held in favor by some, many, of the mom and pop appraisers. … This wasn’t my idea, Sen Harvey.

    At this point, 14:07 into the meeting, Sen. Mitchell says: “I guess following on that interesting line of discussion, you’ve commented on input received from the industry which prompted industry to go neutral or in some cases support the bill. That kind of agreement arises in different dynamics, one dynamic is … there are industries that agree to bills because they’re afraid of you, and they’re afraid of you targeting them and they would rather be in your good graces than otherwise.”

    At this point, Toll, sounding flustered and with a nervous laugh, defends herself, saying she’s merely enforcing the laws that the legislators themselves have passed: ” I don’t know what to comment, I don’t know what to say, I’m just like I appear. (laughs). I’ve heard some things, and seen some things, and I’ll tell you Sen. Mitchell that I do what I think is right based on what you tell me you want, I don’t make laws I enforce the laws that you tell me are right, if you really want to get into my personal beliefs … we have more than enough laws … and the problem is no one’s enforcing what we have

  8. OneEyedOwl says:

    It’s a way of creating non-regulation regulation of an industry. Either Colorado should regulate mortgage brokers, or it shouldn’t. If we want to regulate brokers, let the hired guns (like Toll) do their work. If we don’t want to regulate them, abolish the entire framework and let the free market reign.

    Ever wonder why the public has no faith in government anymore?

  9. allyncooper says:

    It depends how its composed. My point on my story is this is a pretty major policy change, and shouldn’t be done just tacking on an amendment in which there are no hearings and no input from interested parties.

    The Denver Post (which usually takes a pro real estate industry position) agreed on an opinion piece last Friday (19th) that these amendments were not a good idea at this time.

    This just in from the DP – comments from Terrance Carroll about the amendments.

    As senators try dialing back mortgage brokers’ influence on a proposed board that would oversee the industry, opposition from the House speaker could kill plans for a new regulatory scheme altogether.

    House Speaker Terrance Carroll, D-Denver, said the reforms amended into HB 1141 were too sweeping to go without a full debate in both chambers, and lawmakers must worry about the perception of conflict of interest in the wake of controversy.

    Full article

  10. civilized discourse says:

    HB1141 discussed in this article was scheduled for a 3rd reading 3/16. The bill was laid over for 3rd reading on 3/22, but then referred back to Senate Business, Labor and Technology committee. Incidentally, Sen. Tochtrop is the committee chair and committee members include Senators Mitchell, Scheffel and Harvey. The bill is now on the committee’s schedule for 3/31.

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