The community banker who got tangled up in the Russia probe

The community banker who got tangled up in the Russia probe

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Stephen Calk is one of the more unlikely characters to be caught up in the sprawling Russia investigation that has engulfed the Trump presidency.

Throughout his career in the mortgage business, Calk contributed money to a handful of Republican campaigns, but he was never a significant political player. On the rare occasions when his name appeared in the newspaper, he was likely to discuss the latest interest rate hike or another industry-centric topic. He is not known to have any foreign ties.

Donald Trump’s presidential campaign included a number of political neophytes, and Calk served as a member of his economic advisory team in late 2016. The Trump campaign described Calk, a onetime Army helicopter pilot, as a champion of increasing homeownership among military veterans.

Stephen Calk established The Federal Savings Bank in 2011 after acquiring a troubled Kansas bank and relocating it to Chicago.

Yet Calk has been swept up in the Russia probe because his small, Chicago-based bank made $16 million in mortgage loans to former Trump campaign manager Paul Manafort in 2016 and early 2017. Manafort, who once served as a political consultant to the Kremlin-friendly president of Ukraine, is a key figure in the investigation into Russian meddling in the 2016 election. He now faces numerous criminal charges, including providing false information to banks in order to obtain loans.

In court filings, The Federal Savings Bank, the $341 million-asset institution where Calk serves as CEO, has been portrayed as a victim of Manafort’s alleged lies.

But special prosecutor Robert Mueller is reportedly investigating whether Calk agreed to make the loans in exchange for the promise of a job within the Trump administration. The bank denies that such a quid pro quo was ever proposed. Calk was never offered a White House post, though The Wall Street Journal has reported that he did seek to be named Army secretary.

Calk’s connection to the Russia probe has surprised people in the Illinois mortgage industry. Paul Diamond, the CEO of Diamond Residential Mortgage Corp. in Lake Forest, Ill., said that Calk has a solid professional reputation.

“They are a business competitor, but we have not experienced any negative issues with their company,” Diamond said in an email.

What follows is a look at Calk’s career and how he became entangled in the investigation of Russia’s meddling in the 2016 election.

Citi alleges fraud

Before the financial crisis, Calk and his brother, John, were the owners of a nonbank lender called Chicago Bancorp. The company recorded annual, pretax profits of $1.7 million to $2.9 million between 2007 and 2011, according to court documents.

One buyer of Chicago Bancorp’s loans was Citigroup’s mortgage division. Between 2009 and 2011, CitiMortgage identified 11 loans that it said were faulty for various reasons, including misrepresentations of income, inadequate income documentation and misrepresentations of employment.

CitiMortgage demanded that Chicago Bancorp either cure the defects or repurchase the loans. When Chicago Bancorp failed to do so, CitiMortgage filed a lawsuit in February 2012, alleging that Chicago Bancorp owed it in excess of $2 million.

The previous year, the Calk brothers had bought a tiny, troubled depository institution in Kansas called Generations Bank. They renamed it The Federal Savings Bank and, after securing up to $18 million in tax breaks from the state of Illinois over 10 years, relocated it to Chicago.

Calk later told National Mortgage News that the decision to buy a bank was a response to changes in the market and the regulatory environment.

But CitiMortgage painted a different picture in court filings, alleging that the Calk brothers carried out a scheme to transfer Chicago Bancorp’s assets to themselves and The Federal Savings Bank, and out of the reach of CitiMortgage.

“The Calk defendants used the corporate cloak of Chicago Bancorp as a subterfuge to justify and perpetuate a fraud,” CitiMortgage alleged in a 2013 court filing.

Louis Bonacorsi, a St. Louis lawyer who represented CitiMortgage, said that the litigation was eventually settled but declined to comment further, citing confidentiality agreements. A spokeswoman for The Federal Savings Bank did not respond to requests for comment for this article.

New York expansion

At Federal Savings, Stephen Calk and his brother, who serves as vice chairman, have continued to focus on mortgage lending. As of Sept. 30, more than 90% of the bank’s $295 million loan portfolio consisted of residential mortgages.

Home loans backed by the U.S. Department of Veterans Affairs are an area of focus. In 2017, The Federal Savings Bank was the nation’s 18th-largest VA lender, generating loan volume of $1.74 billion.

In a 2012 interview, Stephen Calk said that roughly 10% of the bank’s employees were veterans like himself. He said that the bank assigns mentors to those hires.

“They have a true desire to be trained and are more committed to success and better at working as a team,” Calk told the Chicago Tribune.

The Federal Savings Bank has drawn recognition from the American Bankers Association for its exceptionally strong profitability. The privately held bank, which sells most of the loans it originates, reported a return on equity of 40.5% in 2015 and 44.7% the following year. The banking industry average for both years was around 9%.

The bank’s earnings profile appears to be at least partially an outgrowth of its heavily reliance on fee income, a trait that it shares with other mortgage-focused small banks. Through the first nine months of last year, The Federal Savings Bank derived 92% of its revenue from fees, compared with a banking industry average of 31%.

“I think the real secret sauce is not treating a small-balance loan, first-time homebuyer as a commodity,” Stephen Calk told National Mortgage News in 2016.

But by then, Federal Savings had also begun to target more affluent homeowners in the New York metro area, where Manafort got his loans from the bank.

One of Calk’s contacts in New York was Howard Lorber, the wealthy CEO of the holding company Vector Group and a longtime friend of the future president.

Lorber’s firm made a seven-digit investment in The Federal Savings Bank, according to testimony that Calk provided in 2015. The Federal Savings Bank also entered into a partnership in 2014 with Douglas Elliman Real Estate, a New York-based brokerage firm that is controlled by Vector’s real estate subsidiary.

Calk said in a press release at the time that the deal represented an opportunity to finance more than $12 billion in annual real estate sales.

But after Douglas Elliman employees complained that the bank’s rates were uncompetitive and loans were taking too long to close, Calk’s relationship with Lorber soured. As part of an ensuing court case, Lorber said that Calk had not been transparent with him.

“He was always blaming the problems on someone else and took no responsibility,” Lorber said. “Maybe that was because he was new in New York. You know, I could only speculate on that.”

“He would always basically say or show something that would show we’re losing money, but it never really made sense, and when we asked for backup and more information, it never seemed to come.”

Plunging into politics

Despite their falling-out, Calk and Lorber were both named to Trump’s 14-member economic advisory council on Aug. 5, 2016.

In an appearance on MSNBC that evening, Calk said that he had met with then-candidate Trump several times. He also touted his expertise in creating homeownership.

“I’m not a Wall Street guy. I’m a Main Street guy,” Calk said. “I believe firmly that homeownership in general makes America a better place. When someone owns a home, if there’s a piece of trash on the street, you see them pick it up.”

It is not known when Calk first connected with Manafort. In new charges that were filed against Manafort on Thursday, The Federal Savings Bank was not specifically named. But the indictment’s description of a bank that it calls “Lender D” fits with publicly available information about the loans that The Federal Savings Bank made to Manafort.

The indictment states that Manafort, with the assistance of a business associate named Richard Gates, sought and secured two loans totaling approximately $16 million from the bank between July 2016 and January 2017. (Gates on Friday pleaded guilty to charges of conspiracy and lying to the FBI.)

One of the loans was secured by a Manafort property in Bridgehampton on Long Island. The other was collateralized by a brownstone in the Carroll Gardens neighborhood of Brooklyn.

According to the indictment, Manafort provided Lender D with doctored profit-and-loss statements for his political consulting business that overstated the firm’s income in 2015 and 2016 by more than $7.5 million.

At one point, Lender D questioned Manafort about a $300,000 balance on his American Express card that was more than 90 days overdue, according to the indictment. In response, Manafort allegedly lied, telling the bank that he lent the credit card to Gates, who had incurred the overdue charges and had not paid him back.

Brad Miller, a former Democratic congressman who is now a lawyer in Washington, expressed shock that the bank was satisfied with Manafort’s explanation.

“Manafort’s credit score was in the toilet so he explained that he had $300,000 in credit card debt that was 90 days delinquent because he loaned his card to a friend but the friend promised to pay him back, and the bank said okay and approved him for a $16 million mortgage?” Miller said in an email. “That departs significantly from normal lending practices.”

Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.

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