Edwards to 'Rescue'
The subprime lending crisis may not yet have hit bottom, but John Edwards is hoping he's put his own personal version of it behind him.
The Edwards campaign announced that the former North Carolina senator has taken steps to address his financial links to subprime lenders who foreclosed on several dozen New Orleans homes following Hurricane Katrina. His connection to those foreclosures has caused embarrassment for Edwards, a populist Democrat who has campaigned on New Orleans' recovery and against predatory lending practices.
Edwards has redirected part of his $16 million investment with Fortress Investment Group, a New York hedge fund that employed him last year, out of a fund that holds ownership in Nationstar Mortgage, a subprime lender involved in some of the New Orleans foreclosures. And he has helped set up a "Louisiana Home Rescue Fund" seeded with $100,000, much of it from his pocket, that will provide loans and grants to the families who were foreclosed on by Fortress-owned lenders. The fund will be administered by the anti-poverty group ACORN, which is trying to track down all the affected families.
The Washington Post reported in May that Fortress had a large stake in one subprime lender, Green Tree Servicing, when Edwards went to work for Fortress as a part-time advisor in October 2005, and that the firm bought several other large subprime lenders while Edwards was at the firm. Edwards earned nearly $500,000 for his part-time advisory work at the firm last year, and collected more than $150,000 in campaign contributions from its employees this year. Edwards said in May that he could not recall whether the firm's manager had told him about Green Tree when he asked them, before taking the job, whether Fortress had any involvement in predatory lending. He said he did not have any role in Fortress' subsequent push into the subprime industry while he was there. And he said he had asked Fortress managers to explore whether Green Tree had been involved in New Orleans foreclosures after Katrina, as a New Orleans news article from shortly after the storm reported. "I said, 'This is not okay that this is happening,' " he said at the time. "I don't know how many cases there are . . . but the right thing is to go back and fix this."
Last month, the Wall Street Journal reported that at least 34 New Orleans homes had been foreclosed on by Green Tree and Nationstar after Katrina. While not all subprime lenders engage in predatory practices, the Journal found that some of the foreclosed loans featured terms common in abusive loans, such as high prepayment penalties that prevented owners from refinancing and accelerators that allow the already-above-market initial interest rate to nearly double. Edwards acknowledged that Fortress had not looked into its role in New Orleans foreclosures, as he said he had asked them to do, and that he himself had not followed up. He pledged to divest his stake and find a way to redress the families. "I have to do something to help these families," he told the Journal. "This thing about New Orleans is not just politics to me."
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