Worse Than Whitewater, Chris Dodd and the Phony Countrywide V.I.P. Loan Scandal

Mortgage products are confusing, which is why a "whistleblower" could bamboozle the press into believing that Chris Dodd saved $75,000 on mortgages from Countrywide Financial. Suze Orman could have immediately explained why the correct amount is approximately zero. Senator Dodd made full disclosure last Monday, but the media narrative about Dodd's "sweetheart deals" seems to have stuck. Here's how a political scandal, a sort of mini-Whitewater, was contrived in the absence of credible evidence, and why the primary source of the revelations could be a Republican shill.

From his brief appearance on CNBC last summer, it was clear that Robert Feinberg was in over his head, less than honest, or both. Not that anyone noticed. Journalists heard what they wanted to hear, and filtered out the rest. Then the Senate Ethics Committee began investigating. And then, on October, 30, 2008, NBC News reported on a "wide-ranging criminal investigation" by Justice Department prosecutors into so-called sweetheart deals extended by Countrywide Financial.

Feinberg had come forward to expose the deals offered by Countrywide to high ranking public officials, celebrities and business executives. Before he was laid off, Feinberg had worked at a Countrywide call center in southern California, where he processed the paperwork on mortgages in the company's V.I.P. unit.

Countrywide's V.I. P. Program was large - annual loan volume totaled hundreds of millions of dollars - and it was not unique to Countrywide. "Among many mortgage lenders it was not an unusual practice to waive fees and waive certain underwriting guidelines if they had personal or business ties to the CEO or other senior executives," according to Chain of Blame, a book on the subprime mortgage industry. Clients in Countrywide's V.I. P. Program included Walter Cronkite, Stanley Tucci, the Chairman of KB Homebuilder and the Chairman of Sprint.

Before he left Countrywide, Feinberg took copies of loan documents for seventeen V.I.P.s, which included ten prominent Democrats and their relatives. These documents ostensibly constituted smoking gun evidence of corruption associated with a company embroiled in the mortgage crisis. But the evidence does not withstand scrutiny.

Selected details on loans extended to Senator Chris Dodd were revealed by Portfolio.com on June 12, at a critical juncture in Dodd's longstanding effort to bring his housing bill, intended to increase regulatory oversight on Fannie Mae and Freddie Mac, to a floor vote. "The controversy swirling around Dodd's and [Senator Kent] Conrad's VIP mortgages has cost Democrats crucial credibility on the issue as they compete with Republicans to portray themselves as the party most sympathetic to the plight of struggling homeowners," wrote the Associated Press on June 17. The controversy was more than a little ironic, given that Dodd had been a consistently staunch advocate for stronger regulation of the mortgage loan industry. On June 25, a group of nine Republican senators sent Harry Reid a letter, stating, "We request that you delay consideration until we have adequate time to read the bill and better understand the allegations and how much Countrywide will benefit from the bill." It would not be the first or the last time that Republicans would try to stall action on the mortgage crisis.

Only when Portfolio's August issue hit the news stand could anyone figure out the details which showed that Dodd's mortgages were in line with market terms. On July 21, when Feinberg appeared on CNBC's Squawkbox, Michelle Caruso-Cabrera cut to the heart of the matter:

CARUSO-CABRERA: Tell me about your conversations with Senator Dodd and exactly how this went down and how he got a cheaper loan than most people could get.

FEINBERG: My conversations with Senator Dodd were maybe once or twice. It wasn't long conversations because he is a very busy person, but basically he came through a receptionist for one of the managers and I was given what to do with him as for discounts. I mostly spoke with his wife. So most of the work was done with his wife via e-mail or phone calls.

CARUSO-CABRERA: Can you definitely say that they knew they were getting better terms than they would have gotten otherwise?

FEINBERG: Absolutely.

CARUSO-CABRERA: No doubt in your mind?

FEINBERG: No doubt in my mind. When anyone entered on a phone call into the V.I.P. unit it wasn't just your job to provide them with discounts. It was your job to get the loan so you did explain where they were and how they were being treated and also that there was a lot of taglines that we used that the pricing was specially priced by [CEO] Angelo [Mozilo] and you're getting a better rate than a regular customer would get.

That was it. Feinberg recounted nothing, but he had no doubt in his mind about what Senator Dodd knew. Feinberg never considered that his phone taglines might sound like the shopworn marketing cliches. "Unless they asked, V.I.P. borrowers weren't told exactly how many points were waived on their loans," reported Portfolio. "I'm not clairvoyant," Dodd told the Associated Press. "There was no red flag to me that we were getting some special treatment."

Indeed, Senator Dodd got rates that were in line with the market. "You might get an adjustable mortgage that's locked in at 4 percent for five years and then it adjusts after that," said Ray Martin for Money Matters on CBS' The Early Show on June 12, 2003. On July 9, 2003, Dodd closed on a five-year adjustable rate mortgage with Countrywide at 4.25 percent.

Described in simpler, non-mortgage terms, the strongest case against Dodd goes something like this. A former employee says, "The Senator got to use the employee discount for his purchases at FAO Schwartz." And Dodd's response was, "I wasn't paying attention when I ordered the toys over the phone, because I knew I could buy the same stuff for the same price K-Mart."

But that's not how Feinberg played it.

CARUSO-CABRERA: How much did Senator Dodd save?

FEINBERG: The savings that we calculated was mainly over the life of the loan, which is really what you want to look at. You can look at a monthly savings, but over the life of the loan on one of those particular loans I think was calculated at about savings of $77,000 if the loan was kept for a 30-year period of time.

Portfolio calculated $75,000 in savings on both loans. Whether $77,000 or $75,000, the calculations were completely bogus. Neither Dodd, nor any of the other 16 V.I.P.'s paid below-market interest rates, according to the documents obtained by Portfolio.

To understand how the smoking gun is really smoke and mirrors, you need to get into the details of the loans. In 2003, when Dodd applied to refinance the mortgages on his homes in Connecticut and Washington, he did what many other consumers do. He locked in his interest rate at the lower of the current rate, 4.875 percent, or the prevailing rate at the time of closing. The option to take the lower of the locked in rate or the prevailing rate is called a float-down.

By the time Senator Dodd's closings took place prevailing rates had fallen. On June 16, 2003 he closed on a $275,000 loan for his Connecticut home at 4.5 percent. On July 9, 2003 he closed on the $506,000 loan on his Washington townhouse at 4.25 percent, or .625 percent less than the locked-in rate.

But Dodd never got a 30-year fixed rate mortgage. For both residences, he got adjustable rate mortgages that had fixed rates for the first few years, and then went floating. The supposed discounts ended on June 16, 2008 and July 9, 2013.

Portfolio noted that Countrywide was "eschewing its usual charge of half a point," to give Dodd a free float-down. That represents a savings of $3,905 on both mortgages, or 1/20 of the imagined $75,000 savings. But even that amount is unsupportable.

The usual half-point fee almost certainly applied to float-downs on 30-year fixed rate mortgages. According to financial publisher HSH, the typical fee is one-quarter or one-eighth of a point. But most lenders offer the float-down on a five-year ARM for free. (Try Googling, "free float-down five-year ARM.") How does Portfolio know that Countrywide waived a fee that it might have otherwise charged? Not because of anything in the documentation. They reported the waiver based solely on Feinberg's recollection. It's quite remarkable that Feinberg would remember this detail on loans he processed five years earlier.

That's how $75,000 dissolves down to zero.

Caruso-Cabrera also asked Feinberg if Dodd saved any money on fees.

FEINBERG: Fees, roughly you have you have the points plus costs, the documentation preparation fees, the processing fees, the underwriting fees, what we call in the business the junk fees or the garbage fees was waived. So probably somewhere in the neighborhood of, you know, $1,000 or $2,000, it depended on the loan balance.

Portfolio reported that waived garbage fees totaled $2,700. "Garbage" or "junk" fees, "are the excessive processing and documentation fees charged by unscrupulous lenders," according to Neill Fendly, the legislative chair for the National Association of Mortgage Brokers, quoted in SmartMoney. Again, Suzie Orman would say you should always get those fees waived.

All in, the evidence corroborates Dodd's claim; he had no reason to believe he was getting a deal that was better than market. On February 2, Dodd released a report prepared by CrossCheckCompliance that backs up Dodd's claim that he had no reason to believe he got terms that were better than market. As Portfolio noted, when Dodd first did business with Countrywide, the nation's largest mortgage lender, in 2001, he did not receive any "V.I.P. treatment."

The evidence against the other 16 V.I.P.s is similarly weak. According to the documentation, there were no fee waivers, or other financial benefits, for three V.I.P.s - Paul Begala, Henry Cisneros and Alphonso Jackson. Their names were simply added as window dressing to beef up Portfolio's online piece, "The Countrywide Lineup."

But the media didn't focus on the evidence, or lack thereof. It merely emphasized the narrative of scandal, which took on a life of its own.

The New York Times Editorial Board insisted that exoneration in the Senate ethics committee was, by definition, a sham. It wrote,

"The Senate ethics committee has opened an investigation to see whether gift rules have been violated. The trouble is, that throws the matter back to the clubby world of the Senate. Given its track record, it is hard to believe the committee will find that Mr. Dodd and Mr. Conrad acted improperly. It's not even clear that the Senate these days is in touch enough to understand how terrible this home-loan back-scratching looks."

True to form, The Wall Street Journal Editorial Board treated Dodd's protestations with the expected derisiveness:

"Mr. Dodd continues to insist that, though he knew he was a 'special' Countrywide customer, he didn't think he was getting any special financial benefit. But a $75,000 reduction in mortgage payments is no small matter for anyone living on a Senate salary of $169,300. Why else would he be known around Countrywide as a 'Friend of Angelo' - Angelo being Countrywide CEO Angelo Mozilo."

There's a standard method for deflecting the weaknesses is any scandal narrative. No matter how flimsy the evidence, you can always say, "This raises serious questions about..." Yes, the Countrywide V.I.P. loan story does raise some serious questions, about Robert Feinberg.

CARUSO-CABRERA: Mr. Feinberg, do you stand to gain in any way by coming out publicly? Are you suing the company? Do you have any financial incentive to talk?

FEINBERG: Not to sue the company. I am not in a position to do that. I'm just coming out to talk because I feel there is a need for this information to come out because of the situation we are in now.

Feinberg did not say, "I do not stand to gain in any way." There are a an awful lot of coincidences about the Countrywide story that make you wonder, not only about Feinberg's motivations, but also about how sources can manipulate journalists in a way that crosses over into political P.R.

Again, there's the uncanny timing that threw a monkey-wrench into Dodd's legislative efforts and killed his chances of being considered as Obama's V.P. pick. Five days before Dodd got dinged, Obama's V.P. selection process was also slammed by the Countrywide story from a different venue, The Wall Street Journal:

"Countrywide Financial Corp. makes mortgage loans through a vast network of offices, brokers and call centers. But a few customers have gotten their loans a special way: through Countrywide Chief Executive Angelo Mozilo. "These borrowers, known internally as "friends of Angelo" or FoA, include two former CEOs of Fannie Mae , the biggest buyer of Countrywide's mortgages, say people familiar with the matter.

"One was James Johnson, a longtime Democratic Party power and an adviser to Sen. Barack Obama's campaign...Another was Franklin Raines, a onetime Clinton administration budget director, who left Fannie Mae amid an accounting scandal in 2004."

A "few customers" known as "friends of Angelo"? The article never explained how Johnson, who days earlier had been named to Obama's V.P. selection committee, and Raines "got" loans through Mozilo. The Journal pursued the "sweetheart deals" narrative from another dubious angle:

"A comparison of the Fannie Mae officers' terms with interest rates prevailing when they got their loans raises the possibility Countrywide gave them preferential terms. But it's impossible to tell for sure from public documents."

"Translation for those who lack any financial sophistication: They don't know jack," I wrote in HuffingtonPost at the time. The Journal touted the Countrywide/James Johnson connection for four days running, until Johnson resigned from Obama's VP selection committee.

So there is this big V.I.P. loan unit, extending hundreds of millions of dollars of loans annually, and Robert Feinberg, who at the time is unemployed, approaches the media and touts these sweetheart loans with these stolen company documents. What would his motivations be? Why would he choose to publicize these V.I.P.'s?

Part of it could be that he doesn't understand the distinction between how things seem inside Countrywide's call center and how things seem to an outside customer. Feinberg, who self-deprecatingly referred to himself as a "dumb bodybuilder" to Portfolio, managed a gym before joining Countrywide in 1996. His idea of how those taglines come across may not jive with the impressions of the V.I.P.'s, who would most likely dismiss them as sales puffery. Borrowers do not care about the internal workings of the credit approval process; they just want to know when they can close. Most V.I.P.'s are also sophisticated enough to know that interest rates jump around and that fees can be sliced and diced a myriad number of ways. They are very busy people and do not obsess over the details of Feinberg's former job.

Also, why did Feinberg choose to steal the documentation of these 17 V.I.P.s, out of potentially thousands of customers? Dodd never acted like a "Friend of Angelo." And though Angelo Mozilo did contribute $10,000 to Dodd's campaigns, he devoted most of his largess to Republicans. As reported in The Los Angeles Times, Countrywide donated $150,000 to the California Republican Party, and $83,000 to Gov. Arnold Schwarzenegger.

Could somebody have a partisan agenda? In October 2008, Feinberg was interviewed by the Bush Justice Department. He is still talking to selected media, still dissembling to the point of fraud. He was interviewed by Lisa Myers on The Today Show on October 30:

MYERS: What kinds of special breaks or discounts did the V.I.P.s get that average customers did not?

FEINBERG: They got a discount on the interest rate, they got discounts on their fees.

MYERS: Did these V.I.P.s know that they were getting special deals?

FEINBERG: Absolutely.

If Portfolio and the Journal want to go after a real scoop, they should go back to their source ask him some hard questions, to determine if he was coached by somebody with Republican ties.

Comments

[tokenconservative]

All of this seems logical, but begs the question of why has Dodd been stonewalling the (public) investigation since day 1? He STILL refuses to allow reporters to photocopy his mortgage documents, and we all know that a handful of nonspecialized reporters being allowed to glimpse at a selected 80 pages of mortgage information isn't going to get anyone anywhere.

[deanfv]

Where are the cops?


Where is the change?

By the way, the market has lost 10 years of gains. I think it lacks confidence in the P r e s i d e n t. Shhhhhhhhh....

[funkalicious]

Dodd should have been prosecuting CountryWide in 2003 not getting a loan from CountryWide.
Nit picking the loan is BS the guy campaigned and took money from every major sub prime lending group.
The very people he was in charge to oversee. That's the stink and why this story sticks to him .
He is dirty just like his father....the apple didn't fall far from the tree. Dodd talks a good game but rolls over and plays dead when the rubber meets the road. He only talked reform well after the CDO's blew up.. this was an open secret. Not really rocket science that giving people 125% loans who had no income or job to speak of. the man was paid to stay asleep at the wheel.

[Azuki]

As a former Countrywide employee of nine years, I don't understand how anyone whose done even a little bit of research could think Countrywide VIPs get something others do not. Countrywide (at least, as far as I know) does not maintain a portfolio of loans. What this means is that all the loans they originate are tagged to be sold to investors. Investors expect certain guidelines to be met when it comes to pricing or they will not buy the loans. All someone needs to do is find out who the investors are on these VIP loans to truly determine if the pricing was out of line.

Getting a loan through Countrywide is not the cheapest route. The employee discount on my loan was so small that I could have shopped around and gotten an even better price elsewhere. I chose Countrywide for my mortgagor because I liked the way they did business. I still do! As I understand it, the advantage of being a VIP is more about convenience and anonymity. VIPs are just people with more money and influence whose business companies want to keep, so they try to create as hassle free an environment as possible. In this case, it seems to include offering discounts anyone else can get without the customer asking for them.

[oneonta]

I' d love to say great article but it is an article that states facts that are so obvious there should be no necessity of its publication.

I have worked in mortgage lending since 1985 in Greater Boston and have worked at leading mutual savings bank since 1993 as a mortgage sales person aka mortgage loan officer/originator. The terms provided to Senator Dodd in 2003 were competitive but common in the industry. emphasis on the period.

Countrywide may have simply been matching rates that they knew to be competitive.

but let's get real these WERE NOT EXCEPTIONAL terms. READ MY LIPS. not exceptional terms.

To prove my point. Contact banks that do five year arms and request rate sheets for their 5 year arms during the time Senator Dodd received his financing. I can assure you that these terms will not stand out. These terms may have been special at a sub prime shop but were common at lenders who expect their mortgages to be repaid.

To assert these terms were special is not insinuation. It is defamation if one knows anything about mortgage rates during that time frame. The theft of one's employers and customers loan files and their obvious personal and confidential information is a crime at least morally & ethically. Not sure what the laws are in the state where this happened.

[jade7243]

Just one teeny, tiny, teeny, tiny thing... the reference to Whitewater. If you're suggesting that whitewater was all blown out of proportion by the "vast right wing conspiracy" and the Dodd thingy is worse than that... well, the devil is in the details. At least the details as regards Whitewater. EVERYONE involved in Whitewater save for the Clintons found themselves in trouble -- and not just for alleged perjury. Whitewater still deserves a real investigation. It boggles the mind that it brought down a sitting Governor but left the Clintons untouched. Things that make you go Hmmmmm....

The media hasn't reported this Countrywide/subprime mortgage/special deal loans thing with anything resembling accuracy or even fairness. Facts seem to be items one can overlook.

Dodd deserves a fair hearing and fair reporting. thanks for the good start.

[nunzia]

jade - the Rs, through Ken Starr, spend a damned FORTUNE IN TAXPAYER MONEY, not to mention many years, trying to find some criminality on the part of the Clintons in Whitewater. There isn't any. Get over it!

As for Dodd, didn't he make a public statement about how he called the CEO of Countrywide to ask for a mortgage? And, 4.25 was a special rate, given to a special guy, because he had special connections. Dodd is the wrong person to be handling homeowner issues now.

[NobodylikesHim]

Who cares? Who of you would turn down a loan that the garbage fees were stripped from?
My wife worked at the Countrywide Headquarters for five years, we attended parties where Angelo Mozilo was also a guest, nothing but another rich guy. There was always a running line of "FoA" fodder, and always in regard to a politician or another corporate CEO of some type.

I have to question the fact that Fienberg STOLE, as in thief, private financial records that also contained personal information, protected by law, and he's not in jail! If I was any one of those 17 people, I would be pressing charges and letting him "manage" the barbells in prison.

[siegfried]

I only got as far as "It's not unethical, they all do it."

[jimminee]

Only if you ignore federal ethics laws, which Fiderer conveniently fail to discuss at any point in the article, can you attempt to justify Dodd's and other federal executives actions in regards to these gifts from Countrywide.

Federal employees and executives are prohibited from taking gifts because they represent conduits for obtaining favorable treatment. 5 C.F.R. § 2635.203(b) states gifts include any gratuity, favor, discount, entertainment, hospitality, LOAN, forbearance, or other item having monetary value. Further, section § 2635.702 states that a Federal executive cannot not use his public office for his own private gain, for the endorsement of any product, service or enterprise, or for the private gain of friends, relatives, or persons with whom the employee is affiliated in a nongovernmental capacity, .and persons with whom the employee has or seeks employment or business relations. Only if the loan is "generally available to the public" is it exempt from these restrictions.

Fees were waived, and certain underwriting guidelines were waived, "because they had personal or business ties to the CEO or other senior executives". Feinberg states these VIP "friends of Angelo" were specifically chosen because they could help Countrywide down the road. That makes them gifts. Dodd, and other federal executives, initially denied they got any discounts. They recanted AFTER evidence was made available showing they were advised they got discounts and the nature of the VIP program. Most telling, the loans were not available to the general public - and there's the ethical rub.

[BringingbackAmerica]

I am an ex E-Trade Bank loan originator and I have to say that it was not uncommon for us to originate loans for Washington politicians, celebrities, and other "VIP's". While there was no "written policy" on it, E-Trade's "VIP's" would also receive favorable treatment (especially pricing) once they were identified. Infact, we were required to write "VIP" on the outside of the loan folder so that everybody from the loan processor to the underwriter would understand to treat that particular loan with "special attention". ( For the record, I also marked VIP on the folders of the clergy people from ALL faith's as well). The "VIP's" would get improved pricing to both rate and fees, and their files would be assigned only to the most seasoned (and decorated) processors and underwriters.

In Senator Dodd's defense, to my knowledge, NOT ONE of these VIP's EVER asked for even realized that they were getting special attention! It was actually the company that was trying to bend over backwards to look good for these "centers of influence".

By the way, I am a Republican, so there is no political motivation here. Above all, I am an American, and "what is right is what is right!' Let's end the witch hunts and put this country back on track!

[Truby]

It looks like smoke and mirrors, but what is the purpose of a VIP loan program that extends nothing extra to rich or powerful people? My guess is than the VIP program must of had some reason to exist.

[SPQR1775]

The REPUBLICANS are all SMOKE AND MIRRORS. Bush, Cheney, Rove, Palin, McCain, Romney, Graham, McConnelle, Sessions, Coryn, Inhoffe, Corburn, Steele, and all the other southern bigos, all smoke and mirror. All these people see is their own reflections. The GOP pride itself of screaming and they are great actors, the best that the world has ever seen, however, they can never seem to really get anything accomplish for the American people, except of course WARS. The GOP isn't good at fighting WARs either. Lincoln was a Republican, but he was no bigot, Lincoln really was a Democrat. It is funny that next week Pres O who is a DEMOCRAT will reasurrect the ghost of Lincoln on his 200 anniversary, DEMOCRATS make it happen. There is no wonder it took a Dem to win WWI, WWII, Korea etc. The COLD WAR ended because Russia Gorberchev was paid Billions by Reagan, lets not kid ourselves. The GOP is a party of Hypocrites and bigots, and a very "white" party, no STEELE does not count!

[contrariandy]

It was the Liberals and Moderates who won the Cold War too. The groundwork for winning was set at the beginning by Truman and Gen. Marshall and by decades of successful growth in America and Europe while communism stagnated and died. It was over before Reagan, he's just an empty myth.

[coveark]

Being from California after Reagan was governor..........................Why anyone would have even elected him was in no way understandable to me................Plastic phoney

[Sanity01]

I don't do drugs but you guys are really tempting me with whatever it is you're on today!

[pamelagoodenough]

You're already high on your own.

[poorboyz]

If Fienberg took loan docs he should be prossecuted.

[Erdgeist]

Bush in 2003 years gave the okay nod to the crooks making it legal to do predatory lending to home buyers. Here is the truth Republicans don't want you to know.

URL: http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

[JerryAW]

Has anybody read this article linked by Erdgeist? It is extremely revealing, not just by its content, but by its author. If you take a step back and view the big picture, you see a serious exposure of the Bush administration by none other than Eliot Spitzer, at the time still Governor of New York. Not all that long after that, he was taken down in the now infamous call-girl scandal. I'm not saying that Spitzer was innocent or guilty of any wrongdoing regarding the call-girl, but the timing of this whole thing smacks of retaliation, not too unlike the Valerie Plame exposure. Does anybody see a pattern here?

[NotMcCain]

It's too bad Spitzer himself didn't notice that. I absolutely think you're right--retaliation is most defintely the Bush-Cheney administration's M.O.

[JannieMoonbeam]

So boring. we hate republicans ok - can you move on or are you just going to rant until they are back in office. be constructive. lead, follow or get out of the way - just stop rehashing already.