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"All
animals are equal, but some animals are more equal than others."
That is
probably the most famous line from George Orwell's Animal Farm, which
offered up a thinly veiled critique of Soviet totalitarianism. In the 1945
novel, the phrase is a sardonic reference to political leaders who, contrary
to reality, claim they have no more privileges than ordinary citizens.
Over the
course of time, the words have also come to describe circumstances in which
some individuals get special treatment solely because of who they are and the
influence they wield, even though there is a system in place that supposedly
ensures everyone is treated the same way.
In Countrywide's Many 'Friends,' Condé
Nast Portfolio's Daniel Golden details the Orwellian reality that
existed at what used to be one of the nation's largest mortgage lenders.
Senators
Dodd and Conrad are among the government officials who scored V.I.P. loans
from C.E.O. Angelo Mozilo. An exclusive Portfolio investigation.
Two
U.S. senators, two former Cabinet members, and a former ambassador to the
United Nations received loans from Countrywide Financial through a
little-known program that waived points, lender fees, and company borrowing
rules for prominent people.
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.
Holbrooke,
whose stint as U.N. ambassador ended in 2001, was also working in the private
sector when he and his family received V.I.P. loans. He was an adviser to
Hillary Clinton’s presidential campaign.
James
Johnson, who had been advising presidential candidate Barack Obama on the
selection of a running mate, resigned from the Obama campaign Wednesday after
the Wall Street Journal reported that he received Countrywide loans at
below-market rates.
Most
of the officials belonged to a group of V.I.P. loan recipients known in
company documents and emails as “F.O.A.'s”—Friends of
Angelo, a reference to Countrywide chief executive Angelo Mozilo. While the
V.I.P. program also serviced friends and contacts of other Countrywide
executives, the F.O.A.’s made up the biggest subset.
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.
Unless
they asked, V.I.P. borrowers weren’t told exactly how many points were
waived on their loans, the former employee says. However, they were typically
assured that they were receiving the “Friends of Angelo”
discount, and that Mozilo had personally priced their loans.
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.
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.
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
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.”
A
spokeswoman for Countrywide, which is slated to be acquired by Bank of
America, declined to comment. A Bank of America spokesman said that senior
executives there “do not get involved in the origination of
mortgages,” but will refer inquiring friends to the right loan
programs.
Mozilo
co-founded Countrywide in 1969 and helped build it into the nation’s
largest home mortgage lender. While interest rates were dropping in the first
half of this decade, prompting widespread demand for refinances and
home-equity loans, Countrywide loaned hundreds of millions of dollars per
year through its V.I.P. program to politicians, government officials,
business executives, entertainment celebrities and other customers singled
out for special treatment. Account executives at Countrywide’s call
center in Rosemead, California, handled the bulk of the loan applications,
which were processed by a separate V.I.P. underwriting unit that had its own
branch number in Countrywide’s record-keeping system.
Jackson,
the former H.U.D. secretary, borrowed $346,331 from Countrywide in June 2003
to refinance his Alexandria, Virginia, townhouse. That December, he applied
for a $308,000 mortgage to buy a vacation home on a golf course in Hilton
Head Island, South Carolina. The loan came through on January 21, 2004, a
week before President Bush named him to the H.U.D. post. He resigned in March
2008 amid unrelated cronyism allegations.
H.U.D.
has wide-ranging relationships with Countrywide and other lenders. It
regulates real estate settlements and closing costs, and runs the Federal
Housing Administration, which guarantees mortgages.
The
former employee says that Jackson received discounts on both loans. Defending
his transactions, Jackson said he was a Countrywide borrower long before he
met Mozilo or worked for H.U.D. Asked if he received any breaks on the loans,
he said, “Not to my knowledge. If I did, it certainly wasn’t
discussed with me.”
Former
H.H.S. secretary Donna Shalala received two V.I.P. loans, for $338,685 and
$202,300, in 2002. “Normally, I would not ask for special consideration
toward a certain loan/customer, but the complexity of the Shalala deal calls
for it,” one Countrywide executive wrote in an August 20, 2002, email,
explaining that the University of Miami president was buying an interest in a
timeshare. “Angelo asked me to ensure that we ‘knock her socks
off’ with our great service.” On September 21, another
Countrywide staffer wrote that Shalala’s loans were “ready to
close…I floated both of them down to current pricing.” Shalala
did not respond to messages, and an assistant at the University of Miami said
that she was traveling.
Holbrooke’s
wife, author Kati Marton, received loans totalling $1.4 million to refinance
two properties in 2002. “Look for these,” one Countrywide manager
wrote in a September 27, 2002, email, alluding to Marton’s loan
applications. “These loans are incredibly important to Angelo and as
such they are incredibly important to us.”
The
next year, Holbrooke borrowed $1.2 million to refinance a vacation home in
Telluride, Colorado. Countrywide waived at least 1.25 points, or $15,000.
“Per Angelo, this loan is to be at zero points,” a Countrywide
manager wrote in a February 20, 2003, email. Also in 2003, Holbrooke’s
son, David, and daughter-in-law Sarah received a half-point discount on a
$559,500 loan, or about $2,800, when they refinanced their Brooklyn high-rise
co-op, and five-eighths of a point discount on a $428,000 loan, or about
$2,600, when they bought the floor above it. Neither Holbrooke nor his wife
and son returned messages.
Holbrooke
and Johnson are both vice chairmen of the private banking firm Perseus.
Besides the discounted interest rates reported by the Journal, Countrywide
also waived points for Johnson, a former chief executive of
government-sponsored mortgage reseller Fannie Mae. In 2003, Countrywide took
1.375 points, about $13,000, off a nearly $1 million loan to refinance
Johnson’s Washington home. When he borrowed almost $1.3 million in 2003
that same year to refinance a 4,400-square-foot, Southwestern-style home with
four bedrooms and five baths beside the second green of a golf course in Palm
Desert, California, Countrywide waived 1.875 points, or about $24,000.
In
2004, Johnson borrowed $3 million to upgrade to a larger estate—a
5,875-square-foot house, with a guesthouse and pool—on the same course.
Although the size of the loan exceeded Countrywide’s limit for a second
home, Mozilo told an employee to “do the deal.”
Brian
Brooks, a lawyer for Johnson, said that he never asked for a discount on his
loans, and that it is “common knowledge” that individuals of high
income and high net worth receive lower rates than other borrowers. “We
don’t see anything out of the ordinary here.”
Widely
criticized for spurring the country’s mortgage crisis with
over-aggressive lending policies, Countrywide saw its share price plunge from
$45 in February 2007 to less than $5 in January 2008, when Bank of America
agreed to acquire the company in a $4 billion stock swap.
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.
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