- Trump Mortgage launched as housing began to crack in 2006
- It’s “a great time to start a mortgage company,” he said
Donald Trump had heard all the chatter, the idle talk about how the U.S. housing market was overheating and trouble was looming. He was unfazed. It was the spring of 2006 and he was pushing a new mortgage business, Trump Mortgage LLC.
Trump had big plans for the company. It’d be based in his iconic 40 Wall Street building and broker $3 billion in loans in the first year alone, some $100 billion within a decade. His son, Donald Jr., had helped him shape the business plan. That April, when asked about the signs of cracks emerging in housing, he was dismissive, telling CNBC that it’s “a great time to start a mortgage company.”
A year and a half later, Trump Mortgage was out of business. Along with dozens of other lenders and brokerages, the firm unraveled when the housing market imploded and the U.S. economy sunk into its worst recession since the Great Depression. The company never got near its fundraising goals, and it left at least one lawsuit in its wake, by a former broker who alleged she was stiffed on a $238,000 commission.
Of all of Trump’s ventures outside his core real estate business -- the steaks, the vodka, the airline, the board game, the travel web site, the magazine -- it is this one, perhaps more than any other, that clashes with the image of financial guru that he’s cultivated on the presidential campaign trail. Not only did the episode expose the billionaire’s rush into a market on the verge of collapse but it came in an industry that’s intimately linked to real estate.
“Trump picked about the worst time to jump into mortgage lending, waiting close to the tail end of the boom,” said Cliff Rossi, a finance professor at the University of Maryland’s Robert H. Smith School of Business. It’s true, of course, that other financial executives were caught off-guard by the housing crisis. Still, Rossi, a former consumer loan risk officer at Citigroup Inc., said that angst among those in the mortgage industry was palpable by 2006, with many warning about how risky the business had become.
Trump spokeswoman Hope Hicks didn’t return requests for comment.
Trump Mortgage was a brokerage for commercial and residential mortgages as well as home-equity loans. The firm collected fees for being a middleman, or intermediary between borrowers and banks. The company didn’t do any actual lending, making it hard to come by documents and data on the number of loans it handled.
As early as 2005, Trump was already brushing off concerns voiced by housing experts and economists that the real estate bubble could burst. That September, he wrote a blog post on the web site of the now-defunct Trump University that he titled “Doom and Gloom Don’t Pay.”
“How you react to the so-called housing bubble can be a barometer of your business personality,” he wrote to students, who were offered seminars in the secrets of real estate investing. “Are you the type of person who takes advantage of positive situations when they present themselves, riding them out as long as they last? Or do you heed every message of doom and gloom, avoiding risks that could be some remarkable opportunities?”
The upbeat message was reinforced by Trump Mortgage Chief Executive Officer E. J. Ridings, even at the end of 2006 when home prices were falling and defaults on subprime mortgages were soaring.
“We believe there’s a place for us in the market -- a leadership role if you will,” Ridings said that December during an interview on Bloomberg Television. He reiterated the firm’s goal of doing $100 billion in loans annually in five to 10 years, calling it “extremely likely.”
Less than a year later the firm was dead. Trump licensed his name to a mortgage lender called First Meridian Mortgage, later known as Trump Financial. The Trump name wasn’t enough to insulate the agency from the housing implosion, though, and it stopped using Trump Financial after a few years, according to David Brecher, president of First Meridian, now known as FM Home Loans LLC.
"The timing was bad," Brecher said in an interview. "We weren’t really trying to grow at that time."
Jennifer McGovern, 44, was a believer when she started as a loan officer at Trump Mortgage. She worked in what she described as the boutique part of the business, where people housed in their own offices dealt with high-end real estate agents and attorneys. Across the floor, other workers in cubicles made cold calls to get people to take on housing debt, she said.
She recalled Trump coming into the mortgage office, giving pep talks to employees. She didn’t know that around the same time he was also rooting for a housing collapse.
"I sort of hope that happens, because then people like me would go in and buy," he said in a 2006 audiobook made for Trump University.
McGovern sued Trump Mortgage in early 2007. She had brokered a $26.5 million commercial loan that should have given her a $238,000 payment, she said. Trump Mortgage told her to accept a $10,000 commission instead.
“Why would I ever agree to $10,000 when I know we are making all this money from it and I have an employment contract,” she said.
When she refused, she said Ridings fired her on the spot. McGovern won a court judgment in 2009 awarding her a payout close to $300,000. But by then the company had no assets, no office and no phone number.
Ridings didn’t respond to requests for comment. The law firm representing Trump Mortgage at the time, Babchik & Young, LLP, declined to comment on the case.
When the firm closed, Trump took a now-familiar approach, distancing himself from the outcome. He told Crain’s New York Business in August 2007 that he merely licensed his name to it, blamed the people hired to run it and reversed his earlier sentiments about the appeal of mortgages.
“The mortgage business,” he said, “is not a business I particularly liked or wanted to be part of in a very big way.”