Boulder News

Monday Business Roundup

Mortgage Crisis Becomes a Criminal Affair

By Richard Martin, 8-13-07

The credit crisis that exploded across the world last week, taking down mortgage banks, threatening economic growth and causing Western governments to pump $150 billion in liquidity to stabilize the financial system, may be turning into a crime scene. Like the tech boom of the 1990s, which has resulted in the conviction and imprisonment of many prominent (and wealthy) former executives, the sub-prime mortgage scandal (and the implosion of credit it has engendered) may soon be seen as “a sub-crime ponzi scheme in which millions of people are losing their homes because of criminal and fraudulent tactics,” writes investigative journalist Danny Schechter on Huffington Post, “used by financial institutions that pose as respectable players in a highly rigged casino-like market system.”

One indication of the new get-tough response to the seamy underbelly of the home-lending market is the White Collar Crime Task Force in Weld County, one of the worst markets for foreclosures in America. Funded by Greeley-area banks, the task force has shifted from pursuing embezzlers and the like to prosecuting mortgage fraud and predatory lending tactics.

“Arrests are coming,” promised Weld DA Ken Buck last week.

Meanwhile, “credit problems once seen as isolated to a few subprime-mortgage lenders are beginning to propagate across markets and borders in unpredicted ways and degrees,” reports The Wall Street Journal in a long dissection of the current crisis (Sub. req.). Quoted in the Journal’s account is Lou Barnes, co-owner of a small Colorado mortgage bank called Boulder West Inc., who has been in the mortgage business since the late 1970s and recounts the changes over the last decade as lenders progressively lowered their standards for acceptable mortgage risks – resulting in a hidden time bomb that now threatens long-term damage to the U.S. economy.

In other business news: Wild Oats takes a big financial hit from legal wrangling over the proposed Whole Foods merger; Telluride bottled-water vendor faces liquidation; and EchoStar turns its fortunes around.

In other business news:

-- The battle over the proposed merger with Whole Foods has taken a big financial toll on Wild Oats, which reported last week that its net income for the second quarter fell 97 percent, largely due to legal fees associated with its court struggles with the Federal Trade Commission. Saying a Whole Foods-Wild Oats union would constitute a monopoly in the organic-grocery business, the FTC is seeking to block the deal, which has looked increasingly shaky in recent months.

-- Also in trouble is BIOTA, the Telluride-based mineral-water purveyor that entered bankruptcy last April with debts of $10.5 million. The crowded bottled-water market has been rocked recently by revelations that the clear liquid in at least two fancy-brand bottles was essentially tap water. UPS Capital Business Credit, BIOTA’s largest creditor, bought the Colorado company’s assets at auction last week and plans to liquidate them in the fall.

-- In a turnaround story, Denver-based EchoStar Communications reported a 12-percent gain in revenue and a strong profit increase for its most recent quarter. The satellite-broadcasting industry has been hard hit since the 2001 tech meltdown but EchoStar has managed to grow market share as consumers look for alternatives to cable and dial-up Internet access. EchoStar still faces fallout from a court ruling in Texas that it infringed the digital video recording patents of TiVo.

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