Denver A million years ago when we lived in Arkansas, we read by choice or compulsion a lot about the Arkansas Razorbacks football team. It was inescapable. Even leaving Arkansas, news would drift by and imprint from those days. The well-known and voluble coach of the team at one point was Lou Holtz, who has gone from team to team for years. The team managed to get into the Orange Bowl, and some of the players got into some tussle somewhere, and Holtz suspended three of the stars so that they could not play in the game. When asked why in the world he had done this and virtually guaranteed a humiliating loss for the Arkansas team on national television on New Year’s Day, Holtz would only say then or ever, that they had “broken the do-right rule.” He had a point. There are do-right rules that we know and just are not worth explaining, but if you have any character, you just know in those situations you have to do-right.
Senator John Edwards followed the do-right rule yesterday and made sure that he had divested his interests in subprime lenders given that he has campaigned against their predatory practices and made some of their activities in New Orleans poster children for their abuses. Several weeks ago, Christopher Cooper from the Wall Street Journal pulled the Senator’s coat on the contradiction and nailed his investments through Fortress in Nationstar and Greentree. I don’t know Cooper, but he is a good reporter. Anyone who cares about New Orleans owes a debt to Cooper for his early Katrina stories in the week after the storm where he quoted James Reiss and the New Orleans business elite and their plans to change the demographics of the city and prevent the return of many of the African-American and poorer residents.
We actually met with the General Counsel and others from Nationstar in Dallas earlier this week. We didn’t ask about Edwards, but we did ask about Fortress, which owns them 100%. The General Counsel had been there since jump in 1997. She let the Associate General Counsel answer the question, but he claimed that they had heard of Fortress but they did not believe they were owned by them. Obviously, they keep the attorneys in the company on a “need to know” basis.
You never know though. Holtz followed the “do-right” rule and to everyone’s shock the Razorbacks ended up beating Oklahoma or whoever it was and winning the game. Maybe Senator Edwards had that in mind when he stepped up and did right here. For ACORN’s part we were glad to help make sure his contributions keep people away from foreclosures!
Edwards Tackles Katrina Flap
Candidate Seeks to Help Victims,
Redirects Subprime Investments
By CHRISTOPHER COOPER
September 14, 2007
WASHINGTON — Democratic presidential candidate John Edwards, whose personal investments have been linked to foreclosure suits filed against three dozen victims of Hurricane Katrina, has set up a charitable organization to help the homeowners.
His campaign said Mr. Edwards had also redirected the investments, a $16 million stake in Fortress Investment Group LLC, within the private-equity company to ensure they no longer had ties to its subprime-mortgage businesses.
The Louisiana Home Rescue Fund will be seeded with $100,000 — much of which will come from Mr. Edwards’s own pocket, the campaign said, without specifying an amount.
The program will be administered by the nonprofit ACORN Housing Corp., and will provide loans and grants to 34 families in the New Orleans area whose homes were seized or are in danger of foreclosure following the August 2005 hurricane.
The move aims to put to rest a politically embarrassing chapter for the former senator from North Carolina, a wealthy trial lawyer who has often found the trappings of his lifestyle overshadowing his populist, pro-working man platform.
The plight of the New Orleans families, and Mr. Edwards’s ties to the subprime lenders through his $16 million stake in funds managed by Fortress, were detailed in an Aug. 17 story in The Wall Street Journal.
An Extensive Portfolio
The mortgages in question were administered by two subprime lending units closely affiliated with Fortress: Nationstar Mortgage LLC, of Dallas, and Green Tree Servicing LLC, of St. Paul, Minn. Fortress, which employed Mr. Edwards part time for about a year ending in late 2006 at an annual salary of nearly $500,000, owns an extensive portfolio of subprime mortgages. It owns Nationstar outright and holds a large position in Green Tree, public records show.
At the time of the Aug. 17 story’s publication, Mr. Edwards said he was unaware that his money might be commingled in funds that hold major stakes in subprime lenders that are foreclosing on New Orleans residents. He pledged to cleanse his portfolio immediately. ‘I will not have my family’s money invested in these firms,’ he said in an interview at the time.
He added that he intended to help Louisiana residents targeted for foreclosure by Fortress-affiliated entities, even if it meant using his own money. ‘I have to do something to help these people,’ he said. ‘This thing about New Orleans is not just politics to me.’
Still, the city has figured heavily into Mr. Edwards’s politics during his 10-month candidacy. Shortly after resigning from Fortress last fall, Mr. Edwards announced his candidacy in New Orleans, using a collection of storm-ravaged houses as a backdrop.
Running on a populist platform, Mr. Edwards has visited the city several times over the political season, often stopping at places within walking distance of some of the homes that had been targeted for foreclosure. He has adopted a political platform that calls for stern penalties for predatory lenders and enhanced rights for homeowners who have borrowed from them.
Though not all subprime lenders employ predatory tactics, loan experts say some of the Nationstar and Green Tree mortgages in question shared covenants and restrictions that are common in predatory loans. These included above-market interest rates that rose but could never fall and stiff prepayment penalties that discouraged borrowers from refinancing if their credit ratings or interest rates improved.
Though Fortress is publicly traded, private equity businesses are notoriously secretive. Few public documents show how the company distributes its various assets through the funds it manages.
An Edwards campaign official said Mr. Edwards determined in consultation with fund managers that his holdings in an investment pool called Fortress Investment Fund III had a stake in Nationstar. He said fund managers determined that Mr. Edwards had no direct stake in Green Tree. Fortress had already planned to sell its stake in Green Tree under a transaction that was announced earlier this year and is set to close in the third quarter.
A spokeswoman for Nationstar didn’t return a call for comment. A spokeswoman for Fortress confirmed that Mr. Edwards no longer had a stake in Nationstar but wouldn’t comment further.
Large Stake in Fund Family
Federal financial disclosure documents that Mr. Edwards filed in May show that he held a large stake in this fund family. Mr. Edwards has said in the past that he didn’t know Fortress was connected to the subprime business when he worked there. He said he had instructed Fortress executives long ago not to invest his money in companies that dealt in subprime loans or engaged in anti-union practices.
The campaign official said Mr. Edwards reiterated this position in recent conversations with the fund managers. ‘He gave them very specific instructions,’ the official said.
Mr. Edwards said in recent interviews that his campaign has had difficulty tracking down the 34 New Orleans-area families targeted for foreclosure by Fortress-affiliated lending companies. Most of the families don’t live on the properties in question; many of the houses haven’t been fully repaired after the storm and a handful were sold at public auction.
ACORN has substantial operations in the storm region, and has a history of finding families in similar straits.
Campaign spokesman Eric Schultz said Mr. Edwards has pledged to help raise additional money for the Home Rescue Fund. Mr. Schultz said applicants need not have held mortgages with Fortress-affiliated subprime units. All Louisiana residents and victims of either Hurricane Katrina or Rita, which hit the western Louisiana coast in September 2005, were eligible, he said.