Subprime lenders spread lobbyists, cash, tickets around government
Nick Juliano
Published: Monday December 31, 2007 |
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Rolling Stones tix among gifts spread to lawmakers

As state governments around the country were trying to regulate subprime lending practices that critics say were responsible for this year's mortgage meltdown, the subprime industry was spreading cash and gifts to lawmakers in a dozen states.

The Wall Street Journal's Glenn Simpson details the case of Ameriquest Mortgage Co., reporting the company worked with a married pair of DC lobbyists to spread more than $20 million in political donations in states considering subprime regulations. Ameriquest also handed out stacks of Rolling Stones tickets to lawmakers in eight states as well as to the campaign of California Gov. Arnold Schwarzenegger.

"Home loans made by Ameriquest and other subprime lenders are defaulting now in large numbers, roiling global credit markets and sparking debate about whether regulators and lawmakers should have anticipated the mess and taken action," Simpson reports. "A close look at Ameriquest's lobbying and political donations shows how the subprime industry maneuvered to defeat legislation that might have contained some of the damage."

The industry lobbying focused on state governments since at least 2001. At the federal level, members of the until-recently GOP Congress -- who had received $645,00 in donations from subprime lenders -- didn't seem too interested in enacting new oversight of the industry.

"What seemed to be developing in the states was that there was going to be a wave of legislation," lobbyist Wright Andrews, who coordinated the industry's lobbying operation with hiw wife, Lisa, told Simpson.

Although Andrews didn't directly lobby for Ameriquest, according to Simpson, he "ran three different subprime-industry trade groups: the National Home Equity Mortgage Association, of which Ameriquest was a member; the Coalition for Fair and Affordable Lending, which spent $6.3 million lobbying against state laws before it dissolved earlier this year, according to federal filings; and the Responsible Mortgage Lending Coalition." Lisa Andrews was a senior vice president in Ameriquest's lobbying division from 2003 to 2005.

Ameriquest's state-level lobbying focused on Georgia after the state passed its Fair Lending Act in 2001. The act required lenders to provide a "tangible net benefit" to borrowers when it refinances loans less than five years old.

Ameriquest became "very, very engaged," in working, along with other banks and mortgage houses, to get the law changed, Georgia state Sen. Vincent Fort told Simon. Fort, the author of the law, said he accused an Ameriquest lawyer of victimizing poor minorities, who made up the bulk of subprime borrowers.

After the law was passed, Ameriquest and other lenders began spreading campaign donations and tickets to lawmakers there. Less than a year later, in October 2002, Ameriquest announced it would state doing business in the state unless the law changed; the ratings house Standard & Poor's Corp. said it would stop rating mortgages there.

The subprime industry essentially said it would no longer do business in the state until the law changed, Simon reports. Georgia's state House and Senate voted within months to remove the "net benefit" provision Ameriquest objected to.

The industry worked together to roll back a similar effort in New Jersey. Simon reports that two of the recipients -- Republican Gerald Cardinale and Democrat John Adler -- introduced a bill "to make changes sought by the industry," in December 2003, less than two months after receiving Ameriquest donations. The company gave Cardinale $2,200 in October 2003 and Adler $1,200 the next month.

The lawmakers recollections of the time period was far fuzzier when Simon asked them about the proposal's genesis.

"I don't remember ever being lobbied by Ameriquest," says Mr. Cardinale. "I do recall that we were trying to make it easier for folks to be able to access funds. And, in general, I feel it is a good thing for us to remove barriers to people being able to buy homes." He says he doesn't remember receiving any contributions from Ameriquest. "You guys think we know all of our contributors, but that's usually on a staff level. I don't frankly know who Ameriquest is."

Adler also didn't "recall" ever meeting with Andrews firm.

As the Wall Street Journal documented how industry-influenced governments failed to head-off the negative impacts of the subprime lending crisis, new market data revealed that sales of new homes plummeted to their lowest level in more than 12 years.

"I think you can classify what we are seeing in the housing market as a crash," said Mark Zandi, chief economist at Moody's "Sales and home prices are in a free fall. The downturn is intensifying."