One of the major subprime lenders was Daniel Sadek, an immigrant from Lebanon. He was a California car salesman who noticed that high end cars were being bought by mortgage people. He had no mortgage experience but decided to get in on the game. He built the business using late night TV ads to get people who wanted second mortgages.....and became fabulously wealthy.
Sunday, January 4, 2009
How Citi bailed out an O.C. subprime lender (as Citigroup received the biggest federal bailout)
By JOHN GITTELSOHN, The Orange County Register
EXCERPT Biggest bank bailout Quick Loan Funding, which Sadek founded in 2002, wrote about $4 billion in subprime mortgages before it collapsed in 2007. Sadek made, and eventually lost, a fortune through Quick Loan. He bought a Newport Coast mansion, a fleet of exotic cars and a condo in Las Vegas where he became a high roller at the blackjack tables.
Citigroup, the New York financial giant, also boomed and nearly went broke because of subprime-related investments.
Poetic justice Citi's most-binding ties with Sadek are in the securities arena. In 2006, Citigroup Global Markets Inc. underwrote three pools of mortgage-backed securities totaling $1.5 billion, including $295 million in Quick Loan's mortgages. Still buried among its troubled assets are three pools of securities totaling $1.5 billion that include $295 million from Sadek's company. By November, 36 percent of the loans in the three pools were in default, according to Bloomberg data. Bank of America, Bear Stearns, Countrywide Home Loans, Lehman Brothers, Merrill Lynch and Morgan Stanley also securitized and sold Quick Loan mortgages.
Filings with the SEC show at least $2.3 billion of Sadek's Quick Loan's $4 billion mortgages were sold to investors after Wall Street firms packaged them as mortgage-backed securities, collateralized debt obligations and other complex financial instruments. "In some cases, Citi purchases loans which may have been modified by another servicer," Rodgers said. "If a loan is owned by an investor, the right to modify is subject to the agreement under which the loan is serviced."
In November Citi got the biggest taxpayer-backed bailout of any bank in U.S. history – $45 billion, double the $23 billion to General Motors and Chrysler. Citi also got $306 billion in federal loan guarantees for its securities, loans and other real-estate-backed assets.
$35 billion in loan mods Mark Rodgers, a Citi spokesman, said the bank wants to help borrowers repay loans when feasible. "This would depend on individual circumstances and an agreement mutually agreed upon by both the lender and the borrower." Citi modified 370,000 loans worth $35 billion to help customers avoid foreclosure, the company reported in November. Thousands more borrowers are trying to get a break. Rodgers said Citi does not have data on how many of these new loans have defaulted.
According to the U.S. Comptroller of the Currency, more than half of the loan mods in the first quarter of 2008 defaulted within six months. Mark Goldman, a lecturer in real estate at San Diego State University, said lenders have nothing to gain by giving a break to borrowers who probably won't repay their loans. "It doesn't serve the lender to do a loan modification that'll result in a default," he said. Which raises the question: Why did Citi give Sadek more time? --SNIP--
Filings with the Securities and Exchange Commission show at least $2.3 billion of Sadek's Quick Loan's $4 billion mortgages were sold to investors after Wall Street firms packaged them as mortgage-backed securities, collateralized debt obligations and other complex financial instruments. "In some cases, Citi purchases loans which may have been modified by another servicer," Rodgers said. "If a loan is owned by an investor, the right to modify is subject to the agreement under which the loan is serviced."
Sadek and Citi. Citi's business dealings with Sadek date to the founding of Quick Loan Funding in 2002. Citi's subsidiary, First Collateral Services, gave Sadek a line of credit – known as a warehouse line – to fund his mortgages. As Quick Loan grew – issuing a peak $218 million worth of mortgages in December 2005 – other warehouse lenders gave the company lines of credit. At its peak, the Citi warehouse line was $100 million, Pacific said.
When Quick Loan's collapse accelerated in the spring of 2007, Citi was the last warehouse lender left, Sadek said during an April 2007 interview at his Newport Coast mansion. During the interview, Sadek said Citigroup provided a $16 million line of credit to help him market his feature film, "Redline," which starred his then-girlfriend, Nadia Bjorlin, and his fleet of Ferraris, Porsches and Saleen S7 exotic cars. Sadek said he spent $31 million to make, distribute and publicize "Redline." The film earned $8.2 million in ticket sales worldwide, according to Box Office Mojo. Sadek is being sued in federal court by the Cartoon Network for failing to pay $845,000 in advertising for the film.
Other defunct Orange County subprime lenders New Century Financial and Ameriquest - also had mortgages in the three Citi 2006 securities issues. By this November, $386 million of those mortgages were more than 60 days delinquent, records show. Since 2007, Citi has written off $29.3 billion of subprime-related debt. Citi still has $16.3 billion in subprime assets on its books plus $13.6 billion in Alt-A securities, which are mortgages to borrowers with credit between subprime and prime. Those troubled assets – and Citi's place as a pillar in the financial community with 370,000 employees and $159 billion in revenue in 2007 – explain why the federal government has offered Citi so much help.
"The Feds just worried that it's so big, so interconnected with the rest of the financial industry, that they can't let it fail," said Kurt Eggert, a Chapman University law professor and former advisor to the Federal Reserve Bank. "It's poetic justice that Citi was in bed with this guy and they're stuck with him," Eggert said. "But why is it so hard for regular Joes to get loan mods when this guy, who seems like a terrible loan risk, can do it?"
Yeah, that's him.
More on Sadek if you can stomach it..................
Sadek gets refinanced amid a tsunami of court judgments Most borrowers would have a hard time getting a hearing from a bank if they were already in default on a million dollars in other debts. Records on file with the Orange County Clerk-Recorder show that Sadek faces $1.5 million in debts, including:
•State Franchise Tax Board liens totaling $545,922 in taxes and penalties.
•Orange County tax collector liens totaling $8,998.
•Liens from the Newport Coast homeowners association, for $1,588, and The Marquee Park Place Homeowners Association in Irvine, for $7,517, both for monthly association fees.
•Court judgments from Wells Fargo Bank, for failure to make payments on leased equipment ($603,289) and Wells Fargo ($294,341) for other debts.
This summer, Citigroup, the Wall Street bank that has received this year's biggest federal bailout, offered to modify its loan terms and help Sadek keep a home after he fell two months behind on his mortgage. But on Dec. 18, Citi Residential Lending filed a notice of default after Sadek failed to make the new payments on the house at 65 Briar Lane in Irvine, one of at least four residential properties he owns in Orange County. (Click here to see a map of the houses) That Sadek even got a second chance with Citi angered industry watchers who complain that banks have done too little, even with billions in federal assistance, to help borrowers facing foreclosure. "There's a big irony, when thousands of people are struggling to get affordable loan modification offers from servicers that aren't responsive, that someone who has perpetrated harm would get a loan modification," said Paul Leonard, of the Center for Responsible Lending. "It's incredible."
Owner occupied The original mortgage, issued by Sadek's Quick Loan Funding in August 2006, was for $768,000. Under Citi's loan modification, the principal rose to $800,000, records show. Zillow.com estimates the home is worth $632,500. The original mortgage was an interest-only loan. Under the Citi loan modification, Sadek's monthly payments increased almost 50 percent to $6,445 – the interest, principal, taxes and insurance on an $800,000 mortgage. The latest notice of default said Sadek owed $34,888 as of Dec. 18, indicating he had not made a single payment since the loan modification. The notice says Sadek still has 90 days to catch up with his payments before he will lose the house. The record is unclear how Citi got authority to modify Sadek's original mortgage. Citi declined to discuss Sadek's loan, citing client privacy rights. Sadek's original loan – No. 106087598 – was not part of the three Citi mortgage pools.
On the Citi loan modification, Sadek said 65 Briar Lane is "owner occupied" and that he "will suffer a hardship" if the terms of the loan are increased too much. Other public records list his home address as 3 Longboat in Newport Coast, where Sadek was interviewed by the Register in April 2007.
Borchard said he could not comment on the address discrepancy. Rodgers said borrowers can demonstrate their residence by producing a utility bill. When a Register reporter visited the Briar Lane house, a woman living there said Sadek was "not here." But she would not say if he lived there.
Lou Pacific, a real estate and mortgage consultant from Mission Viejo who was a vice president at Quick Loan Funding in 2004 and 2005, said he was surprised by the Citi loan modification, given Sadek's financial resources and multiple residences. "The usual way you qualify for a loan mod is if you live in the home and you have a valid hardship," Pacific said.
Reached by phone, Sadek said he "did not want to be rude," but he did not want to talk. His attorney, Thomas Borchard, said he was unaware of the Citi loan modification."I know he and Quick Loan Funding have a long-standing history with Citi," Borchard said. "I'd assure you there's some logical explanation."
Reached by phone, Sadek said he "did not want to be rude," but he did not want to talk. His attorney, Thomas Borchard, said he was unaware of the Citi loan modification."I know he and Quick Loan Funding have a long-standing history with Citi," Borchard said. "I'd assure you there's some logical explanation."
(Tell that to the taxpayers.)