Florida Democrats say Attorney General Bill McCollum's recent South Florida Mortgage Fraud Community Forum was little more than a political stunt crafted to help the Republican running for governor.
The truth, they say, is that for years McCollum has been negligent when it comes to dealing with the state's mortgage and foreclosure crisis.
"Although Bill McCollum holds a 'mortgage fraud forum' in Miami today (May 8), his election-year attention to the foreclosure and mortgage fraud crisis is too little, too late for millions of Florida homeowners," Democratic Party spokesman Eric Jotkoff said in a May 8, 2010 news release. "Florida's families have been dealing with the fallout of misleading loans and irresponsible lenders for years, while Attorney General McCollum has not paid attention to the issue.
"Just two years ago McCollum admitted he didn't think that the subprime mortgage crisis was a big deal, telling reporters he thought that the subprime collapse had been exaggerated by the media and investors and that 'it's not the end of the world'."
The forum, which was co-hosted with the Florida InterAgency Mortgage Fraud Task Force, a group McCollum established in 2009, was held to help homeowners prevent mortgage fraud and avoid or deal with a foreclosure. McCollum said that "helping Floridians suffering from this severe foreclosure crisis is a top priority," in a posting on Twitter after the event. Florida has ranked first in the nation in mortgage fraud every year since 2006.
For this item, we wanted to check the Democratic Party's claim that McCollum said he didn't think the subprime mortgage crisis was a big deal, that it had been exaggerated by the media and said that "it's not the end of the world."
A subprime mortgage is a home loan granted to people with poor credit histories or other financial issues that prevent them from qualifying for a conventional mortgage. A subprime mortgage has higher interest rates and represents a bigger risk to lenders. But lenders were liberal in issuing the loans from 2004-2006, largely due to lower interest rates and a booming housing market. When the housing market started to decline along with the economy in 2007, the rate of subprime foreclosures skyrocketed, shaking the entire American financial system.
Florida Democrats say McCollum was late to realize the severity of the problem, claiming that he sat in a Nov. 15, 2007, meeting of the Florida Cabinet and declared the crisis mostly a media creation. At that meeting, Cabinet members heard a report that the state investment pool had taken a $2.28 billion hit as a result of the subprime crisis. State Democrats pointed to an account of the meeting published in the Fort Myers News-Press to back up their claim.
The last two lines of the News-Press story include the only mention of McCollum: "Attorney General Bill McCollum thinks the subprime collapse has been exaggerated by the media and investors," the News-Press article said, and then quoted McCollum as saying "it's not the end of the world."
We couldn't find the quote in any other story. But the state does keep typed transcripts of Cabinet meetings online.
We went to the transcript from the Nov. 15 Cabinet meeting to see the context of McCollum's statement.
Coleman Stipanovich, the then executive director of the State Board of Administratrion, which oversees the state's investments, ended the Cabinet meeting with a discussion of risk exposures to the state's investment portfolio. He provided the Cabinet with a report, based on a request from Chief Financial Officer Alex Sink, identifying risks and the state's monitoring activities due to the collapse of the subprime residential market.
As the News-Press reported, Stipanovich said the state's investment pool -- which was then about $188 billion -- had lost about $2.28 billion as a result of the subprime crisis through something called "write-downs." A write-down is when someone reduces the paper value of an asset because it is overvalued when compared to the market value.
When he got a chance to speak, McCollum asked Stipanovich to explain the write-downs, which McCollum called downgrades, saying he believed that they were not so much losses as a reflection that the state would be earning less. From the transcript (starting on page 93):
McCOLLUM: "What's the meaning of a downgrade in practical terms? If a paper is downgraded, does that mean that we're going to earn less on it? It doesn't mean it's worthless."
STIPANOVICH: "No, it's certainly not worthless, but you do have the potential -- and this is why we're trying to work through these issues. You do have the potential of earning less on it. We're optimistic that that's not the case. We have dug down into these holdings and looked at the collateral, and the collateral looks good to us. The collateral, you know, has a very high rating."
McCOLLUM: "That's my point. I'm just trying to make a point to anybody observing this out there who might not be as sophisticated in the world of finance that this is not the end of the world. You would rather see us have higher ratings than we have on some of the paper that has been downgraded or some of the holdings, but it doesn't mean that we're going to necessarily lose money because of that."
After McCollum's remarks, Stipanovich -- not McCollum -- says the subprime mortgage crisis was being sensationalized by the news media, according to the transcript. "This has been exaggerated. It has been sensationalized, and you're probably going to see more in print that's, you know, going to be sensational possibly," Stipanovich said.
Interestingly Sink, a Democrat running for governor, didn't have that different of a take from McCollum when it came to the state investment report. She said that if the state took any losses as a result of the 2007 subprime write-downs, they would be "de minimis," according to the transcript. (De minimis, a Latin word, means of little or no significance, inconsequential.)
The transcript differs with the news account in two critical ways.
First, McCollum didn't say the subprime mortgage crisis was being sensationalized by the media, that was Stipanovich. McCollum did say however during the meeting that he believed many subprime mortgages were functioning properly.
Second, and more important to our analysis, when McCollum said it's "not the end of the world," he was referring to the specific $2.28 billion in write-downs in the state's investment portfolio and not the subprime crisis in general.
So Florida Democrats are being incorrect and misleading. They attribute one quote to McCollum that was actually said by Stipanovich. And when they use McCollum's actual words, they quote him out of context. They portray McCollum as a callous state official who belittlies the overall impact of the subprime crisis. But his comment was referring to the impact on the state's investments, not on homeowners. That's a big difference. Pants on Fire!