Donna Shalala Won't Discuss Working for Lennar During Housing Bust, Profiting Off Health-Care Work

Here's a sentence that perfectly explains the state of Democratic politics in 2018: Former Clinton Foundation chief Donna Shalala, who helped lead a major homebuilder during the 2008 housing crash and also made $5 million after sitting on the board of a massive, for-profit health insurance company, is poised to steamroll a crowded field of Democratic competitors in a race for the U.S. House.

Earlier this week, Shalala announced her candidacy for retiring Rep. Ileana Ros-Lehtinen's seat representing downtown Miami, Little Havana, and Miami Beach despite the fact that seven Democrats are already battling in the primary, including more than a few solid candidates without huge red flags in their pasts.

Shalala, who declined an interview through campaign operative Fernand Amandi, paints herself as a progressive with deep understanding of how Washington works. But there are big unanswered questions about her time on two corporate boards tied to major crises in American policy.

As Americans debate how to fix a for-profit health insurance system that is both cruel and the most expensive in the developed world, Shalala will have to explain how she profited handsomely from her time on the board of a health-care giant.

After she served as the U.S. Health and Human Services secretary under Clinton, she used that experience to secure herself a gig on UnitedHealth's board. She wound up accumulating more than 61,000 shares of company stock, which she then sold in 2005 for more than $5.3 million. Shalala has not yet taken a public stance on the issue of Medicare for all, but signs suggest she might ultimately endorse the idea. Regardless, she'll have to sell voters on trusting a former health-insurance board member to work against for-profit insurance companies.

During the decade Shalala helped lead the company, Lennar played a major role in fueling the global recession.

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Even more troubling, Shalala sat on the board of Lennar Corporation, one of America's largest homebuilders, from 2001 to 2012. Securities and Exchange Commission filings show Shalala earned $113,000 in combined compensation (mostly stock awards) in 2011. To avoid a conflict of interest, the then-University of Miami president left the board in 2012 when Lennar CEO Stuart Miller Was angling to become vice-chair of UM's board. (He became a UM trustee in 2002.) She left UM in 2015 and rejoined the Lennar board two years later.

During the decade Shalala helped lead the company, Lennar played a major role in fueling the global recession. Most obvious, Lennar overbuilt: The mid-2000s housing boom came, in part, because D.R. Horton and Lennar were buying up every tract of land they could and slapping together houses as fast as they could. Miami-Dade County, in particular, got hammered during the Great Recession. A 2009 county report laid bare the obviousness of the overbuilding problem. County economist Robert Cruz wrote that from 2002 to 2007, the county's "vacant and for sale" rate spiked by 52 percent, and a particular construction boom from 2005 to 2007 led to an extremely acute vacancy hike just before the economy crashed.

"Over-supply of housing units is... an important legacy of the 2004-2007 residential construction boom," Cruz wrote. "Lax federal and state regulatory oversight and 'financial innovations' resulted in unsustainable mortgages, foreclosures, and collapsing prices."

Lennar built tons of homes in Miami-Dade's suburbs throughout the 2000s. (In addition, a 2010 New Times investigation noted that many of Lennar's homes from this period were built using toxic "Chinese drywall," which smells awful and can harm residents' health. Lennar has previously said it used the toxic materials by accident.)

Oversupply alone didn't fuel a systemic economic crash, though. Roughly a decade after the 2008 bust, most economists also blame "subprime" lending — the practice where mortgages were knowingly awarded to people who couldn't afford them. Lennar had a hand in this problem too: The company owns the Universal American Mortgage Company, which issued thousands of subprime loans before the market tanked. Though Lennar wasn't quite Lehman Brothers, it still deserves some of the blame for the housing bubble.

One of Lennar's loudest critics after the crash was one of the company's own homebuilders' unions, the Laborers’ International Union of North America (LIUNA), which held anti-Lennar protests a decade ago and called company executives "pigs at the trough."

"Corporate homebuilders helped create the current housing and mortgage crisis — contributing to the loss of 359,000 construction jobs since 2007 — by pushing buyers to subprime and high-risk loans through their own mortgage subsidiaries," says one of LIUNA's news releases from 2008. "The top corporate builders brought in $100 billion in revenues in 2006, much of it through their lending practices."

An April 2009 report from LIUNA detailed how Lennar, D.R. Horton, and their competitors in Riverside and San Bernardino Counties in California cranked out mortgages just before the economy crashed. From 2007 to 2008, Universal American underwrote 10,441 Federal Housing Authority-backed loans across the nation, up from 4,990 in the previous two years. Nationally, LIUNA found that subprime loans jumped from 4 percent of Universal America's mortgages in 2004 to 26 percent of total stock in 2006. In 2004, the company issued 441 subprime loans, while by 2006, Lennar sold 6,227 — a 1,306 percent increase. In 2006, Lennar raked in $15.6 billion in revenues after selling 29,568 homes nationwide.

"Mortgage-lending by homebuilders was a key factor in how the builders contributed to the current housing and foreclosure crisis," the union found. "The exponential increase in homebuilders’ origination of subprime and exotic loans enabled builders to continue to sell homes even after markets were overbuilt."

There are plenty of other questions Shalala will need to answer for the progressive base voting in this year's primaries.

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By the time the economy crashed, LIUNA noted that Lennar's default rate, 5.8 percent, was higher than the national average of 5.2 percent.

In 2009, the Center for Public Integrity (CPI), a nonprofit investigative-journalism outfit, noted that Universal American had partnered with a California firm called Nehemiah Corporation of America, which helped unqualified subprime-loan applicants cover the costs of down payments they otherwise would not have been able to afford. A massive number of those mortgages fell into default, and because most of them were backed by the Federal Housing Administration, the FHA lost billions. HUD data showed that Universal American had used Nehemiah's help to underwrite $2 billion in loans for Lennar between 2000 and 2008. The CPI did not say how many of Universal American's loans had defaulted but noted that the practices of Nehemiah and its major competitor had cost the FHA more than $1 billion.

As one might expect, Lennar's finances cratered after 2008. As San Francisco-based investigative reporter Christopher D. Cook noted in 2010, Lennar posted its worst quarterly losses in the company's 53-year history in 2007. A rash of layoffs ensued (thus angering LIUNA).

Lennar might not have righted itself without the help of the federal government. The company became the housing industry's largest single-firm political contributor in 2009 amid a massive lobbying push for taxpayer-funded bailouts. (Lennar CEO Stuart Miller gave $96,000 of his own money to Democrats alone in 2009.) The company sure got what it wanted: After Lennar spent $1.1 million lobbying the federal government, President Obama gave the company $352 million in tax relief in 2009. From 2007 to 2009, Cook reported, Lennar received nearly $1.5 billion in total tax refunds.

In the meantime, LIUNA noted case after case in California where single mothers, immigrants, and other poor families were trapped with unaffordable mortgages, destroyed credit scores, and no money available to lobby the federal government for a bailout, all because Lennar and its subsidiaries had persuaded them to sign up for mortgages they couldn't pay off.

The question, of course, is exactly how involved Shalala was in the day-to-day operations of Lennar and UnitedHealth during this troubling period. It's a shame she declined to explain — without added context, she appears to have grown too close to the nation's influence-peddlers at the expense of the poor she seems to want to help.

There are plenty of other questions Shalala will need to answer for the progressive base voting in this year's primaries. She infamously fought in favor of the War on Drugs throughout the 1990s and has said nothing yet to refute her stance that marijuana should remain illegal; has so far given inconsistent answers regarding Bill Clinton's sexual-assault legacy amid the #MeToo movement; battled an impoverished janitors' union at the University of Miami to the point the workers went on a hunger strike before she agreed to raise their wages (at the time, she was making more than $900,000 a year and living in a 9,000-square-foot home); stood by as UM became involved with Ponzi schemer Nevin Shapiro; oversaw some deeply controversial student sexual-assault cases at the university; sold off 80 acres of endangered pine rocklands that UM owned; and once ran the Clinton Foundation, which, if we ignore the slate of right-wing conspiracies about the nonprofit, really did seem to be a vehicle for massive corporations (Coca-Cola, Goldman Sachs) and corrupt, murderous regimes (Saudi Arabia) to buy some level of influence with the Clintons, no matter the good the foundation wound up doing with the money.

Correction: This piece previously misstated the year Stuart Miller joined UM's Board of Trustees.
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Jerry Iannelli is a former staff writer for Miami New Times from 2015 to March 2020. He graduated with honors from Temple University. He then earned a master's degree in journalism from Columbia University.