THE SCANDAL YOU HAVEN'T HEARD

“...a grave threat from predatory, abusive, and irresponsible lending practices undertaken by too many subprime lenders.”
-Senator Christopher Dodd

Unless this can be successfully quashed because it's so damaging to Democrats, I suspect that this is one scandal that we've only seen the very tip of the iceberg of. It started with one report last week: Senator Kent Conrad (D-ND) and Christopher Dodd (D-CT) got sweetheart deals from Countrywide insurance. It seems that their mortgages were unusually low interest from subprime lenders, and Senator Conrad accidentally forgot to include the $1.07 million home he got the loan for in his financial disclosures.

How good a deal? Well the CEO of Countrywide, Angelo Mezilo, told them to knock a point off the interest for his buddy:

Senator Conrad borrowed $1.07 million in 2004 to refinance his vacation home with a balcony and wraparound porch in Bethany Beach, Delaware, a block from the ocean. Mozilo instructed a subordinate to “take off 1 point,” or $10,700, according to a March 17, 2004, email.

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 Dodd got a similar deal:

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.

What's going on here is that these Democratic congressmen are getting sweetheart deals from corporations. Countrywide has contributed over twenty thousand dollars to the Dodd election campaigns over the years, probably completely unrelated to the fact that he's chairman of the Senate Banking Committee. Why does this matter? Here's a news report from March of this year:

Countrywide Financial CEO Angelo Mozilo told a congressional panel Friday that he is "extremely concerned" that recent tightening of mortgage underwriting criteria has gone too far.

"For the market to recover, underwriting guidelines need to strike a better balance between providing borrowers with access to loans and lenders and investors with the assurance that these loans will be repaid," he said in remarks to be given to a House committee hearing.

Mozilo urged Congress to reform the Federal Housing Administration, expand tax-exempt mortgage revenue bonds for both home purchases and refinancing and to take other steps to address the widening crisis in mortgage finance markets.

So they're getting sweetheart deals because they are in a position to help the company in Congress.

But wait, there's more! It wasn't just Senators Dodd and Conrad:

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.

These people were designated "friends of Angelo" at Countrywide, a special category that ensured better mortgage deals. The only odd man out here is Richard Holbrooke (from the Clinton administration) who has no direct power over housing or banking laws. Why Holbrooke? He is on the Council for Foreign Relations and was a foreign policy adviser for Democratic presidential candidate Hillary Clinton. He is often referred to in discussions of the Secretary of State job in a Democratic administration.

However, I'm absolutely sure that the power and position these people wielded in the past and will again in the future in areas that assist Countrywide and other mortgage lenders is completely irrelevant to their special treatment by the company.

Countrywide, along with Merrill Lynch and Citigroup are the three main companies implicated in subprime mortgage lending that is being condemened for the current housing slump. Basically they loaned too cheaply to people who couldn't afford the houses they bought, as prompted by legislation the Clinton administration pushed in the 1990s.

Because of the troubles in the market, Countrywide announced a $1.2 billion loss in the third quarter of 2007 and lost another $422 million in the fourth quarter.

Don't worry though, the Mezilo children will not starve. During the same period, Mozilo received a $1.9 million salary, received $20 million in stock awards contingent upon performance and sold $121 million in stock.

In response to all this information, Senator Dodd said lenders had engaged in "unconscionable and deceptive" practices. No wait, I'm sorry that was when he was claiming that the Bush administration was behind it, not explaining his special deals.

This is just the tip of the iceberg. Keep this in mind when you see Democrats in congress pontificating on the evils of subprime loans and how Republicans are behind it all. Keep this in mind when you vote this November, just like you did the GOP scandals in 2006. Keep it in mind because I strongly suspect the press won't help remind you like they did two years ago.

*UPDATE: Rush Limbaugh uncorked on this topic this morning on his show:

They're being called the Countrywide Six, and here are the names of politicians, ladies and gentlemen, with favorable mortgage rates from Countrywide. Jim Johnson, former chief of Fannie Mae, Obama advisor, longtime Democrat Party hack. He had to quit from the Obama campaign. He was not the Jim Johnson Obama knew.

Franklin Raines, former chairman, chief executive officer of Fannie Mae who served as Clinton's budget director and retired from Fannie Mae to halt a US Securities and Exchange Commission investigation into accounting irregularities while he was there. Donna Shalala, the former secretary of Health and Human Services, who in 1993, the Association of American Physicians and Surgeons, along with several other groups, filed a lawsuit against her over closed-door meetings related to Hillary Care, socialized health care plan, "and since leaving the administration, was embroiled in scandals at the University of Florida due to her extravagant lifestyle. She was just awarded the Medal of Honor last week by President Bush." But she got a favorable loan. Richard Holbrooke, former UN ambassador, assistant secretary of state -- who, as UN ambassador, ignored whistleblower reports about the infamous oil-for-food scandals. Then there is Senator Chris Dodd, who oversees the US mortgage industry as chairman of the banking committee and Kent Conrad, who we have spoken of.

He went on to quote today's editorial from the print version of the Wall Street Journal:

"For the sake of its shareholders and taxpayers who are ultimately on the hook, Fannie Mae should immediately launch an internal investigation into the terms offered to Countrywide..." Because I forgot to mention to you, Congress, Pelosi and these Democrats, are offering legislation to bail out the mortgage industry and some borrowers. It's a $300 billion deal to bail out these lenders, and Countrywide is one of them. So the Wall Street Journal says, Wait a minute! We need to launch an investigation "into the terms offered to Countrywide and exactly what roles Mr. Johnson and Mr. Raines played in the negotiation of these terms. Did these men exert any pressure on Fannie Mae employees to do business with Countrywide? They also say that Congress needs a full accounting of contacts between Countrywide and the politicians receiving favors from the lender. Did Countrywide ask for and receive assistance from the Friends of Angelo? With Senate banking chairman Dodd at the center of the scandal, ranking member Richard Shelby and house financial services chairman Barney Frank will have to lead the inquiry.

"But taxpayers should not have to wait for the results of an investigation. Democrats in Congress are trying to pass a bailout for mortgage borrowers and lenders like Countrywide, and they have been holding reform of Fannie Mae and its cousin Freddie Mac hostage to get President Bush to agree to it. Dodd's one of the main hostage takers. It's time that he and Barney Frank drop this political ransom taking and finally subjected Fannie and Freddie to tough oversight. Meanwhile, until it's clear how much Countrywide will benefit from Senator Dodd's proposed $300 billion mortgage rescue and exactly how Mr. Dodd came to do business with Countrywide, Congress should call a halt to legislating bailouts. Taxpayers deserve no less."

What will come of this? I would guess not much, but there are an awful lot of people out there who are in hard shape because of the housing market and gas prices, both of which people might start to lay at the feet of Democrats - gas prices most deservingly - by November. Let's just say getting sweetheart deals while deciding how to legislate on the company you got the deals from is at best poor judgement if not outright corruption at a time when people are suffering from housing prices.

Corruption, Mortgages, Congress