Blazers’ Tom Dundon Performed Key Position in Mortgage Practices That Drew Scrutiny — ProPublica

Oregon Gov. Tina Kotek is on the verge of giving the Portland Path Blazers a significant reward: tons of of thousands and thousands in taxpayer {dollars} to overtake the group’s enviornment in an effort to maintain the Blazers’ incoming proprietor, billionaire Tom Dundon, from transferring the NBA franchise to a brand new metropolis.

The deal got here along with little public dialogue of how Oregon and different states in 2020 landed a $550 million settlement with the automobile mortgage firm the place Dundon constructed his wealth. The settlement adopted an investigation into lending practices that Oregon’s then-attorney basic, in a information launch, described as “predatory and dangerous.”

Now, Oregon Public Broadcasting and ProPublica have obtained paperwork that reveal the position Dundon performed in pushing a number of the key firm practices that regulators later offered as problematic.

Particularly, the paperwork present that Dundon, as the corporate’s CEO, was behind what regulators known as an “aggressive push” at Santander Shopper USA in 2013 to waive necessities that automobile sellers show debtors had sufficient earnings to afford loans. The corporate would then cost extra for these loans to make sure revenue even in circumstances the place debtors finally did not sustain with funds, in keeping with inside emails and a slide deck that described findings within the multistate investigation.

Oregon officers wrote of their 2020 courtroom criticism in opposition to Santander Shopper that many purchasers took out loans below the “false pretense” that they have been buying a automobile they’d finally personal, when in actual fact the phrases of the loans have been so onerous that they might “nearly actually” consequence within the mortgage defaulting and the automobile getting repossessed.

Oregon Legal professional Common Dan Rayfield, when requested about Dundon’s name for waiving proof of earnings on automobile loans when he was at Santander Shopper, mentioned in an announcement: “Proof of earnings necessities exist for a motive — they shield debtors from being offered loans they can not afford. When these guardrails get waived, dealerships win within the brief time period, and customers lose.”

Rayfield, who was elected in 2024, is working with different state attorneys basic in a seamless investigation into one other auto mortgage firm, Exeter Finance, the place Dundon’s web site lists him as an investor and the place he has served as chairman of its board. Dundon left Santander Shopper in 2015.

“Working households put so much on the road once they take out a mortgage,” Rayfield mentioned, “and so they deserve lenders who deal with them pretty and observe the legislation.”

Dundon, whose deal to purchase the Path Blazers is predicted to shut on March 31, didn’t reply emails despatched to his funding agency from OPB and ProPublica that included a duplicate of the newly obtained information and a listing of questions. When offered individually with an outline of the story through textual content to his cellphone, he responded merely: “Can speak after 3/31.”

Exeter has mentioned in regulatory filings that it’s cooperating with the present multistate investigation. A spokesperson for Exeter declined to remark. 

Requested for remark by OPB and ProPublica, Santander Shopper referred again to the assertion it gave the newsrooms for an October story: “Working in a extremely regulated trade, now we have sturdy processes in place which might be designed to guard prospects and cling to all regulatory necessities and trade finest practices.”

Lawmakers not too long ago accredited $365 million in public funding to renovate Portland’s 30-year-old Moda Middle, dwelling to the Blazers, one among Oregon’s most distinguished companies. The invoice awaits Kotek’s signature. Mixed with metropolis and county cash, the whole proposed public backing has reached $870 million, far exceeding what the group initially requested for.

Kotek’s workplace didn’t reply when requested when she grew to become conscious of the investigations into companies related to Dundon and whether or not it affected her place on giving public cash to the group. As a substitute, a spokesperson pointed to public remarks Kotek made in help of public funding for the Blazers enviornment because the Legislature adjourned.

“This can be a nice first step,” Kotek advised reporters on the time. “We’re going to get the very best deal potential for Oregon, and the financial impression of preserving not solely the Blazers however all of the exercise at Moda is de facto necessary for the state.”

The chief sponsor of the invoice, Senate President Rob Wagner, a Democrat representing the Portland suburb of Lake Oswego, additionally declined to reply when requested if he was conscious of Oregon’s investigations into Dundon’s companies.

“The Oregon Legislature doesn’t have a task in who owns the Path Blazers,” Wagner mentioned in an announcement. “Our purpose all alongside has been to help the renovation of Oregon’s Area so it could actually stay an financial and leisure hub for the area.”

However a distinguished critic of the take care of the Blazers mentioned Dundon’s historical past with regulators is troubling.

State Sen. Khanh Pham, a Portland Democrat who forged one among simply six no votes within the 30-person chamber, wrote on the time that she supported a public funding within the enviornment however anxious the Legislature wasn’t together with sufficient protections for taxpayers. She tried unsuccessfully to win amendments that will require the state to barter a non-public funding and income sharing with the Blazers.

Pham mentioned she wasn’t conscious of Dundon’s historical past in Oregon till OPB and ProPublica requested her concerning the newly obtained emails.

“This new info affirms that guardrails on public-private partnerships are necessary in all situations and particularly this one,” Pham mentioned in an announcement.

“Ignoring This Inner Concern”

Dundon was referred to as a key participant within the rise of subprime lending to automobile consumers, a distinct segment that supporters say makes automobile possession potential for individuals with poor credit score. He offered the subprime firm he based to a Spanish agency in 2006, retaining a ten% stake and turning into CEO of the newly fashioned firm.

In January 2013, he took a step that will preserve the corporate’s lending from being slowed down by individuals having to show they might afford the automobiles they have been shopping for. He set a plan in movement that will let the corporate promote to automobile sellers that Santander Shopper wasn’t going to ask anymore for proof of earnings, or “POI,” to be able to subject a mortgage.

“Lets do a take a look at,” Dundon wrote to 2 of his senior workers, Karthik Chandrasekhar and Steve Zemaitis. “I need to waive poi extra typically.”

Because the plan moved ahead, Santander Shopper’s chief threat and compliance officer, Michele Rodgers, despatched an e-mail on Jan. 21, 2013, to Zemaitis and numerous senior executives expressing fear the corporate’s plan may violate federal legislation.

Rodgers recognized potential issues surrounding anti-money laundering and id theft legal guidelines. She additionally famous that federal regulators have been lower than a 12 months from implementing a brand new rule for one more sort of mortgage — dwelling mortgages — requiring these lenders to “decide the buyer’s means to repay each the principal and the curiosity over the long run.”

However the information collected by the attorneys basic point out the plan proceeded.

Two weeks after Dundon’s e-mail, Santander’s advertising and gross sales groups received concerned, information present.

Matt Fitzgerald, Santander Shopper’s govt vice chairman of gross sales and advertising, described a dialog with Dundon about “stips,” or statements stipulating the borrower’s earnings, deal with and cellphone quantity have been verified.

“I simply rode up the elevator with TD and he desires us to market (fax, e-mails, sale handout) the waiving of stips to all sellers,” Fitzgerald wrote on Jan. 30, 2013. “And he desires to see these communications by the tip of the day.”

He added: “We will serve it as much as sellers that because of their good efficiency of the loans, now we have determined to waive these sure stips to make it simpler so that you can shut offers.”

Mark Williams, a former Federal Reserve regulator who teaches finance at Boston College’s Questrom Faculty of Enterprise, reviewed the state’s abstract of the corporate’s correspondence and mentioned it was troubling that inside issues appeared to go unheeded.

Williams described proof of earnings as one of many pillars of financial institution lending.

“To say, ‘Positive, I’ll offer you a mortgage and we don’t even care whether or not you make earnings or not,’ or, ‘You don’t even should state your earnings,’ that’s counter to only sound banking practices,” he mentioned.

By early February of that 12 months, the corporate was days away from saying its new plan to automobile sellers, together with a fax-based advertising plan and promotional flyer, prepared for ultimate approval.

“Flyer appears to be like good,” Robert O’Brien, senior vice chairman at Santander, wrote on Tuesday, Feb. 5, “nevertheless the POI change won’t be within the system till Thursday.”

He urged holding off a few days. Then Rodgers, the corporate’s chief threat and compliance officer, chimed in once more with a query.

“What’s the POI Change?” she requested.

“Tom desires to waive POI as a lot as potential and construct in pricing to cowl the incremental threat,” O’Brien wrote again. O’Brien mentioned that their exams confirmed the acknowledged earnings was appropriate on most loans, and that they might proceed to require proof of earnings for sellers with a historical past of issues. He mentioned they discovered that requiring proof of earnings “reduces seize particularly within the nearprime phase.”

In different phrases, the corporate felt it was limiting its enterprise alternatives by forcing potential prospects to show they might afford to pay again a automobile mortgage. Any enhance in threat created by the brand new strategy can be made up by charges and rates of interest.

“I’m simply attempting to make sure we aren’t disparately treating any of our buyer base,” Rodgers wrote to O’Brien on Feb. 5, 2013. Underneath truthful lending legal guidelines, corporations usually are not allowed to enact insurance policies that will have disparate impacts on sure teams of consumers, equivalent to individuals of a specific race or gender.

Dundon is just not listed as a recipient on the emails that Rodgers despatched, and the diploma to which her issues could have been shared with him is unclear from the corporate emails obtained by OPB and ProPublica. 

Nonetheless, within the slide presentation regulators gave to Santander Shopper, they  mentioned the remarks O’Brien and Fitzgerald described Dundon making confirmed he continued to push for waiving proof of earnings even after Rodgers raised purple flags on Jan. 21. The slides characterised Dundon as “ignoring this inside concern” from his firm’s threat and compliance officer.

Oregon’s subsequent 2020 authorized criticism in opposition to the corporate alleged Santander Shopper didn’t, as O’Brien’s e-mail urged it might, proceed requiring proof of earnings from sellers with a historical past of fudging debtors’ incomes because it launched its new strategy.

“When Santander rolled out this variation to its funding necessities, Santander didn’t bar these sellers recognized as ‘problematic’ by Santander from utilizing acknowledged earnings on mortgage functions,” Oregon’s legal professional basic wrote within the 2020 criticism. “Santander’s resolution to broadly market its new stated-income coverage, even to sellers with a historical past of misstating earnings, led to a major spike within the variety of early fee defaults.”

Dundon’s 2015 departure from Santander Shopper got here with a separation settlement of greater than $700 million, together with money for inventory he owned, in keeping with Securities and Change Fee filings.

Rodgers, Zemaitis and Chandrasekhar all left Santander Shopper and are presently listed as senior executives at Exeter Finance, a subprime automobile lender the place a variety of high Santander Shopper workers have landed.

They didn’t reply when OPB and ProPublica despatched copies of the Santander Shopper correspondence by which they’re named and requested remark. O’Brien and Fitzgerald are now not alive.

Santander Shopper didn’t admit any wrongdoing as a part of the settlement it paid to 33 states — together with Oregon — and the District of Columbia.

Non-public Enterprise, Public Cash

Six years after the settlement, Dundon and his associates are taking part in hardball in negotiations with state and metropolis leaders to safe public cash to revamp Portland’s Moda Middle.

Though sports activities enviornment renovations in some cities have been 100% taxpayer-financed, not less than 10 — together with in Atlanta; Phoenix; Jacksonville, Florida; and Cleveland — have been funded wholly or partially with non-public cash throughout the previous decade. Simply north of Portland, Seattle’s Local weather Pledge Area opened in 2021 after $1.15 billion in renovations that have been totally privately financed.

That very same precedent exists in Portland: When the Moda Middle opened in 1995 — again then it was Portland’s Rose Backyard — Blazers proprietor Paul Allen received $34.5 million from the town of Portland however financed the remainder of the $262 million building himself.

Dundon, too, has provided non-public {dollars} as a part of enviornment renovations previously. In 2023, he agreed to a brand new enviornment lease in Raleigh, North Carolina, for his skilled hockey group, the Carolina Hurricanes. Raleigh put $300 million towards the sector whereas Dundon dedicated to investing $800 million over 20 years towards creating an leisure district within the surrounding space.

Portland was a distinct story.

In keeping with a January chat group message from a metropolis worker whose job is to handle sports activities venues, a guide for the group and Dundon’s billionaire possession group was asking for the general public to cowl 100% of the associated fee to renovate the Moda Middle.

A phalanx of lobbyists employed by the Blazers, in the meantime, have been telling state lawmakers they’d want a complete of $600 million, beginning this 12 months.

“The idea that the incoming possession group can finance a further $600 million for Moda Middle — which is now a publicly-owned group asset is just not potential,” lobbying supplies from the Blazers acknowledged.

After state and native leaders concluded that the group’s preliminary ask wasn’t practically sufficient to cowl rising building prices, they bumped up the funding to $870 million.

Group representatives wrote within the lobbying materials that the Blazers’ future in Portland was at stake — and {that a} departure would threaten the town’s turnaround from pandemic-era headlines about downtown retail vacancies and crime.

“If the Portland Path Blazers depart Rip Metropolis,” group officers acknowledged, “we’re dropping excess of the tax income the Blazers generate for the Common Fund. It might have a devastating impression on the Metropolis’s nationwide and worldwide repute and would feed the ‘doom loop’ narrative now we have all been working to refute.”

The Blazers didn’t reply to emailed questions. When requested concerning the lobbying effort in a March 17 interview on OPB’s “Assume Out Loud,” the Blazers’ President of Enterprise Operations Dewayne Hankins mentioned Dundon’s possession group by no means explicitly advised the group it might transfer and not using a public funding. However he famous that different cities are pushing laborious to get an NBA group and mentioned the Blazers had “heard rumblings” of curiosity.

“You’ve got a group that has only a few years left on their lease,” Hankins mentioned of the Blazers. “You’ve got a group that might doubtlessly be transportable.”

Portland Mayor Keith Wilson declined to say whether or not Dundon’s enterprise historical past would have an effect on the town’s ongoing negotiations with the Blazers after the late Paul Allen’s sister agreed to promote the group. The council plans to take up the problem of enviornment funding no later than this summer time.

“Jody Allen selected to promote the group to the possession group led by Tom Dundon,” Wilson mentioned in an announcement, echoing a degree made by Oregon’s Senate president. “The Metropolis is just not a call maker within the technique of approving franchise possession adjustments; that authority lies completely with present group possession and the NBA. The Metropolis will work in good religion with whoever owns the Path Blazers.”

John Van Alst, senior legal professional on the Nationwide Shopper Legislation Middle, mentioned state and native officers ought to use warning in negotiating with somebody whose enterprise the state beforehand accused of violating shopper safety legal guidelines.

“In the event that they’re prepared to violate these guidelines, I’d be involved about doing enterprise with them,” Van Alst mentioned.

Van Alst mentioned leaders in Portland, way more so than individuals shopping for a automobile by a subprime lender like Santander Shopper or Exeter, have choices at their disposal as they negotiate for the Blazers’ future.

“They’ve extra sources to make good decisions, hopefully, than a number of people do who get themselves twisted up in actually unhealthy subprime auto financing,” Van Alst mentioned.