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Today's Must Read
If the special-rate Countrywide loan that led to Jim Johnson's resignation from Barack Obama's VP screening team was shady, then there's a few other Washington insiders who may have some explaining to do.
A new article from Portfolio rattles off a list of top Washington officials, current and former, who also received discounted loans because they were personally approved by Countywide Financial's top exec Angelo Mozilo.
Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide's "V.I.P." program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.Other participants in the V.I.P. program included former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke. Jackson was deputy H.U.D. secretary in the Bush administration when he received the loans in 2003. Shalala, who received two loans in 2002, had by then left the Clinton administration for her current position as president of the University of Miami. She is scheduled to receive a Presidential Medal of Freedom on June 19.
The loans translate into money saved. For example, in Dodd's case, Portfolio calculates that "the lower rates save the senator about $58,000 on his Washington residence over the life of the loan, and $17,000 on the Connecticut home."
In the case of Conrad, he saved about $10,700 on a loan he took out for his $1.07 million home in Bethany Beach, Del. He also took out a loan on an investment property when he refinanced an eight-unit building he owns with his brothers in Bismarck, ND. That violated Countrywide's normal rules about only providing those loans for buildings of four units or fewer. However, "in an April 23, 2004, email, Mozilo encouraged an employee to 'make an exception due to the fact that the borrower is a senator.'"
The V.I.P. loans to public officials in a position to advance Countrywide's interests raise legal and ethical questions. Countrywide's ethics code bars directors, officers and employees from "improperly influencing the decisions of government employees or contractors by offering or promising to give money, gifts, loans, rewards, favors, or anything else of value." Federal employees are prohibited from receiving gifts offered because of their official position, including loans on terms not generally available to the public. Senate rules prohibit members from knowingly receiving gifts worth $100 or more in a calendar year from private entities that, like Countrywide, employ a registered lobbyist.
In the case of Shalala, one Countrywide executive wrote an email about helping her buy a timeshare in Florida. "Angelo asked me to ensure that we 'knock her socks off' with our great service," the email said.
Jackson, who resigned from HUD in March amid allegations of cronyism, got two special-rate loans, one to refinance his townhouse in Alexandria, VA, and another to buy a vacation home on a golf course in Hilton Head, SC.
Meanwhile, Countrywide has it's own set of problems, as some experts partly blame it for the subprime mortgage crisis that is roiling the financial markets.
Countrywide is reportedly under F.B.I. investigation for alleged securities fraud, and Mozilo has drawn criticism for unloading $474 million in Countrywide shares between 2004 and 2007 as the housing crisis neared. He's defended the sales as part of his retirement planning.
Late Update: Some readers are contesting the numbers used in the Portfolio story, suggesting that in Dodd's case, the actual benefit received may not be as much as stated.
Reader GB writes: "I think there's a lot more smoke than fire here, at least on the Dodd loans. He probably did get the points waived, which is a benefit. But of about $3,000, not $60,000."
Josh
Zachary
You can cross Dodd off of your potential VP list.
June 13, 2008 10:05 AM | Reply | Permalink
That was my first thought as well. The only name I've seen on the numerous VP lists that I would pick is Sebelius, and I don't she'll be it nor anyone else whose name's been floated.
I guess for politicians caught with their hands in the cookie jar it should be called the Countrywide R.I.P. program.
June 13, 2008 10:12 AM | Reply | Permalink
Ugh. These loans are one sided on party affiliation, except for Jackson.
What about the Republicans? These examples cited seem to have happened during their control of Congress.
June 13, 2008 10:10 AM | Reply | Permalink
So I guess this takes Chris Dodd off the VP shortlist.
June 13, 2008 10:10 AM | Reply | Permalink
From the article:
If Dodd were shopping around, it's not implausible that they saw similar rates elsewhere, and if Countrywide wanted the business, they might try to make a better offer.
Depending on when those loans were taken out, such rates, or even better, were available in 2003. The article doesn't state how they're calculating "savings". Compared to what? My first guess would be over a higher-rate no-points loan, but those amounts seem high, since the fixed rate is only locked in for the first 5 years of the loan. If they made the mistake of assuming the rate would stay fixed for the whole term, then the numbers could work. But even in that case, you still only save that total if you keep the loan to term, i.e. you never refinance or sell. The sooner you pay off your loan, the less you'd save by paying points to get a lower rate.
This is where Dodd may have gotten a deal not available to a typical consumer: saving the points, worth a total of $2,700. Although when you're negotiating, a lender may offer discounts to borrowers if they fear they'll take their business elsewhere.
So this doesn't seem nearly so bad for Dodd as it's portrayed. It looks like he got a good, but not insanely low, rate for that type of loan. And his only benefit was the $2,700 in points they waived. And that amount, or more, you can sometimes save simply by shopping around.
So we can pencil Dodd back onto the VP shortlist... Whew!
June 13, 2008 10:43 AM | Reply | Permalink
I agree; the article in the Independent has calculated the benefit he got that was not available to anyone else based on the lower rate he was given, but even the article says that ordinary borrowers could buy into lower rates by paying points. The benefit to Dodd here was the waiver of points, which is a one-time charge, and as GB pointed out, amounts to just under $3000 total for both loans.
That's still over the $100 amount the Senate allows for gifts, but if Dodd can show that Countrywide or other lenders were offering similar rates and a waiver of points to borrowers who were not in a position of political influence (and it's certainly plausible that was the case), then I think he's in a good position.
June 13, 2008 12:29 PM | Reply | Permalink
I am no VIP, but I once had a friend in the mortgage business waive some fees, and credit-worthiness can earn a borrower a lower interest rate. These seem to me to be peccadillos, not cardinal sins, at least on the receiving end (though the CEO's involvement is certainly not proper). That said, even the appearance of receiving favors should be avoided. Public trust is too low.
And didn't I see Shalala's name on a veep list, too?
June 13, 2008 10:13 AM | Reply | Permalink
I'm not defending Countrywide's effort to curry favor with elected officials, but there is a good deal of give-and-take with mortgages. And of course, the higher and more stable one's income, the better deal you are going to get. That's a social flaw to be sure, though I'm not sure it is unethical for people to take advantage of those rates if they are offered to them.
June 13, 2008 10:33 AM | Reply | Permalink
SSDD, Same Shit Different Day in DC.
June 13, 2008 10:51 AM | Reply | Permalink
Doesn't seem like a big deal... But it seems like a politically semi-risky maneuver to only save a few bucks ($10k on a $1M home for Conrad, some $2k for Dodd). I'd expect more from Conrad and Dodd particularly... But then again. These guys are two of the smartest guys in the Senate. Makes me think that they would have thought to clear any transactions with ethics committee, and if they did, it's a non-story imho.
June 13, 2008 11:20 AM | Reply | Permalink
This is not shocking - favorable financial treatment for a senator? Rick Santorum got a huge mortgage that 'he could not afford' by conventional mortgage standards http://www.prospect.org/cs/articles?articleId=11174
I certainly hope that Dodd was never a VP consideration. He makes me sick with his BFF Bear Stearns relationship - but he hasn't said a word to help consumers - like supporting the Creditcard Holder's Bill of Rights bill in the House.
Dodd gets too much campaign money from Wall Street banks that have caused a huge financial crisis for average citizens - who just want a fair playing field so they can have a decent fiancial future.
June 13, 2008 11:28 AM | Reply | Permalink
More evidence that corporate lobbying needs to be made illegal. The CEO's already have a voice. We also need to reinstate a time limit on the life time of corporations. Corporations do not innovate, they steal and reproduce.
June 13, 2008 11:30 AM | Reply | Permalink
Thank you for publicizing this. It hurts more when people I admire (Dodd for his progressivism)
fail to act ethically.
June 13, 2008 11:43 AM | Reply | Permalink
One more thing about your correction that Dodd rceived only a $3000 discount rather than $60,000.
You have established what he did. You just showed how cheaply he was bought.
June 13, 2008 11:45 AM | Reply | Permalink
The treatement that he recieved whether knowingly or unkowingly needs to be addressed: "It was wrong to get a favorable loan because it wreaks of impropriety and unequality so in effort to rectify the situation Sen. Dodd is paying the amount he should have received for the same loan that the 'avergage' person would have received in these cases. He made a msitake and admits and is doing all that is necessary to rectify the situation as this undermines the public perception of those who hold office."
If he does this this is in the news for a very short time and considering the amounts he saved it really does not deserve the attention it is getting. Maybe what we shoud be addressing is how business in ths country show favortism to the top 1% while leaving the bottom 99% to make up for the difference. This should be about countrywide and how its policies in cases such as these undermine the public perception of our leaders. Yes they too are at fault, but from the article it would seem that the business reached out to the Senator not the other way around. Why aren't American businesses reaching out to the average American people?
June 13, 2008 11:55 AM | Reply | Permalink
This highlights one of the reasons people like Pelosi and Reid are protecting George Bush - they're ALL part of the problem. Not giving in to corruption takes people of good conscience, something that is sorely lacking in D.C these days.
June 13, 2008 11:58 AM | Reply | Permalink
From USA TODAY 7/2/2007
WASHINGTON (AP) — Democratic presidential candidate Barack Obama laid out list of political shortcomings he sees in the Bush administration but said he opposes impeachment for either President George W. Bush or Vice President Dick Cheney.
June 15, 2008 4:26 PM | Reply | Permalink
Whew! Knock off the points on a mortgage closing and save $3,000 -- shave a few points off the interest and save sixty grand. If this points out anything, it's just how usurious our financial lenders have always been, and how badly, badly, BADLY the American people -- especially the poor and lower middle class -- need a government that will properly regulate these rapists.
Bounce a check, pay $50, and if that knocks your acount negative, pay another $50. Use an ATM that doesn't belong to your bank, that's another $5 sucked out of your wallet. Buy a house, and guess what? You get to pay $60,000 more for it than Chris Dodd would have to. Or maybe it's just $3,000 more, and that makes it okay... right?
Predatory practices are simply the way things have always been when the powerless deal with big corporate money men. Gosh, I wish we had a government that would do something about that... instead of simply taking advantage of the point spread.
June 13, 2008 12:06 PM | Reply | Permalink
Are you also opposed to trying to negotiate a good deal when you buy an automobile?
June 13, 2008 12:36 PM | Reply | Permalink
Hey Doc,
Let me tell you how it is...
If you are poor you get taken advantage of.
If you are rich you don't have to worry.
My clients are high tax individuals, (often incestors in failed tax shelters) and clients who have suffered significant securities fraud.
Some of my clients have arranged mortgages simply to have a very limited tax deduction (the AMT takes most of the advantage away).
The rich get a break because there is little risk in loaning to them, their ultrasafe loans can be packaged with crap to keep the entire package floating. They deposit substantial cash which serves as reserve for other loaning.
I've seen a bank give what was essentially a negative mortgage package (loan rate on loan lower than investment rate on corresponding sweep accout to a person who controlled a large business.
June 13, 2008 12:39 PM | Reply | Permalink
That's right,slb, Seattle Steve, Shrubbit, et al.
And beside...for these guys, this amounts to no more than an ordinary person treating his next-door neighbors to a quality steak on the bar-b-q or an even lesser fellow buying a fellow worker a beer after work.
For those holier-than-thou types, let me tell you that you don't know 'hurt' until you've invested in a failed tax shelter. And it's hurtful, too, when poor people are getting loans only because YOUR loans are being packaged with them to make them palatable, and then they complain because you get a better rate than they.
June 13, 2008 1:56 PM | Reply | Permalink
I'm a loan agent and it is not uncommon at all to waive points. I commonly waived one full point for people because that is what we did. They are talking about 1/2 point. I do that on 60% of the loans I do today to be competitive. If you were talking about waving more than 1 point then you still don't really have a story unless you at the 2 point and above range. Talk to any mortgage person in the US and they will tell you the same.
June 13, 2008 3:51 PM | Reply | Permalink
Bribe from corrupt businessman => $2,700 Crook
Bribe from corrupt businessman
Hilarious. Another supporter or two for Obama to throw under the bus. It is getting crowded under there with all the people with questionable ethics thrown under there so far. There will be more.
If you expect CHANGE this is what you will get - borderline corruption or appearance of corruption.
When are we, the American people, going to wise up and quit making excuses for these people and vote them all out of office irregardless of party affiliation.
June 13, 2008 6:09 PM | Reply | Permalink
Vote them all out of office and replace them with...?
June 13, 2008 8:18 PM | Reply | Permalink
Is it unethical? Yes...
Unusual? Hell no..
June 13, 2008 6:25 PM | Reply | Permalink
even the ethics question is murky. the gaping hole in the portfolio article that mr tilghman misses completely is the insinuation that the discounted rates were about influence peddling simply because the article focuses ONLY on 'washington-insiders' who got the so-called 'VIP' discounts. if these 'VIP' and 'F.O.A.' loans were also given to non-political players then this isn't really about influence peddling even if it has the whiff of it. good muckraking is about sniffing past the whiff to see what's actually rotten.
the portfolio article is shoddy. mr tilghman's post is even shoddier.
June 14, 2008 10:06 AM | Reply | Permalink
It's still unclear to me whether or not Conrad or Dodd knew that they were so-called "friends of Angelo." It seems conceivable that Mozilo unilaterally intervened to put them in this program without necessarily informing them of what he was doing. It could have been a way for Mozilo to boost his own sense of self-importance rather than an attempt at peddling influence. (I suspect that the Jim Johnson case is a rather different set of circumstances since he was a former Fannie Mae executive.)
In the long run, of course, Mozilo may have pointed out to the senators that they received favorable treatment from his company and requested some sort of quid for his quo. But it isn't clear that ever happened, either. If Dodd and Conrad got unfair benefits then paying back the difference between the rate they received and the market rate is probably the fair thing to do. But it doesn't seem fair to accuse them of corruption.
June 16, 2008 1:11 PM | Reply | Permalink