As some economists and Wall Street traders began to sense danger ahead of the crippling housing market collapse of 2008, Donald Trump waved away the worries and offered a concrete expression of confidence in the industry.
In the spring of 2006, the tycoon hosted a glitzy event at Trump Tower to introduce Trump Mortgage LLC, a new firm that specialized in selling residential and commercial real estate loans. He devoted a floor of the Trump Organization headquarters at 40 Wall Street to the new business. And his picture appeared atop the company website with the instruction: “Talk to My Mortgage Professionals now!”
“I think it’s a great time to start a mortgage company,” Trump told a CNBC interviewer in April 2006, adding that “the real estate market is going to be very strong for a long time to come.”
Within 18 months, as the experts’ worst fears began to pan out and home prices began to dip, Trump Mortgage closed, leaving some bills unpaid and a spotty sales record that fell short of Trump’s lofty predictions. Trump distanced himself from the firm’s demise, saying at the time that he had not been involved in the company’s management and that its executives had performed poorly.
As a presidential candidate a decade later, Trump says he would use the skills that made him successful in real estate to fix Washington. His decision to embrace the mortgage business illustrates the potential dangers of a business philosophy that has relied in part on a willingness to put aside the advice of experts and take risks.
In attaching his brand to the residential mortgage market at the height of the bubble, Trump defied a growing chorus of pessimism among economic forecasters and cast his decision as a sign of his own good judgment.
“How you react to the so-called housing bubble can be a barometer of your business personality,” he wrote in a September 2005 blog entry, months before the launch of Trump Mortgage. The post, published on the website of Trump University, the now-defunct business that provided seminars for aspiring real estate entrepreneurs, appeared under the headline “The Housing Bubble: Doom and Gloom Don’t Pay.”
“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?”’
Trump and officials from his campaign and business organization declined to comment.
Recently, as a candidate, Trump has presented himself as a truth teller who sounded an early alarm about the pending mortgage crisis. He told MSNBC last July that he had known the housing market “was a bubble that was waiting to explode.”
“I told a lot of people,” Trump said. “And I was right. You know, I’m pretty good at that stuff.”
Trump revealed no such concern when he launched the mortgage firm in 2006.
He batted away skepticism from CNBC anchor Maria Bartiromo, who cited a 10 per cent decline in new-home sales in one recent month.
“I think the market is very good,” Trump responded. “We’re going to have a great company. It’s Trump Mortgage and trumpmortgage.com. And it’s going to be a terrific company,”one he predicted would quickly become an industry leader.
Trump derided economists during the broadcast, saying they were often unable to predict significant events.
“I went to the Wharton School of Finance. I was actually a very good student, believe it or not, but I’ve never been a huge believer in forecasting what’s going to happen because you really never know what happens down the road,” he said.
Trump’s handpicked chief executive officer, E.J. Ridings, was similarly upbeat, boasting in interviews that the new company “would own New York” and expand to all 50 states, offering residential and commercial mortgages. Trump had been introduced to Ridings through his son Donald Jr., who at the time oversaw development and acquisitions for the Trump Organization.
As it sought a toehold in the residential market, Trump Mortgage offered residential mortgages with promises of quick approvals. It recruited a team of aggressive salesmen.
Jan Scheck, the national sales director for Trump Mortgage, hired teams of specialists around the country and helped the new firm as it sought to obtain licenses in multiple states. Like Trump, Scheck thought at the time that the new company could be a major player.
Scheck recalled being awed as he stood alongside Trump at the opening news conference at Trump Tower in the spring of 2006.
“I told myself, ‘This is an awesome opportunity with somebody who is a god in the real estate industry,’ ” Scheck said. “People were buying Trump ties. . . . You have to remember this is the peak of his popularity. Everybody wanted to be Donald Trump. Donald was putting his name on buildings all over the country. I thought this was going to be an awesome opportunity.”
Donald Trump's most controversial quotes
Donald Trump's most controversial quotes
1/14 On Isis:
"Some of the candidates, they went in and didn’t know the air conditioner didn’t work and sweated like dogs, and they didn’t know the room was too big because they didn’t have anybody there. How are they going to beat ISIS?"
2/14 On immigration:
"I will build a great wall — and nobody builds walls better than me, believe me —and I’ll build them very inexpensively. I will build a great, great wall on our southern border, and I will make Mexico pay for that wall. Mark my words."
3/14 On Free Trade:
"Free trade is terrible. Free trade can be wonderful if you have smart people. But we have stupid people."
PAUL J. RICHARDS | AFP | Getty Images
4/14 On Mexicans:
"When Mexico sends its people, they’re not sending their best. They’re sending people that have lots of problems. They’re bringing drugs. They’re bringing crime. They’re rapists."
5/14 On China:
"I just sold an apartment for $15 million to somebody from China. Am I supposed to dislike them?... I love China. The biggest bank in the world is from China. You know where their United States headquarters is located? In this building, in Trump Tower."
6/14 On work:
"If you're interested in 'balancing' work and pleasure, stop trying to balance them. Instead make your work more pleasurable."
7/14 On success:
"What separates the winners from the losers is how a person reacts to each new twist of fate."
8/14 On life:
"Everything in life is luck."
9/14 On ambition:
"You have to think anyway, so why not think big?"
10/14 On his opponents:
"Bush is totally in favour of Common Core. I don't see how he can possibly get the nomination. He's weak on immigration. He's in favour of Common Core. How the hell can you vote for this guy? You just can't do it."
11/14 On Obamacare:
"You have to be hit by a tractor, literally, a tractor, to use it, because the deductibles are so high. It's virtually useless. And remember the $5 billion web site?... I have so many web sites, I have them all over the place. I hire people, they do a web site. It costs me $3."
12/14 On Barack Obama:
"Obama is going to be out playing golf. He might be on one of my courses. I would invite him. I have the best courses in the world. I have one right next to the White House."
13/14 On himself:
"Love him or hate him, Trump is a man who is certain about what he wants and sets out to get it, no holds barred. Women find his power almost as much of a turn-on as his money."
14/14 On America:
"The American Dream is dead. But if I get elected president I will bring it back bigger and better and stronger than ever before and we will make America great again."
Scheck said that the floor devoted to Trump Mortgage was divided into two units. One side was an upscale residential and commercial mortgage business, which Scheck ran. The other side was known internally as the “boiler room,” where employees often made cold calls to people seeking to refinance or originate loans, many of them “sub-prime,” meaning the borrowers had poor credit histories.
Trump met with Scheck for an extended discussion before the initial news conference. But after that, Scheck said, he rarely saw the elder Trump.
Scheck left Trump Mortgage after a year, as did other managers, some of whom said they were disappointed with the leadership of Ridings. Shortly before the company closed in 2007, Money Magazine reported that Ridings had inflated his qualifications. The Trump Mortgage website had described the CEO as having 15 years of financial experience, including serving as a “top executive of one of Wall Street’s most prestigious investment banks,” but, according to the report, Ridings had worked for a boutique mortgage company and had been a stockbroker for Dean Witter Reynolds for just six months. Ridings did not respond to repeated requests for comment.
Because Trump Mortgage served as a broker rather than a mortgage lender, there are few records of its activities. Lenders are required to file detailed records of their activities with federal regulators, but brokers are exempt from many of those reporting requirements.
The company appeared to fall short of the goals initially set by its top executives.
At the time of its launch, Ridings told interviewers in the New York media that he hoped to do $3 billion in commercial and residential mortgage business in the first year, with two-thirds of the revenue coming on the residential side. He envisioned the firm expanding across the country and the globe. Later, Trump told the Wall Street Journal that he would consider starting a lending operation tied to the brokerage.
At the end of the first year in business, all of that had changed. Ridings told the New York business media that the firm did only about $1 billion in business. The touted expansion never happened.
When Trump Mortgage closed in 2007, Trump blamed the people he hired to run the company.
“We weren’t happy with them and we terminated them based on the fact they were not doing what they said they were going to do,” he told a New York trade publication, the Real Deal, in September, 2007.
After Trump Mortgage closed, Trump tried again to enter the world of mortgage lending, licensing his name to a firm once known as Meridian Mortgage, which would also be known as Trump Financial for a few years going forward. It was led by an experienced New York mortgage executive, David Brecher. But, like its predecessor, Trump Financial quietly ceased operations.
“I think it would have been a great business,” Brecher told The Washington Post in a recent interview. “But the timing was just not that great, just before the crash.”
The Trump Mortgage closure continued to reverberate following the crash for at least one former employee.
Jennifer McGovern, who had been a mortgage seller, filed suit, saying she was fired before receiving $238,000 of promised compensation for a commercial real estate deal she negotiated.
McGovern, a mother of three, won a judgment in 2008 by a New York State Supreme Court judge, who ordered that she be paid $298,274. But the bill was not paid. “The company was set up in a way that we could never recover what we were owed,” she said.
In addition to McGovern’s unpaid claim, Trump Mortgage owed $3,555 in unpaid taxes, according to a Treasury Department tax lien filed in 2009.
The idea that the company would fail to pay her or others seemed unfathomable to McGovern in 2006, she said. She recalled her excitement after meeting with Trump for a pep talk at the Trump Mortgage headquarters on Wall Street. “He told us if we worked hard we would all do well,” she said.
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