The subprime lending sector, which is already roiling world financial markets, is also exerting a toll on the presidential campaign trail. After another news article appeared today documenting his ties to subprime lenders who are foreclosing on homes, John Edwards has announced that he will divest his investments in the lenders and personally seek to redress several dozen New Orleans homeowners who have been foreclosed on by companies to which he is linked.
In May, The Washington Post reported that Fortress Investment Group, the hedge fund and private equity firm that employed the former North Carolina senator in 2005 and 2006, owns or holds major stakes in several large subprime lenders, including one, Green Tree Servicing, that sought foreclosures on New Orleans homeowners shortly after Hurricane Katrina. Edwards earned about $500,000 for his roughly 14 months of part-time work as an adviser at Fortress and has about $16 million invested in its funds. He has received more than $150,000 in campaign contributions from Fortress employees, more than he has from any other single entity.
At the time the article appeared, Edwards was excoriating the predatory practices of some subprime lenders as part of his populist campaign pitch, saying such companies were "devastating communities," and that "shameful lending practices . . . are compromising our strength as a nation." He told The Post at the time that he had specifically asked Fortress at the time of his hiring in late 2005 whether the company was involved in predatory lending, and that he could not recall whether company officials had told him about the large stake in Green Tree. He also said he was not involved in Fortress' subsequent decision while he was at the firm to buy large stakes in several other subprime lenders. He noted that not all subprime lenders engage in predatory practices, and that at its best, the industry serves to help families with poor credit purchase homes they otherwise wouldn't be able to afford. And told about the reports of Green Tree's foreclosing on Katrina victims, Edwards, who launched his campaign with a speech in New Orleans, said he would ask Fortress to look into the matter and help any affected homeowners.
"I said, 'This is not okay that this is happening,' " Edwards said at the time. "I don't know how many cases there are . . . but the right thing is to go back and fix this."
Meanwhile, Edwards continued in ensuing months to rail against predatory lenders, charging, in a visit to Cleveland last month as part of his poverty tour, that unethical lenders were "raping" communities like the one he was visiting.
Today, in a front-page article, The Wall Street Journal gave a tally of the 34 New Orleans homes that have faced foreclosure suits from Green Tree and another subprime lending unit owned by Fortress, Nationstar Mortgage. The Journal noted that the subprime loans offered by those companies in New Orleans contained features often associated with predatory lending, such as accelerators that allow the already-above-market interest rate to nearly double, and penalties for early payoff. It quoted homeowners who have lost their homes as a result of the foreclosures, including a 67-year-old former barkeep who now lives in a trailer outside the city after her Ninth Ward home was sold at auction for $10,000 to settle a $53,000 mortgage with a 13 percent interest rate.
Fortress, it appears, had not "fixed" the companies' foreclosure efforts in New Orleans as Edwards said he had requested it to. Edwards told the Journal that he would now cleanse his $16 million Fortress portfolio of any investments linked to the lenders involved in the foreclosures. He also said that he would try to compensate the affected homeowners, possibly either by giving them money or by collaborating with a charity that is repairing homes in New Orleans. "I intend to help these people," he said.
Edwards campaign spokesman Eric Schultz sought today to frame Edwards' latest response to his Fortress link as proof that he cared for the people of New Orleans. He "believes that nobody in New Orleans should lose their home because of Hurricane Katrina," Schultz said. "Edwards has taken personal responsibility by cleansing his portfolio of any investments that may have ties to these practices, and he [is] also personally committing to helping people who may have lost their homes. For John Edwards, the tragedy in New Orleans is not just about politics. They have been abandoned by the federal government and deserve a strong advocate. As president, he will be that fighter, but he's not waiting until then. He's taking responsibility, because for him that is the meaning of leadership."
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