Erin Toll's power shifting to a board.
Mortgage broker Jim Spray has been waiting about a decade for a state board that would oversee his industry.
Now, it is all but certain he will get his wish this summer.
House Bill -1141, which among other things created the long-awaited board, has been approved by both the House and the Senate. If Gov. Bill Ritter signs it – or at least doesn’t veto it – it is expected to become law in August.
Creating the board has taken on political elements, because it takes away power now held by Erin Toll, the Colorado Division of Real Estate director who is on a paid leave of absence. However, even people on her staff have admitted privately that they have no problems with a board, especially now that some of the worst offenders appear to have been taken out of circulation by aggressively going after bad actors. The new board will treat mortgage brokers similarly to how the division handles disputes with real estate brokers and appraisers. Toll has a gag order from her boss, Barbara Kelley, the head of the Department of Regulatory Agencies, or DORA, which prevents her from publicly speaking on the issue.
Toll supporter also advocates board
“I’m not saying anything disparaging about Ms. Toll; I think she did a fine job,” said Spray, although others in his industry couldn’t disagree with him more, as they think that Toll wielded power with wild abandon, with no regard whether a person was truly innocent or guilty. “But the board model is a good one. I want to get rid of the bad guys – male and female, so as not to be discriminatory - run out of this business. This is an industry that needs policing and I’m glad for the first time iit will have the opportunity to really police itself.”
Indeed, Spray said he has been approached by people about serving on the 5-member board. “Not from the governor’s office itself, but from people who know me,” Spray said. “I’ve gotten a bit of a reputation as a fierce advocate of consumers.”
Terry Jones, chairman of the legislative and regulatory affairs committee for the Colorado Mortgage Lenders Association, also is pleased that a board will be created.
“We think it is both fair and appropriate,” Jones said. “We think the real estate division has done a good job in helping to clean up some of the issues the industry has faced in the past. It was OK for the first few years (after mortgage brokers were first regulated and than required to be licensed) to have the Division of Real Estate in charge. But we would have preferred from the beginning to have a board in place.”
Jones said many of the problems in the past few years revolved around abuses during the subprime mortgage era. “The vast majority of those people are out of business,” Jones said. “A lot of that has happened because of economic forces and really, the whole industry has contracted. I think a lot of the people who have remained in the industry have taken the time to really understand how the business works and are not in it for the quick buck. Today, people are unlikely to take the kind of risks and do the kind of things that had been at the core of a lot of the abuses,” which contributed to skyrocketing foreclosures, he said.
Jones said that his group isn’t taking sides in the chain-of-events that led to Toll being put on leave and her filing a whistle-blower complaint against Kelley and DORA. Creating the board is the right thing to do, regardless of the merits or the lack of merits of the events surrounding Toll and DORA, he said. And he said he does not believe the bill was introduced and passed because of the events surrounding Toll, but rather it moved forwad with little opposition based on its merits.
“The mortgage industry is a complicated one, with many rules and regulations, not only at the state level, but on the federal level,” said Jones, a 40-year veteran of the industry, who is now semi-retired. “It really helps to have the perspectives and knowledge of people who understand the industry, as well as the perspectives of the staff of the division.”
Board brings more perspectives
Peter Lansing, the head of Universal Lending, one of the biggest mortgage banking firms based in Denver and a sponsor of InsideRealEstateNews, said that a board will provide a transparent, open forum where people inside and outside of the industry can contribute their perspectives.
“This will increase the 360-degree view of problems,” Lansing said. “Whether it is the director of the real estate division or a board, the goal is the same – making sure that mortgage lenders treat consumers properly.” The transparency of a board, however, can be a “double-edge sword,” he said, as some people appearing in front of the board, may wish that they could explain things behind closed doors, rather than be scrutinized publicly.
Type 1, Type 2 becomes an issue
In another twist, which probably would not have been much of an issue except for the circumstances surrounding Toll, who had a public dispute with mortgage broker Sen. Ted Harvey, R-Highlands Ranch, the day before Toll officially launched an investigation into American Home Funding, the company that employs Harvey, is that HB-1141 makes the real estate division what is called a “Type 2 transfer” agency that puts it more under the control of DORA. The Division of Real Estate,currently is a Type 1 agency, which is considered more autonomous than a Type 2. The new board, however, is a Type 1 transfer. Some observers worry that when the real estate division becomes a Type 2 agency, its power could be influenced by whoever is governor, as the governor appoints the director of DORA.
However this concept did not arise in the wake of Toll being disciplined, which has been seen by some observers as stripping her powers because of the ensuing controversey. A 2007 Sunset Review of the Division recommended that it be changed in a Type 2 agency, even though it had been transferred under DORA’s umbrella as a Type 1 transfer in 1968. “In all likelihood (that was) a technical oversight that should be corrected,” according to the 2007 report.
Most Type 1 board and commissions are part of Type 2 agencies, the report notes. In a nutshell, if both the board and the division are type 1, it can be difficult to determine where the buck stops.
“Having a Type 1 agency supporting a Type 1 board or commission can be problematic in terms of clear roles and responsibilities and clean lines of accountability,” according to the state report. “For example, if the Commission is a Type 1 entity and the Division, too, is a Type 1 entity, problems can arise when the Commission sets a policy course that conflicts with the ideals of the staff of the Division.”
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
