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Home Mortgage Paperwork Nightmare
Little Known Treasury Dept. Anti-Money Laundering Scheme
Destroys Some Family Dreams In Cherry Creek Valley
by Charles C. Bonniwell
The housing market in the Cherry Creek Valley is hot and getting hotter. But finding a home one can reasonably afford in today’s market may only be a part of the challenge. Pursuant to a little kno
wn 2012 edict the United States Treasury Department quietly imposed a massive far-reaching program purportedly to address money laundering concerns. It has in fact destroyed some innocent families’ best laid plans and created a paperwork nightmare for many people trying to buy a home or refinance one.
Joe Metzler a mortgage specialist who heads Mortgages Unlimited in St. Paul, Minnesota, declared: “Even if you are the most perfect [borrower] expect that you might still get singed going through.”
Public Misconception And Misery
Many potential borrowers mistakenly believe their documentation quagmire is due simply to lenders tightening loan guidelines after the mortgage implosion in 2008 resulting from loose loan standards. The tightening of actual loan standards would have been relatively simple. Instead much of the paperwork debacle is caused by a federal agency (the Treasury Department) which has a totally different agenda i.e. preventing the laundering of money that has not been subject to being fully and completely taxed. The Treasury Department has no reason to disabuse the public of its misconception and the Treasury Department’s hidden role in their misery.
Justin Petrochko, events manager for non-profit Project Angel Heart, noted that the massive paperwork demands of the Treasury Department almost prevented him and his wife Marissa from acquiring
a home. Petrochko stated, “If it were not for Marissa working from home for a couple of days a week for several weeks the home buying process would not have happened for us. I don’t know how many families satisfy the demands and of course many end up not being able to buy a home.”
The executive editor of the Chro
nicle Mark Smiley had applied for a refinance of his home in Mayfair. “I thought it would be a simple process. We easily qualified for the loan and had more than sufficient equity in the house. Was I ever wrong. It was absolute torture. No matter what documents we provided there were ever increasing and endless and sometimes duplicative demands for items that had nothing to do with the underlying transaction but apparently for fear of rules and regulations from Washington.”
Smiley grimaced, “My parents gave us a $100 check to buy their granddaughter a birthday gift. It was required that I provide a letter from my parents declaring the reason and purpose of the gift. My parents were traveling so I had to reach and have them overnight the letter. We had scores and scores of demands that had absolutely nothing to do with our ability to repay the loan.”
Smiley, in fact, eventually gave up. “I called my lender and said ‘I’m done. I am not going to provide one more lousy additional document.’ I politely told the lender you can take your loan and shove it.” Fear of losing a valued and qualified customer resulted in higher ups at the bank waiving some of the more ridiculous paperwork requirements and Smiley did eventually close the loan, but the affair did not leave him happy. “As far as I am concerned the U.S. Treasury Department should be officially designated a ‘terrorist group’ for what they are doing to everyday families across America.”
Concerns Over Treasury Department
Homebuyers are not the only ones upset with the Treasury’s ever more intrusive anti-money laundering activities. The publication American Banker reported late last year in an article titled “Treasury, FinCEN Try to Quell Fears over Money-Laundering Enforcement” reported that “banks were cutting ties with entire business sectors such as check cashers and money transmitters, because of a blunt governmental approach to stamping out money laundering.”
The ever growing and more intrusive federal anti-money-laundering project began simply enough in 1970 with “The Currency and Foreign Transactions Reporting Act” (better known as the “Bank Secrecy Act”) which required banks to report cash transactions exceeding $10,000. The program went on steroids with the provisions of Title III to the USA PATRIOT Act of 2001 in response to the events of September 11, 2001, and the attack on the World Trade Center Twin Towers.
In 2012 the Treasury Department through its Financial Crimes Enforcement Network (“FinCen”) issued a rule that required even non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and report so called suspicious activity reports (SARs). That required at a minimum (1) the development of internal policies, procedures and controls, (2) the designation of a compliance officer, (3) an ongoing employee training program and, (4) an independent audit function to test programs.
Failure to comply with a FinCEN rule subjects a person to possible violation of the USA PATRIOT Act with the imposition of major fines ($25,000) and imprisonment of up to five years. Experts estimate that all of the Treasury’s anti-laundering requirements including the more recent mortgage rules result in a drain of hundreds of millions from the United States economy in compliance and enforcement with little or no actual benefit as criminal money launderers simply shift their activities to other areas. FinCEN has also made an effort to go after even the smallest of businesses. It recently announced with great fanfare regarding Colorado, a $75,000 civil money penalty against a tiny cash checking company, Aurora Summit, Inc., for not complying with its mandates.
Fannie Mae Requirement
Many of the requirements that drive potential buyers crazy are issued by Fannie Mae (the Federal National Mortgage Association) which is the largest investor of mortgages in the country. Fannie Mae decides what documentation it requires for a mortgage to be considered qualified for purchase.
For example Fannie Mae requires that all funds used for down payment, closing costs and financial reserves come from acceptable and verified sources as a way to comply with the anti-money laundering of the Treasury Department. As a practical matter it means that all so-called “large deposits” are verified as coming from acceptable sources. Large deposits are in turn defined so that they include transactions no ordinary person would define as “large.” Under Fannie Mae’s rules any deposit in excess of 50 percent of a borrowers “qualified income” is declared to be “large.” Thus if a borrower has qualified income of $3,500 per month, any deposit of $1,650 is potentially a large deposit and the mortgage company will demand the source of all of those funds down to the least significant check.
While the provisions in Fannie Mae’s Section B3-4.2, Verification of Depository Assets, would provide certain leeway in issuing verification demands, that is not what happens in the field. A company’s local compliance officer is often a low paid staff member who greatly fears a governmental audit which could destroy his or her life. They in turn err at their company’s urging on the side of caution and make ever greater demands. In the case of the Chronicle’s Mark Smiley, consulted experts could not pinpoint any specific rule or regulation that would cause that a single $100 check deposit from a parent to generate a demand for verification other than the general fear generated by the Treasury Department and FinCEN.
Treasury View Of Public
A small mortgage lender who asked for anonymity for fear of attracting undue federal attention stated, “The federal anti-money laundering scam has become a bureaucratic beast that is ripping apart the fabric of the home mortgage business as well as other whole sections of the banking industry. It was Republicans that gave us the Bank Secrecy Act and the USA PATRIOT Act and it is a Democratic administration that has come up with these most recent inane requirements under an out of control Treasury Department. As far as the Treasury Department is concerned the members of the American public are sheep to be sheared and they simply don’t care how bloody the shearing is.”
Gaylord Hotel Mess Gets Messier
State Treasurer And Adams County Judge Raise Additional Problems
by Charles C. Bonniwell
The star-crossed Gaylord Rockies hotel project appears to be running into continued turbulence. Originally envisioned to be part of the relocated and expanded National Western Stock Show complex, the Aurora hotel and convention site has gone through a seemingly never ending series of complexities, alterations and controversies.
Back in the spring of 2011, Nashville-based Gaylord Entertainment announced it was building a new Gaylord Western Hotel and Convention complex at the High Point site near Peña Boulevard and Tower Road. It was to be next door to the new home of the National Western Stock Show which was going to move from its Denver home after 105 years. Initially supported by then new Denver Mayor Michael Hancock the move of National Western was squashed by a revolt of the City Council, led by Councilman Charlie Brown.
Gaylord Entertainment nonetheless demanded massive tax concessions from the City of Aurora and the State of Colorado totaling over $380 million for the $800 million project. As outlined by the Glendale Cherry Creek Chronicle in April through June of 2012, Gaylord Entertainment being awarded over $81 million in state tax subsidies appeared to be part of what some called a rigged process by the Colorado Economic Development Commission. Under the Colorado Regional Tourism Act (the “RTA”), small cities and counties were supposed to be able to compete in an aboveboard process for the best projects pursuant to the criteria set out in the RTA. Small towns, including Glendale, and counties were forced to spend hundreds of thousands of dollars to submit applications in which they apparently had little or no chance of being awarded a grant.
The project became enmeshed in further controversies when just after the award of the state subsidies, Gaylord Entertainment announced it, in fact, had no intention of building the hotel and was getting out of the development business, a fact it kept from the commission. It sold its interest in the hotel project and the tax subsidies to Houston-based RIDA Development Corp.
In September 2013, 11 Front Range hotels sued the Economic Development Commission and the City of Aurora in Denver County District Court to vitiate the state award. The lawsuit was dismissed the following spring. Aurora in turn sued the Front Range hotels in Arapahoe District Court asserting that the action by the hotels delayed the funding of the project and constituted tortuous interference, but that suit was in turn dismissed in the fall of 2013.
In the fall of 2014 two residents of Aurora filed suit in Adams District court challenging the validity of Aurora awarding $300 million in subsidies to the hotel project. In February 2015, Adams County District Court Judge Ted C. Tow III voided the Tabor election set up by the City of Aurora whereby the only allowed voter was an employee of the landowner. The court indicated that a city-wide election would likely have to be undertaken. Within hours of the decision, Aurora filed an appeal of the decision to the Colorado Court of Appeals.
As a result of the Court ruling Colorado Treasurer Walker Stapleton asked the Legislative Audit Committee to examine whether the state should honor the subsidies awarded by the Colorado Economic Development Commission. Stapleton also sent a letter to the Colorado Office of Economic Development and International Trade asking why the EDC offered the incentives in the first place given they may not in fact need the subsidies and proper financing documents may not have been submitted.
Aurora Mayor Steve Hogan promptly fired off an angry letter to Walker Stapleton saying the issues raised by his office had already been “discredited” years before. He went on to declare, “What is concerning to me is that your letter seems not only politically motivated but ill-informed.” He then opined, “It seems an inappropriate role for the Office of the State Treasurer to involve itself in a commercial dispute that is before the courts.”
Despite all of the continued controversies, developer RIDA Development Corp. and the City of Aurora seek to give the impression of continued progress. RIDA announced in February that the hotel and convention complex would feature a massive indoor and outdoor water park. Westword and other publications ridiculed the water park concept for a hotel project in Aurora.
Aurora Mayor Hogan in turn, told the Economic Development Commission that the Gaylord project would break ground between October and December of this year. This will only be possible provided it wins its appeal to the Colorado Court of Appeals on the issue of the Tabor election.
Observers indicate that the enormous time, effort and resources for the Gaylord hotel and convention center put in by Aurora’s Mayor Steve Hogan could show him to be a political leader in the mode of DeWitt Clinton of New York whose vision and determination made possible the key transportation project of the early 19th century — the Erie Canal. Others view him more as a Captain Ahab driven to capture a white whale of a development project that will seriously damage the future economic progress of the City of Aurora. Only time will tell which caricature of him is closest to the truth, but crunch time for helping to make that determination is fast approaching.
Baird’s CEO Paul Purcell Hailed At Economic Club Of Colorado
by Charles C. Bonniwell
At its early spring meeting held at the Westin Hotel in downtown Denver, The Economic Club of Colorado honored the leaders of three companies known for being outstanding places to work. The Economic Club of Colorado describes itself as the leading forum in the Rocky Mountain West for world leaders in business, government and policy to meet the business leaders of the region.
The three featured panelists were: Monty Moran, co-CEO of Chipotle Mexican Grill restaurants, a Denver-based fast food chain with over 1,783 restaurants worldwide; David Palmer, Denver Managing Shareholder of the international law firm of Greenberg Traurig, LLC which has 1,800 lawyers and governmental affairs professionals worldwide; and Paul Purcell, Chairman and CEO of financial services firm RW Baird, which has over 100 offices on three continents including one in Cherry Creek.
What was extraordinary concerning the panel was that the businesses in their respective industries they lead are generally known for low employee morale. Large law firms and financial service companies provide high pay but often have difficult and highly stressful work environments. Fast food restaurants in turn are known at the local level for low pay and minimum career advancement opportunities.
Palmer, who has worked as an attorney in Denver for various prestigious firms his entire professional career, emphasized that Greenberg Traurig seeks to create an atmosphere where all different types of individuals can thrive and noted that his Miami-based firm was founded on diversity and diversity is imprinted in its corporate DNA.
Moran shared that when he became co-CEO only a relatively small number of individuals who worked in a local restaurant were ever promoted to lead manager. Over time he created a policy that requires 100 percent of the local managers be hired from within so that the employees have a stake in their own future. Under the designated restaurateur program hourly crew members can become managers earning over $100,000 a year. He emphasized that simply doing your job well was not enough and Chipotle only promoted individuals who also made everyone around them better.
RW Baird, which has offices in Colorado in Cherry Creek (Denver) and Boulder, was ranked fifth in the entire country in Fortune magazine’s “100 Best Companies to Work For” in line with such nationally known firms such as Google and St. Jude’s Children’s Research Hospital. Paul Purcell has headed up the company for over 21 years.
The investment advisor firm has $120 billion in client assets and Purcell is quoted in Fortune as attributing its success to one rule: “no a**holes.” That is perhaps a highly unusual rule for a company in an industry that is known for having a very high percentage of the same.
In an exclusive interview with the Chronicle Purcell expanded on why such a rule was so critical to Baird’s success. “You want your advisors concentrating on helping their clients become financially better off and not fighting and backstabbing each other. At Baird our only real product is our employees. Trust is everything in our business and very few people actually want to trust an ‘a**hole’ nor should they.”
Baird was founded in 1919 in Milwaukee, Wisconsin, and is privately owned. Approximately two-thirds of its associates are shareholders in the company. Due to conservative investing policies and little or no debt Baird weathered the disastrous 2008 financial downturn in remarkably good shape and has grown significantly over the last five to seven years with many of its competitors downsizing or going out of business.
Purcell at age 67 has not slowed down one iota but has begun the process of gradually handing over the reins of the company to his designated successor, Steve Booth, whom he named company president at the beginning of last year.
Baird’s mission statement totals one sentence: “To provide the best financial advice and service to our clients and be the best place to work for our associates.” It is unique for an investment advisor firm to have as one of its two principle goals being “the best place to work for our associates.” However, Baird apparently takes its mission statement very seriously as evidenced by the fact that the firm was rated by Fortune magazine to be in the top five companies in the entire country to work for. Locally Baird appears to be also making a major impact and was voted this year by the Greater Glendale Chamber of Commerce to be the “Business of the Year” highlighted by the firm’s Palm Group in the private wealth management field.
For Purcell, building and preserving a unique corporate culture at RW Baird has been a driving desire and goal. Purcell was a once proud partner in the investment firm of Kidder, Peabody & Co. In the 1980s he watched as that company’s corporate culture changed after its acquisition of General Electric in 1986. The culminating event occurred in 1987 when its star banker Marty Siegel became the center of the Ivan Boesky scandal and the firm paying $26 million in fines as part of settlement with then-U.S. attorney Rudy Giuliani. Purcell left the firm when he felt he could not save it from itself.
“Once you have watched something special be destroyed and lost, you treasure it all the more. You also realize that your goal is never totally achieved. What you have built can be wasted in a relatively short period of time unless you remain aware and appreciative of what you have and ever vigilant not to let it diminish,” Purcell noted.
Purcell is also very much a believer in the parable from Luke that “for unto whomever much is given, of him shall much be required.” He is a major contributor to charities in Milwaukee, Wisconsin, and in Chicago, Illinois, where he resides. He sits on a myriad eleemosynary boards from Discovery World to the United Performing Arts Fund. Purcell requires that wherever the company does business it gives back to the community in a major and important fashion.
Regarding RW Baird’s plans in Colorado, Purcell sees the Denver/Boulder market as one of the true hubs for the company in the western United States along with Austin, Texas; Seattle, Washington; and San Francisco, California. He also notes that some of the company’s top talent is joining the Cherry Creek office for many of differing reasons. Purcell concluded that Baird’s Cherry Creek office is growing at an extraordinary rate. But growth in and of itself has never been a goal of Baird, according to Purcell. Rather as the mission statement states it is “to provide the best financial advice and service to our clients” and those are not simply words but a true calling as is RW Baird’s commitment to its employees.
