Meet Marion and Herb Sandler. They’re good people, you’ll like them. As two of the most prolific and committed philanthropists currently supporting progressive causes, they are currently major funders of ProPublica (investigative journalism), the Centre for American Progress (activism), the Centre for Responsible Lending (anti- payday loans, financial fairness) and the American Asthma Foundation. The contribution of US$1.3bn that they gave to the Sandler Foundation was the second largest charitable contribution of 2006, according to Wikipedia. They are a bit too keen on testing and measurement in education for my taste but you can’t have everything, and they are at least advocates of “multiple measures”.
Meet the Pick-A-Pay Option ARM. This was a lending product that, among other features, allowed for “negative amortization” – a feature under which the principal was not repaid but rather rolled up, meaning that the borrower was effectively dependent on future refinancing. It was not a subprime product, but it allowed people to take on huge amounts of mortgage debt, and contributed to the “payment shock” which sent so many of them into repossession and bankruptcy. As the link above shows, the Pick-A-Pay mortgage product was the subject of a number of compensation settlements with affected borrowers.
What’s the connection? Well, as founders of Golden West Financial, a mortgage lender which was sold to Wachovia Bank in 2006 (the proceeds of which financed that very large charitable contribution), Herb and Marion Sandler were responsible for introducing the Pick-A-Pay mortgage to the market.
Read on, there’s two or three more twists before the end of this story …
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