Once hailed for running their savings-and-loan company like an endearing mom-and-pop shop, Herb and Marion Sandler are now being vilified as ruthless home lenders who helped destroy Wachovia and contributed to the financial decay that led to the U.S. government's $700 billion rescue plan to buy rotten mortgages.
After deflecting the media for months, Herb Sandler defended his lending record in an interview Sunday. He also tried to make a case for why Wachovia shareholders should be demanding substantially more than the $14.8 billion that Wells Fargo & Co. has offered for the company.
Sandler, 77, spoke to The Associated Press in the San Francisco office of his family's charitable foundation the morning after NBC's “Saturday Night Live” broadcast a skit deriding the Sandlers as predatory lenders who had duped unsophisticated borrowers and Wachovia, too. A caption shown during the sketch skewered the Sandlers as “people who should be shot.”
Sandler was seething after watching a replay of the skit on the Internet.
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“I have been listening to this crap for two years,” Sandler said. “We are being unfairly tarred. People have been telling us to speak out for some time, but we didn't think it was appropriate. That was clearly a mistake.”
Herb Sandler agrees with his critics on one point: He and Marion, who were Golden West's co-chief executives for more than 40 years, couldn't have picked a better time to sell the company than when they closed their $24.3 billion deal with Wachovia in October 2006.
After years of double-digit increases, home prices began to crumble once Wachovia took over, and now the Charlotte-based bank is in such deep trouble that it has agreed to be sold to Wells Fargo for just $7 per share – nearly 90 percent below the company's stock price at the time of the Golden West takeover.
The Sandlers were the biggest winners in the Golden West sale, collecting Wachovia stock that was worth more than $2 billion when the deal closed.
Taking advantage of regulations passed in 1981, World Savings had thrived for decades by specializing in adjustable rate mortgages that gave borrowers the option to defer the interest due on their monthly payments. These so-called option-ARMs have been widely derided for driving up the amount that borrowers owed on their loans, ultimately saddling them with payments that they can't afford.
But Sandler contends the troubles cropping up in World's option-ARM, or “pick-a-pay,” portfolio haven't been severe enough to drag down Wachovia. The bank has charged off about $850 million of the $122 billion pick-a-pay portfolio so far, but the bank's management has indicated the losses could rise to $12 billion.
If Wells Fargo prevails in its effort to buy Wachovia, it intends to take a $32 billion hit on the pick-a-pay portfolio – an action that implies the loans, on average, are worth only 74 cents on the dollar.
Sandler contends the loss projections are grossly exaggerated and rely on improbable Depression-era assumptions about the U.S. economy. He doubts the losses on World's former mortgage portfolio will rise above $10 billion, largely because none of the loans were made to borrowers with shoddy, or “subprime,” credit records.
Sandler said World's pick-a-pay loans were made under the same qualifying standards that had been in effect during the previous 25 years when the savings and loan's losses were among the lowest in the industry and the Sandlers were consistently praised for their prudence.
“We had a great track record for 40 years,” Sandler said. “If this product was so dangerous, how could that be? There is something anomalous about that, isn't there?”