On the subject of business-news coverage of Citigroup and suprime lending, Diana B. Henriques of the New York Times reminds The Audit that a March 2000 Times piece I praised earlier this week on First Alliance Mortgage Co. was in fact a joint-venture, with ABC News‘s Brian Ross and his team, including Dave Rummel, now at the Times. (The well-compensated yet underappreciated Ross, by the way, has done some of the media’s best work on insurers’ response to Hurricane Katrina, including this blockbuster on former insurance executives’ allegations that State Farm Insurance Co. “systematically” altered and destroyed engineering reports to avoid paying claims.)
The First Alliance story was edited for the Times by Steve Engelberg, now at the Portland Oregonian. Henriques’s co-author and legendary business investigator Lowell Bergman made the inter-media connection. Got that?
The larger point is the the newspaper/television combination was effective both in revealing First Alliance bad practices and helping end them. As Henriques says:
The television role is critical, here. As you know, a muckraking financial press can alert regulators and prosecutors to an unfolding fraud, but television is the best way to alert the potential victims — most of whom, by definition, are financially uninformed consumers who don’t regularly read the business press.
As a reminder, First Alliance is the now-defunct the Irvine, Calif., mortgage company, run by husband-and-wife team Brian and Sarah Chisick, that lied to customers as part of its business model, writing scripts to help employees do so. A borrower, Bernae Gunderson, of St. Paul, Minn., happened to tape one episode, the Times/ABC story said:
Worried about the $13,000 in fees, she sought confirmation that her loan was for about $47,000.
“Right, your amount financed is $46,172,” the loan officer, Brian Caffrey, assured her. ”That doesn’t change.”
”Right, right,” she continued. ”And then the $13,000 goes on top of that? And then interest is charged?”
”No, no, no,” he responded.
But the answer should have been yes, yes, yes — the fees were added to the $46,172 that the Gundersons thought they had borrowed, and they are paying interest on those fees over the life of the loan.
Mr. Caffrey said in a recent interview that he was just following the script First Alliance trained him to use — an explanation strongly disputed by Mr. Chisick, who said all company loan officers ”are specifically trained to insure borrower understanding of all aspects of their loan.”
Henriques adds a coda:
First Alliance closed its doors about ten days after our one-two punch (NYT in the a.m., ABC in the p.m.), and I know the impact of the ABC segment was a big reason for that.
Borrowers were later returned $60 million., including $20 million from the Chisicks.
If The Wall Street Journal and its soon-to-be corporate sibling, the new Fox business news channel team up like that, I’d be willing to rethink the News Corp./Dow Jones merger.
Dean Starkman Dean Starkman runs The Audit, CJR’s business section, and is the author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.