The Subprime Hall of Shame just got a lot bigger, based on this Portfolio magazine investigation into Countrywide Financial Corp.’s special VIP program involving mortgage loans at favorable rates for friends of former CEO Angelo Mazilo.
Former Fannie Mae CEO James Johnson, tapped to help vet vice presidential candidates for Sen. Barack Obama, resigned this week from that position after reports that he received loans at special rates from Countrywide under the program.
Now, Portfolio’s investigation names other “friends of Angelo’s ” who received preferential treatment as Dodd, a Democrat from Connecticut who chairs the Senate Banking Committee; Sen. Kent Conrad, D-North Dakota; two former cabinet members, and a former ambassador to the United Nations. Portfolio cited company documents, emails and a former employee as sources.
Dodd received two loans for houses in Washington and Connecticut in 2003, the magazine said. His wife, Jackie Clegg, told Portfolio the couple had checked with two other lenders and found them offering similar rates. But Portfolio said Dodd saved $58,000 on his Washington residence and $17,000 on the Connecticut house, through the special program.
Portfolio said it worked this way:
According to company documents and emails, the V.I.P.’s received better deals than those available to ordinary borrowers. Home-loan customers can reduce their interest rates by paying “points”—one point equals 1 percent of the loan’s value. For V.I.P.’s, Countrywide often waived at least half a point and eliminated fees amounting to hundreds of dollars for underwriting, processing and document preparation. If interest rates fell while a V.I.P. loan was pending, Countrywide provided a free “float-down” to the lower rate, eschewing its usual charge of half a point. Some V.I.P.’s who bought or refinanced investment properties were often given the lower interest rate associated with primary residences.
Dodd’s office still was preparing a response, Portfolio said. If Dodd, indeed, got special treatment from Countrywide, this is a huge deal. As chairman of the Banking Committee, Dodd has been an outspoken critic of lenders during the mortgage crisis. He’s proposed criminal penalties for predatory lending and has moved to ban prepayment penalties and other loan features that were common during the housing boom – features that Countrywide frequently employed in its lending practices. He’s also leading an effort for a mortgage rescue plan, and is widely respected by consumer activists.
Countrywide, once the nation’s largest subprime lender, imploded last year as the mortgage market collapsed, and has become the symbol for excessive and irresponsible lending.
Others getting loans through the VIP program include former Housing and Urban Development Secretary Alphonso Jackson, former Health and Human Services Secretary Donna Shalala, and former U.N. Ambassador and assistant secretary of state Richard Holbrooke.
You could pick apart this list to try to define who looks the worst for being on it. Certainly Jackson’s presence is highly troublesome, considering he was in charge of helping to provide affordable housing and homeownership possibilities for families with modest incomes, at the same time he apparently was getting special treatment from a lender accused of exploiting those same kinds of borrowers.
But it doesn’t really matter who tops the list. No one looks good, just by their very presence. Being a Friend of Angelo’s, it seems, isn’t all it was cracked up to be, back in the days when Countrywide was booming and no one was looking.
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