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Sunday, March 30, 2008

Fox New: As Clinton Talks Housing Crisis, Campaign Manager Serves on Board of Bankrupt Lender

Note: This story has not been widely reported
Update:Newsday Story here

by Kelley Beaucar Vlahos

WASHINGTON – While Hillary Clinton campaigns for the Democratic presidential nomination in neighborhoods where many have lost their homes in unscrupulous lending schemes, her campaign manager, Margaret “Maggie” Williams, sits on the board of one of the nation’s once-largest and now-bankrupt sub-prime mortgage lenders.

Williams joined the board of directors at New York-based Delta Financial Corporation in 2000, one month after a federal settlement was reached with Delta Financial over discriminatory lending practices.

As of September 2007, Williams owned 12,500 shares of Delta’s common stock, and by 2007 had earned at least $175,000 for her board obligations, according to company filings available in the Securities & Exchange Commission online database.

Clinton’s Tough Stand on Housing Crunch

Intently focused on the nation’s housing crisis in recent appearances, Clinton has been clear that sub-prime mortgage lenders, particularly in poor, working class urban neighborhoods shoulder much of the blame for the credit crunch.

“I am reminded every day as I meet with families and listen to their stories that the effective functioning of our financial markets isn’t just about Wall Street. It’s about Main Street,” she said recently.

In a proposal last week, Clinton suggested giving “a $30 billion lifeline to avoid a crisis for Wall Street banks” by providing assistance to at-risk communities and families facing foreclosure. In a speech earlier this week, the New York senator suggested protecting lenders from lawsuits by investors who bought mortgages expecting big profits off high interest rates.

“Many mortgage companies are reluctant to help families restructure their mortgages because they’re afraid of being sued by the investment banks, the private equity firms and others who actually own the mortgage papers,” Clinton said.

“This is the case even though writing down the value of a mortgage is often more profitable than foreclosing,” she said, offering legislation “to provide mortgage companies with protection against the threat of such lawsuits.”

Delta’s Sub-Prime Lending

But as it turns out, Clinton’s top aide is on the board of what had been — until its bankruptcy — the ninth-leading sub-prime lender in the nation, handling almost $800 million worth of sub-prime lending in the third quarter of 2007 alone, according to National Mortgage News.

Delta Financing — and subsidiary Delta Funding — made much of its money by turning around and selling its loans at a profit — either through securitization or straight sale. Financial statements and federal filings indicate that Delta made huge profits between 2004 and 2007 mostly by refinancing loans to homeowners with moderate and middle incomes, and in mostly minority, urban neighborhoods.

In 2006, it reported a net income of $28.8 million compared to $18 million a year earlier. It also originated a record $4 billion in loans that year, a 5 percent increase over 2005. In 2006, it had increased its line of credit by $500 million to a total of $1.75 billion.

Te average interest rate on a 30-year mortgage is 6.25 percent. Financial sources and the company’s public records show that in the last decade Delta brokered thousands of fixed-rate refinancing loans with rates of anywhere from 11.3 to 13.6 percent.

Reports provided by the Federal Financial Institutions Examination Council (FFIEC), an inter-agency body that proscribes standards for U.S. financial institutions, found that in 2006 the vast majority of Delta’s refinancing loans had rates of around 13.3 percent. The average rate on home mortgages was 14.9 percent.

“They were basically trying to extract whatever blood they could get away with and then sell their loans on the secondary market,” said Irv Ackelsberg, a Philadelphia attorney who assists homeowners in complaints against lenders and brokers.

Industry experts say the company’s demise did not come from its struggle against various lawsuits or foreclosures, but its being a victim of the credit market. The value of its loan-backed securities plummeted at the same time its investors stopped buying new loans. Delta’s creditors soon came calling and the company couldn’t keep up with its own financing agreements.

Delta’s status is in the hands of a federal bankruptcy judge. All operations out of its Woodbury, N.Y., headquarters have ceased.

The Williams Difference

Williams joined Delta’s board less less than a month after one federal official said Delta’s practices were “turning the American dream of homeownership into a nightmare.”

At the time, Delta had a 5 percent foreclosure rate nationwide — double the industry standard — and was in the midst of settling several state and federal lawsuits that alleged predatory and discriminatory lending practices.

Williams, now 53, was between jobs with the Clintons when she got the overture to join the board at Delta. She had worked as the former first lady’s chief of staff from 1993 to 1997, and had just become president of Fenton Communications, one of the largest public relations shops in the country in 2000. It made her the highest-ranking African-American woman in a top 50 public relations firm in the country. Williams joined Bill Clinton’s Harlem office in 2001. She later became a partner in management consulting firm Griffin Williams.

The Clinton campaign did not return requests for comment from, but according to a June 2000 article in Directors and Boards magazine, Williams spent the six months prior to her decision to join the board asking a lot of questions and making a flurry of calls to Hugh Miller, president and CEO of Delta Financial Corp.

It was the period of time when Delta was embroiled in the state and federal lawsuits. According to the magazine, Williams said she was convinced that the company was enabling individuals who would otherwise not qualify for mortgages to get loans.

“There are people who miss payments and have bad credit for all kinds of reasons,” she told the magazine. “It is a very middle-American kind of problem, although I believe it does affect poor people disproportionately.”

Miller told the magazine he was most attracted to Williams’ skill at anticipating “issues and problems before they come up and then develop(ing) a battle plan. It’s something that we’ve previously been remiss in doing.”

Delta company officials would not elaborate on Williams’ role other than to say that “like other board members, Ms. Williams served in an advisory and oversight role and did not have a role in the day-to-day operations and management of the company.” A 2002 annual report, the only one found with this figure, shows Williams attended at least 70 percent of the company’s board meetings.

Predatory Practices

Delta, which declared bankruptcy in December 2007, settled lawsuits with both federal and state regulators in 2000, before Williams’ era, but has maintained dubious lending practices, allege consumer advocates in New York and Philadelphia.

“They were one of the worst and most abusive sub-prime lenders in New York City,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project (NEDAP).

Zinner helped bring a 1999 lawsuit against Delta Funding through the New York State Banking Department and then-state Attorney General Eliot Spitzer’s office. The case was settled with an agreement that included $12 million in payouts to borrowers. It has been caught up in court ever since over the price tag.

A separate class action suit against Delta by some 67,000 New York borrowers in 1998 is also ongoing, according to attorneys for Lopez v. Delta Funding Corp. In that case, the company agreed to settle on claims that Delta violated federal and state statutes governing fair lending practices. The plaintiffs are appealing for additional restitution.

In March 2000, the federal government charged Delta with violating consumer protection and fair lending laws by approving and funding loans regardless of the borrowers’ ability to pay, paying unearned fees and kickbacks to brokers and disproportionately charging African-American females higher rates and fees than “similarly situated” white males.

The immediate settlement of the suit filed jointly by the Department of Justice, Federal Trade Commission and Department of Housing and Urban Development did not result in restitution to anyone but an agreement by the company to adhere to stricter, fairer lending standards and to submit to greater governmental oversight.

Delta never admitted any wrongdoing in the New York or federal cases, and not everyone believes the company was as nefarious as the headlines made it out to be. Jonathan Pinard, a lending expert and president of the Empire State Mortgage Bankers Association, said Delta “stayed in the agreement” set out in the federal settlement and kept its nose clean. Later, when the sub-prime lending market went sour, Delta was “painted with a broad brush” as one of the bad guys, he said.
But since Williams joined the board, Ackelsburg has assisted clients embroiled in predatory lending schemes that involve Delta.

“(Delta) didn’t have as big a market share as they did in New York,” Ackelsberg said. “But the most unscrupulous brokers tended to work with Delta.”

He pointed to a near million-dollar settlement presided over by the Pennsylvania Human Relations Commission in 2002, in which an African-American brokerage firm linked to Delta was found guilty of predatory lending and discriminatory practices in predominantly black Philadelphia neighborhoods.

In six of the cases named in the Taylor, Poindexter v. McGlawn & McGlawn and Reginald McGlawn lawsuit, the loans were signed with Delta Funding. At least four of the 10 loans had originated in 2000 or afterward.

Each of the individuals who received Delta loans through McGlawn & McGlawn also filed complaints with the PHRC against Delta Funding, according to commission sources. Those cases were all settled, but terms of the agreements are confidential. Delta officials did not respond to multiple requests for comment by

“I would say Delta Funding, in the ’90s in particular, sort of epitomized predatory lending,” said Zinner, who worked for the Foreclosure Prevention Project at South Brooklyn Legal Services at the time of the New York suit. After the 2000 settlement, Zinner said his group “didn’t get the high volume of calls (about Delta loans) … but we definitely got quite a few complaints.”

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