Homewreckers

How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream

Aaron Glantz

• Publisher: Mariner Books
• Year: 2019
• ISBN:
  9780062869555
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

"[I] can't recommend this joint enough.... An illuminating and discomfiting read."—Ta-Nehisi Coates

"Essential reading." — New York Review of Books

A shocking, heart-wrenching investigation into America's housing crisis and the modern-day robber barons who are making a fortune off the backs of the disenfranchised working and middle class—among them, Donald Trump and his inner circle. Two years before the housing market collapsed in 2008, Donald Trump looked forward to a crash: "I sort of hope that happens because then people like me would go in and buy, " he said. But our future president wasn't alone. While millions of Americans suffered financial loss, tycoons pounced to heartlessly seize thousands of homes—their profiteering made even easier because, as prize-winning investigative reporter Aaron Glantz reveals in Homewreckers, they often used taxpayer money—and the Obama administration's promise to cover their losses.

In Homewreckers, Glantz recounts the transformation of straightforward lending into a morass of slivered and combined mortgage "products" that could be bought and sold, accompanied by a shift in priorities and a loosening of regulations and laws that made it good business to lend money to those who wouldn't be able to repay. Among the men who laughed their way to the bank: Trump cabinet members Steve Mnuchin and Wilbur Ross, Trump pal and confidant Tom Barrack, and billionaire Republican cash cow Steve Schwarzman. Homewreckers also brilliantly weaves together the stories of those most ravaged by the housing crisis. The result is an eye-opening expose of the greed that decimated millions and enriched a gluttonous few.

Part I

Financial Freedom

Chapter 1

The Salesman

RICHARD HICKERSON WAS SEVENTY-NINE YEARS old, dying of cancer, with a lesion the size of a tennis ball that was slowly taking over his liver.

Dick, as everyone called him, had been a garrulous man. Generously overweight and given to wisecracks and Hawaiian shirts, he’d spent almost his entire life in and around Los Angeles, with the exception of the four years as a navy cook after World War II and the two years he worked in Arizona when his children were young.

Dick had lived a good life, retiring at age sixty-seven from a career at the local water department, but now it was coming to an end. His doctors prescribed painkillers to make his chemotherapy easier, but it wasn’t enough. He drank, hiding spent vodka bottles around the house so that his children wouldn’t see them.

His seventy-seven-year-old wife, Patricia, was also sick, three years into the downward spiral of Alzheimer’s disease. A former executive at a company that printed personal and business checks, she had lost the ability to comprehend simple financial transactions such as making change or paying bills. On her worst days, Patricia experienced hallucinations. “Please, please—you have to come get me,” she said during a call home to her eldest daughter, Sandy Jolley, after she was hospitalized for knee replacement surgery. “They have locked me in the basement with little children who are screaming.”

When Patricia returned home from the hospital, she was docile, submissive, childlike. She stopped tending to the rose bushes she’d planted alongside the row of fruit trees in their backyard. She had enjoyed computer games such as Solitaire but stopped playing them because she could no longer do the math required to play cards.

The dementia was hard for Sandy to take. A fiercely independent woman, with straight brown hair and intense green eyes, Sandy had, at age fifty-three, moved back home to take care of her parents. She loved them, but the role did not come naturally.

Sandy had left home at nineteen for an ill-fated marriage to an airline pilot, divorced, and then raised their daughter, Kristin, as a single mother, spending much of the 1980s selling computer hardware up and down the West Coast. She was driven; the sort of woman who has an opinion about everything—a trait she tried to balance by rigorously practicing meditation and yoga.

Now, with Kristin grown, Sandy did her parents’ shopping, paid their bills, and did their laundry—all while working as an event planner for an organization that sponsored networking luncheons for professional women at hotels and conference centers in downtown Los Angeles and Beverly Hills. However, her job allowed her to work from home much of the time.

Enfeebled by their illnesses, the Hickersons did what a lot of old people do as the end nears: they watched TV in the living room for hours. Dick would sit in his favorite chair, with his golden retriever, Travis, in his lap; Patricia, on the sofa. Dick usually picked the station. He loved reruns of The Rockford Files, a 1970s NBC drama starring James Garner as fast-talking Southern California private detective Jim Rockford, who deployed wordplay more frequently than his unpermitted Colt revolver. Another favorite was Hart to Hart, an early-eighties ABC crime show starring Robert Wagner and Stefanie Powers as a wealthy couple who often find themselves working as amateur detectives.

Dick Hickerson grew up in a solidly middle-class family. His father, Percy, owned a small tool and die factory. But according to census records, Percy rented the family home, a stucco, single-story Spanish-style bungalow in West Los Angeles, where he and his homemaker wife, Ella, raised Richard and his three older brothers.

Homeownership came by way of the GI Bill. When Dick returned home from the navy in 1954, at the age of twenty-seven, he and his new wife, Patricia, used a loan backed by the Veterans Administration to buy their first home: a single-story bungalow in the far-western reaches of the still-rural San Fernando Valley. As their family grew, and the equity in their house grew along with it, they got another VA loan to buy a slightly larger home in the horse-pasture suburb of Chatsworth. Finally, in 1980, they used a fixed-rate VA loan to buy the two-story home in neighboring Thousand Oaks, where they would live for more than twenty years.

The house lacked a swimming pool but was otherwise the very definition of the suburban Southern California domicile many Americans dream of. It was simple but spacious, painted white with decorative black shutters. There was a lemon tree, a hydrangea bush, and a wooden bench on the front lawn, and a two-car garage where Dick installed a workbench and they parked a late-model Oldsmobile sedan.

They lived on Benson Way, a side street just north of Highway 101, slightly up a hill. From their second-floor bedroom in the back, which faced north, Patricia and Dick could see for miles, past the future home of the Ronald Reagan Presidential Library, to the mountains behind, while a smaller front bedroom boasted a panoramic view of the Santa Monica Mountains.

They had so many memories there. The Hickersons built a deck, and for years, on the Fourth of July, they invited the entire family—their four daughters, one son, and eventually seven grandchildren, along with many of their friends and neighbors—over for a barbecue that ended with fireworks. As he grilled, Dick would crack jokes that, at least to him, never got old. One favorite: he’d yell for Patricia to get something out of “the icebox” just so he could hear her respond, in frustration, “We don’t have an icebox; it’s a refrigerator.”

Now, such hosting duties beyond them, Dick and Patricia stared at the screen. Not only the same shows, but the same commercials played over and over again. The pitchmen were James Garner and Robert Wagner.

The two actors were selling reverse mortgages, a financial product available to Americans sixty-two and older that allows them to pull money out of their home. They are, as the name suggests, the reverse of a traditional mortgage. Rather than lending an amount of money that must be paid back gradually over time, with interest, the reverse mortgage company allows a senior citizen to borrow cash against their house and never asks for it back. Instead, the lender makes money by charging interest and fees each month and folds those charges into the principal. As time goes on, the balance grows larger, often far outstripping the amount of money the homeowner actually receives. When the elderly borrower dies, the loan comes due. At that point, the reverse mortgage lender is required to offer the house to the heirs—for either the size of the loan or 95 percent of the home’s appraised value, whichever is smaller. The loans can grow so big that foreclosure is common, with the bank taking the house.

The Hickersons didn’t need money. They weren’t hurting for cash. Late in life, they had a $300,000 investment portfolio and received $2,600 a month in Social Security. They still owed $120,000 on the house, thanks to a series of refinances over the years, but they weren’t underwater. They had about $400,000 in equity in their home, and their mortgage payments were well within their means—just $600 a month—which they paid using the interest from their savings.

Still, Dick was worried about his wife. How would she fare once he was gone? He’d asked his daughter Sandy to research what veterans’ benefits might be available to her as a surviving spouse. Since Patricia had already been diagnosed with Alzheimer’s disease, a preexisting condition, long-term-care insurance would not be available.

Garner represented the biggest reverse mortgage lender, Financial Freedom Senior Funding. The former Jim Rockford was an old man now, with a raspy voice and a grey, receding hairline. He wore a blue sweater vest and stared into the camera on an empty set with a digital image of the red, white, and blue logo of Financial Freedom Senior Funding waving like an American flag behind him. It was a soft sell, using the same sort of folksy straight talk Garner’s characters used on TV. “I’d like to talk to you about something you should know. It’s called a reverse mortgage,” Garner said. “It’s a safe, easy way to get tax-free money.

“Now, I’ve got to tell you I was reluctant to talk about reverse mortgages because, like a lot of folks, I didn’t understand the facts,” he added. “But as I learned more, I realized that this is something that many senior homeowners can benefit from. I sure think you should at least look into it.”

Dick reached for the phone and called the number on his screen. A few days later, a packet came in the mail, and soon a salesman arrived at their door.

THE SALESMAN, LESLIE Barnhart, lived over the hill in Simi Valley, about ten miles away. He was new to reverse mortgages, having been trained at a seminar in Orange County the previous December. It was easy. There was no license or exam required to sell reverse mortgages. He was paid 100 percent on commission: $1,300 per transaction for loans based on preset appointments and $2,500 for cold calls. A veteran salesman in his midfifties, he also held a valid California real estate license and sold long-term-care insurance. The more he sold, the more money he made. On the other hand, if he failed to sell, he made no money, so while James Garner’s television pitch was soft, Les Barnhart’s was significantly harder.

His first visit to the Hickerson home was on Friday, March 11, 2005. The weather was sunny and mild, the high 66 degrees. Barnhart came with his standard presentation: a nineteen-slide red, white, and blue PowerPoint deck illustrated with stars and piles of cash, with text punctuated by exclamation points.

“With a Reverse Mortgage, you don’t have to make monthly payments,” one of the first slides read. “Instead, a Reverse Mortgage pays you!” Said another: “You can continue to live in the comfort of your own home and enjoy its full appreciation while receiving monthly tax-free cash advances and long-term financial security.”

Barnhart’s contract was with Pacific Reverse Mortgage, a San Diego company that sold loans to Financial Freedom the same day it made them. So, the salesman wasn’t the only player whose interest lay solely in selling. His employer was also essentially a sales outfit. If Barnhart did his job and got the Hickersons to sign, Pacific Reverse Mortgage would never have to pay a cent—that would be the responsibility of Financial Freedom. The way the system worked, it wouldn’t matter to Barnhart or his employer if anything went wrong after they originated the mortgage. By then, they would be long gone.

In his presentation, Barnhart downplayed the possibility that the bank might, in theory, take the Hickersons’ home. The house would remain in their name until they both died, he said, and, at that point, their heirs would have the choice of keeping the home or selling it. There it was, in PowerPoint:

“How safe are Reverse Mortgages? They are totally safe. It is impossible to fall behind on payments because there are none to make.”

“So, you ask, ‘What’s the catch?’” the final slide read. “None.” The government, in the form of the Federal Housing Administration, “has designed this so there are no catches.”

That Sunday, two days after his initial visit to the Hickersons’ home, Barnhart was back. Dick and Patricia invited him to stay for lunch. He returned again later in the month and brought Patricia flowers. Each time Les visited, Sandy was out—either working or running errands for the household—and her parents never told her about the salesman’s visits. She had no idea a reverse mortgage was even under consideration; she was primarily concerned with their health.

Then, on May 12, 2005, a day after Sandy took her father to the hospital, where he was placed under general anesthesia for a liver operation, Barnhart returned to oversee the signing of the loan documents.

Dick was home, recovering, when Barnhart arrived. The salesman came at 3:30 in the afternoon and waited 45 minutes for a notary to show up. Then the four of them went through the stack of documents and disclosures page by page. Under the terms of the reverse mortgage, the Hickersons’ existing $120,000 home loan would be paid off, and $85,000 would be wired into their savings account.

That $85,000 would be all the money they’d get. Then the interest would start accruing, and the amount they owed would grow. Their reverse mortgage was an adjustable-rate product: the interest started at 4.8 percent but could go as high as 14.8 percent depending on market conditions. There were also fees—$17,443 to start—and more as the years went by. They also couldn’t move, the documents said. If they both left the property, they were breaking the terms of deal, and the lender could take it in foreclosure.

Patricia and Dick initialed the disclosures and signed their names on the ninth and tenth pages of the loan document. Even in her frail state, Patricia exhibited exquisite penmanship; Dick’s signatures were illegible.

Their businesses concluded, Leslie Barnhart packed up his material and drove off. It wasn’t until a few days later that Sandy learned about the loan, when her father told her over breakfast. “I found a way to take care of your mother,” he said. “I got a reverse mortgage.” She didn’t follow up, though, because in the same conversation, just a moment before, Dick had given Sandy a piece of bad news: he would be heading back to the hospital for another surgery. Despite chemotherapy, his baseball-sized tumor, which he referred to as a “spot” on his liver, was still growing. “The conversation was completely around his surgery and what that was going to entail,” Sandy said later. Dick also suffered from severe heart disease and had already undergone many surgeries. “For some reason, this one scared me,”...

Table of contents

• Cover
• Title Page
• Dedication
• Contents
• Preface: The American Dream
• The Homewreckers: A Cast of Characters
• Part I: Financial Freedom
• Part II: Foreclosure Kings
• Part III: The Greatest Thing I’ve Ever Done
• Part IV: The New Redlining
• Part V: The Big Flip
• Part VI: Enter the Donald
• Part VII: President Trump
• Epilogue: A Path to Shared Prosperity
• Acknowledgments
• A Note on the Sources
• Bibliography
• Notes
• Index
• Photo Section
• About the Author
• Praise for Homewreckers
• Also by Aaron Glantz
• Copyright
• About the Publisher