Lawyers and lobbyists from the finance, insurance and real estate sectors gave $261,445 to Iowa Attorney General Tom Miller's re-election campaign in 2010 — 88 times more than the previous decade, according to a report released this week.
The National Institute on Money in State Politics began looking into Miller's campaign contributions as negotiations between his office and major lenders continue. The settlement will be the last deal struck between regulators, law enforcement and mortgage servicers found to be mishandling the foreclosure process last year. The institute is a nonprofit state-level elections watchdog that maintains a campaign finance database.
In September, Miller launched an investigation into the foreclosure processes of Ally Financial (GJM: 22.50 -0.31%). The inquiry grew as documentation problems began to show up across the industry. In October, Miller spearheaded the 50 AG investigation into these problems with each of the federal banking regulators joining. The Office of the Comptroller of the Currency and the Federal Reserve split off recently and struck their own deal with lenders, signing consent orders and requiring servicers to boost staff and develop better loss-mitigation strategies.
But Miller's deal lingers. His office is besieged by consumer advocacy groups demanding harsher penalties for the banks than what the OCC and the Fed offered, and banks pushed back against his reported demands of mandatory modifications, principal write downs and a civil fine of up to $20 billion. Even within his own ranks, Republican AGs have come out against his settlement. The Oklahoma AG even began directing his staff to draw up a separate settlement in case a larger one isn't reached.
Now, the report on his campaign contributions heaps more pressure on Miller to crack down on these firms.
According to the report, nearly half of the money Miller raised in 2010 – $338,223 of the total $785,103 – was donated after his office announced the industry-wide investigation with the other AGs.
"Although it is typical for candidates to raise large sums of money in the month immediately preceding the election, Miller’s out-of-state donations in 2010 were a significant departure from his two previous campaigns, in terms of the amount of money he raised, where it came from, and when," said Kevin McNellis, who conducted the research.
Miller's 2010 total more than doubled the $327,196 he raised for his 2006 and 2007 campaigns – combined.
Contributions from banking attorneys also added up for Miller. The leading firm was Kirby McInerney, which gave him $25,000, followed by the $11,000 from Kaplan, Fox & Kilsheimer, and $10,000 from Hanly, Conroy, Bierstein, Sheridan, Fisher & Hayes.
Yet partners at Boies, Schiller & Flexner gave Miller a combined $63,450, or 7.6% of his total, according to the report. This made the firm Miller's biggest contributor.
"The firm also has a long record of defending corporate clients and dealing with complex financial litigation," McNellis said. "Goldman Sachs hired the firm in June to defend it from a hedge fund seeking $1 billion over subprime mortgage-linked securities sold to them by Goldman, as well as several other suits brought against Goldman involving other investments backed by subprime mortgage-linked securities."
Kevin Arquit, a partner at Simpson, Thacher & Bartlett, gave Miller $12,500 and has listed JPMorgan Chase (JPM: 37.29 -0.53%), Wachovia and Lehman Brothers as clients.
The eight partners at Williams & Connolly gave Miller $10,500. Most notably, they have represented former executives at Fannie Mae, including former CEO Franklin Raines. These executives have come under Congressional investigation, calling into question the ethics of charging Fannie Mae, ultimately the taxpayer, for these legal fees.
Finally, Miller received $50,000 from the Democratic Attorneys General Association, a poltical organization that supports left-leaning AGs. Several of the same law firms that donated directly to Miller, give money to DAGA. But so do the largest banks. Bank of America (BAC: 7.22 -1.10%) contributed $80,000 to DAGA, followed by $75,000 from JPMorgan Chase (JPM: 37.29 -0.53%) and $65,000 from Citigroup Global Markets, a subisidiary of Citigroup (C: 30.37 -0.03%).
Neither Miller nor the named law firms responded to requests for comment.
Already consumer advocacy groups are calling on Miller to give the money back.
"He had a tough fight in 2010 and he needed to raise money," said Mike McCarthy from Des Moines and a member of the Citizens for Community Improvement. "But this investigation is far too important to be jeopardized by any whiff of big bank influence. The right thing for Miller to do is return the money so there is absolutely no question if campaign contributions are a factor in these negotiations."
Miller has become the face of what could be the most striking crackdown on the financial industry since its collapse in 2008. But McNellis said, whatever the outcome, it will be worth comparing the terms to the contributions.
"It should not be surprising that those most concerned with the outcome gave money to the man serving as the central broker between millions of underwater homeowners and national and multinational financial institutions, with billions of dollars hanging in the balance," McNellis said.
Write to Jon Prior.
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The goal, according to the president/founder and director of institutional accounts, is to streamline that process and return liquidity to the market for loan sales and purchases.
Goodman and Hodes sat down with HousingWire for this edition of In This Corner to explain how this technology could reshape the face of mortgage lending.
HousingWire: Please explain this online exchange concept. It sounds a little bit like a forum.
Robert Hodes: The way that we operate is really from an arms-length. What we do is give people the opportunity to connect people that have individual notes or pools of notes they would like to sell. They have the opportunity to post those on the site. The members on the site are able to see the listings that have been posted. And if they're interested in the listing based on what they see, they can make an inquiry directly to the entity that posted the listing. And that's how the conversation begins.
HW: You're running your whole business online. Where do you see the mortgage finance industry headed relative to online usage?
Martin Goodman: In the old model a lot of people got a warehouse line and then they would have different people they send their loans through, different channels. And they'd almost table fund deals so they could put it on their warehouse line and then service it for a month then figure out who to sell it to. This model you're almost creating the channel tailored for the specific loans. You can either completely bypass the channel and go directly to an investor, which many of our clients do, or you can work with other brokers and create participating loans. It's creating a new animal if you would, a new product that's really a new way to finance loans.
HW: What are the biggest changes you're seeing in the functionality of the industry as a whole because of this type online capability?
MG: There are many parallels between this system and the Realtor MLS system. Before, agents used to have things in little books and the Realtors didn't talk to each other much, but now there's a true market for homes. While you might not get the price you want, I don't think anybody doubts they can put their home "on the market" and sell it. But the same is not true with loans. Loans have typically been transacted either in very large pools to hedge funds or large commercial buyers, or on a buddy system, a little black book that's still in use today — I'll take your pool and send it out to a handful of people. It's just terribly inefficient. So this creates almost the Facebook of lenders. The lenders are able to get on, interact with each other and create their own market.
There's huge disparity between private money financing and traditional bank financing. If you want to get a commercial loan on an office building in today's market maybe you'll pay 5% to 6%. But if you have the same credit and just step outside and say "I want to privately finance this either with a company that provides private financing or individuals that do private financing," you're looking at 9% to 11%. And the reason for that is a lack of liquidity in the loan.
HW: What do you think an online exchange such as this one could mean for securitization in the future?
RH: The short answer is yes securitization could be done. Let's say for a second there's a given entity that is licensed in all the states and they need a platform to be able to run their notes through, this can be completely setup to bear their name. It can be put on their site as a widget, and things like that. But that is going to depend on the need of the individual entity.
MG: We're about to see an increase in the number of private lenders again. And I don't know that it will impact necessarily securitization, but I think lenders might find they have an avenue that doesn't involve securitization. Before the name of the game was: "We have to do enough volume, we have to have a warehouse line big enough to put all the loans out there to aggregate them so that we can securitize them." With LoanMLS you don't have that issue because if you can find all your investors before you fund the loans, you already have the funds committed. That doesn’t mean we're going to replace securitization.
HW: Where would you say the majority of demand is? What is a hot buy right now?
MG: Right now anything that's discounted that gives a higher than 12% yield to maturity, you can't keep it on the shelf if it's decent. Investors are hungry for yield. Where else are you going to get that kind of yield?
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