Two months before the housing bubble peaked in 2006, John Dalton, former Navy secretary under President Bill Clinton, used his prior position to arrange a visit to a Navy aircraft carrier for him and 13 guests, according to documents released under the Freedom of Information Act to the National Security News Service. Dalton earned $3.1 million that year lobbying for the Financial Services Roundtable’s Housing Policy Council, a trade group that represents banks and other home mortgage lenders, his disclosure report with the Senate shows. According to its website, HPC actively represents “its member’s interests in mortgage finance and housing issues to Congress, the Administration and the industry. HPC members originate, service, and insure mortgages. …Member companies originate approximately 75% and service two-thirds of mortgages in the US.”
Dalton is no stranger to controversy surrounding the housing market. He was president of a Texas savings and loan that went bankrupt in 1988 during the last housing scandal. At the time, the Federal Deposit Insurance Corp. threatened to charge Dalton and other Seguin Savings Association officials with “breach of fiduciary duty, negligence . . . (and) violations of state and federal law.” The case ended in a $3.8-million settlement that avoided any civil charges.
Dalton’s Navy cruise guests included seven wealthy top executives from banks and other mortgage lenders, two lawyers, a consultant to the mortgage industry, a lobbyist for the Housing Policy Council, where Dalton serves as president, the wealthy founder of a plastics company, and a lobbyist for Wells Fargo, the fourth largest bank in the U.S. with offices around the world and with assets of $1.2 trillion, according to federal records.
Among the guests was Paul Swan, then president of Nationwide Advantage Mortgage, a Fortune 500 company with 16 million customers. John O’Toole also joined the party. O’Toole was senior vice president of HSBC, North America, the ninth largest bank in the country with assets of $370 billion.
Dalton also invited executives from Bank of America, the largest bank in the country with $2.2 trillion in assets and Citigroup, the third largest bank in the country with $1.9 trillion in assets. They did not take the lobbyist up on his offer.
In six months Residential Capital would lay off 6,000 workers and in 2007 GMAC would post its worst loss in 88 years, due largely to a $2.3 billion loss at the mortgage unit. The government spent $17.2 billion to prop up GMAC, which became Ally Bank.
New Century wrote $51.6 billion in mortgages in 2006 as one of the largest purveyors of the subprime loan. It was paying its executives millions of dollars in income and bonuses and offering them free vacations to Europe and the Caribbean. The bank’s fall was swift in 2007. In January, New Century disclosed in a Security and Exchange Commission filing that the U.S. Attorney for the Central District of California had started a criminal investigation of its operations. Investors cut off financing and its own auditors questioned whether the mortgage lender could survive. In April, New Century filed for bankruptcy protection, reorganizing under Chapter 11. The company listed liabilities at $100 million, the largest bankruptcy case in the subprime mortgage industry.
“Obviously, we didn’t know that at the time,” Siegel said. Siegel noted the trip was intended for influential people. “It was a good trip. Nothing was asked of us. … I didn’t do anything in response. It was intended to engender good will and it did.”