Bad Loan Practices = Pay Day for Politicians

Made national news by Presidential Nominee Barack Obama's VP search committee member Jim Johnson, Countrywide's "VIP program" is in the news again because it turns out other Washington elitists benefited.

Senator Chris Dodd (D-Conn) and Senator Kent Conrad (D-ND) both refinanced their homes in 2003 and 2004 using CountryWide's VIP program, which "waived points, lender fees, and company borrowing rules for prominent people."

"Points" can add up pretty quickly, and lower your loan rate considerably. Lender fees - well that could include just about anything. Closing costs and paperwork costs from the bank can run from $200 - $3000, depending on what the bank wants to charge you.

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.

Unbelieveable. I saw the story earlier in the week about Shalala, I knew people were upset but I really have no knowledge of her. Her name is familiar though ...

Senator Dodd received two loans in 2003 through Countrywide’s V.I.P. program. He borrowed $506,000 to refinance his Washington townhouse, and $275,042 to refinance a home in East Haddam, Connecticut. Countrywide waived three-eighths of a point, or about $2,000, on the first loan, and one-fourth of a point, about $700, on the second, according to internal documents. Both loans were for 30 years, with the first five years at a fixed rate.

The interest rate on the loans, originally pegged at 4.875%, was reduced to 4.25% on the Washington home and 4.5% on the Connecticut property by the time the loans were funded. 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. The former employee says the float-downs were free. Senator Dodd’s wife, Jackie Clegg, said in a brief interview that two other lenders they checked with offered comparable interest rates. The senator’s office said Thursday afternoon that it is preparing a response.

Countrywide has also contributed a total of $21,000 to Dodd’s campaigns since 1997. While a presidential candidate last year, he filed a bill to ban lenders from charging prepayment penalties and steering home buyers to more costly loans—both practices in which Countrywide reportedly engaged. He also called for criminal charges for such predatory lending.

I'll be interested in that statement from his office. While these loans he recieved aren't predatory, they are from a lender that was engaged in predatory practices, and you almost have to wonder if they were keeping him happy. I fully agree that prepayment penalties are barbaric and awful. But if that's the loan you qualify for, that's the loan you qualify for. Get better credit, save more money, and try again next time. A lot of banks don't charge those.

As for steering people into more costly loans ... a car salesman is going to steer you towards buying a car. If your idiot enough to do it without knowing what you're doing, that's your problem, not the guy's trying to feed his family.

Conrad is the one in real trouble. His loan was for a vacation home worth $1.07M and he was given a full point for free. That's just over $10K.

Later that year, Conrad refinanced an eight-unit apartment building that he and his brothers owned in Bismarck, North Dakota. According to the former employee, the loan violated Countrywide’s normal policy of providing loans for buildings of four units or fewer. In an April 23, 2004, email, Mozilo encouraged an employee to “make an exception due to the fact that the borrower is a senator.”

Senator Conrad acknowledged in a statement that he received financing from Countrywide. “I never met Angelo Mozilo,” he said. “I have no way of knowing how they categorized my loan. I never asked for, expected or was aware of any special treatment…From what we have been able to determine, it appears that we were given a competitive rate.”

Whatever. Maybe that's true. Maybe he could have found another bank that was willing to give him the point for free. We got a half point for free. Granted, that amounts to $500 in our case, not $10K.

They are hypocrites. And I fully believe they may not have known they were getting special treatment. But that means they don't know the terms of their loan. And that makes them idiots.