Massachusetts Gov. Deval Patrick, the Democrat who was named a national co-chair of President Obama’s re-election campaign on Wednesday, served on the board of a company that is widely blamed for helping start the subprime mortgage crisis in 2007.
Beginning in 2004, Patrick served two years on the five-member board of ACC Capital Holdings, the parent company of Ameriquest Mortgage. He was paid a $360,000 annual salary for his efforts, according to “All The Devils Are Here,” a history of the financial crisis by Bethany McClean and Joe Nocera.
Ameriquest had already been the subject of numerous criminal complaints when Patrick joined the board of ACC. But despite its troubles, the mortgage company was the country’s “dominant subprime lender” in the years preceding the housing crisis, according to McClean and Nocera.
The company’s short-term success had much to do with the fact that it would loan money to just about anyone, regardless of income. In an effort to compete, other mortgage companies began issuing loans that were unlikely to be repaid, a practice that would eventually cripple the industry and later the American economy itself.
“Ameriquest was a problem for us because they were a large company and everybody was trying to compete with them,” one executive at another big lending company told McClean and Nocera. “If we denied a loan, we’d track who ultimately did the loan and a lot of times it was Ameriquest. Every time we rejected a loan, the sales force would call up and say ‘Well, Ameriquest is doing this.’ I would say, ‘Just because Johnny jumped off a bridge doesn’t mean you have to follow.’”
As Nocera and McClean write, all the lending giants “did jump off the bridge. Including — eventually — the biggest lender of them all: Countrywide.” (RELATED: More on Deval Patrick)
Ameriquest’s founder, the late Roland Arnall, cannily hired Patrick to the board as ACC was looking for a buyer. Patrick was a former Justice Department official who had spearheaded the prosecution of another shady lender, making him an ideal candidate to help Ameriquest fend off accusations that it engaged in unethical business practices.
In 2005 Arnall, a major GOP contributor, set his sights on becoming Ambassador to the Netherlands. His company’s reputation as a sleazy lender, however, quickly proved to be a liability during his Senate confirmation hearing. But Patrick, a well-connected Democrat, stepped in to help his boss, writing that he had taken corrective action at his company and would make a “fine ambassador.”
Obama, then a senator himself, pressed Arnall on the taint of scandal, saying during his confirmation hearing, “I’m wondering whether it is appropriate for us to send someone to represent our country with these issues still looming on the horizon.”
Arnall, responding to Obama, complimented the future president’s personal biography. Obama then noted: “I’ve gotten a couple of letters here from people who were previously antagonistic to Ameriquest’s activities that are now writing letters of support, which I think is a testament to you and your ability to win over and work with people who may not have been on the same side initially.”
“I’ve got a letter from Deval Patrick,” Obama continued during the 2005 hearing, “who is a good friend of mine.” To that Arnall responded: “He’s a man of integrity, and would not sit on my — on our board unless he felt it was worthy of who he is and what he represents.”
Shortly after that exchange, Arnall’s company reached an agreement with state attorneys general to pay $325 million as compensation for alleged predatory lending practices. Arnall was confirmed as an ambassador in February 2006, a move that was seen as a conclusion to a turbulent chapter in the company’s history.
That confirmation hearing wasn’t Patrick’s only instance of vouching for Ameriquest’s integrity when it encountered trouble. When ACC Capitol faced dire financial straits in 2007, Patrick made a highly unorthodox call — as a sitting governor — to Citigroup vice president and former Treasury Secretary Robert E. Rubin.
Speaking with Rubin, Patrick offered himself as a character witness for ACC Capital ahead of Citigroup’s decision to grant the struggling company a lifeline. The call unnerved some government accountability groups that noted the financial giant was active in promoting various business interests in Massachusetts.
“When a governor calls a company, particularly one that does business with the state, and asks it to do something, the company is going to feel pressure to act,” Pam Wilmot, executive director of the watchdog group Common Cause Massachusetts, told the Boston Globe at the time. “[T]he very questions themselves create an appearance of conflict of interest.”
Shortly after Patrick’s call to Rubin, Citigroup approved the lifeline for ACC Capital before purchasing its entire mortgage operation a few months later for an undisclosed amount.
With that purchase, Citigroup acquired the right to service $45 billion worth of loans and greatly increased its exposure to the subprime market — which in time brought the bank to the brink of collapse. Citigroup would ultimately receive nearly $45 billion in money from the federal government’s Troubled Asset Relief Program just to survive, and laid off thousands of employees in the process.
Nocera and McClean write that Patrick later apologized for reaching out to Rubin, and admitted that “financial exploitation of the poor, elderly and minorities [was] pervasive at Ameriquest.”
The Obama re-election campaign did not return a request for comment.