Countrywide VIPs: In the Senate, and Beyond

Portfolio's Daniel Golden has a potentially explosive story today: the Friends of Angelo, who received discounted VIP Countrywide loans, included a lot of very senior politicians, not just former Obama advisor James Johnson. Among them: Chris Dodd, Kent Conrad, Alphonso Jackson, Donna Shalala, and Richard Holbrooke.

The first reaction: What were these people thinking? The benefit they got was relatively small, considering how wealthy Senators are: Dodd had "points" waived worth about $2,700; Conrad's point deduction was worth $10,700. And yet these sums are easily big enough to exceed the $100 annual limit on gifts from companies with registered lobbyists.

The second reaction is that maybe these politicians genuinely didn't know what was going on:

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"...
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."

These statements are not as unlikely as they might seem at first blush, since Countrywide had every interest in being well-thought-of in the corridors of power.

One Countrywide executive wrote an August 20, 2002, email, explaining that [Shalala] was buying an interest in a timeshare. "Angelo asked me to ensure that we 'knock her socks off' with our great service."

So I can absolutely believe that none of the special treatment was shared with the borrowers, who thought that they were just getting deals common to rich folk.

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."

In which case, these loans fall into the "please don't do me any favors" bucket: if asked, I'm sure that's what a lot of these politicians would have said. But of course they weren't asked.

The third reaction is that free automatic float-downs are a really good idea.

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.

That should be a product: it's a great way of branding your company as borrower-friendly rather than as grasping for every last dollar. But clearly it was more of a perk, given out only to people whom Mozilo wanted to impress. I bet they're not feeling very thankful right now.

Comments

[348s:]

A "float down" would often cost lenders money if they, as would often be typical, had sold the loan forward. It's not just a freebie perquisite that they can offer everyone.

2008 Jun 13 12:46 PM

[azem:]

I am a current Countrywide Account Executive, and for people to make a big deal of a point discount or a $2700 discount is someone trying to break a story. There is no incentive with that small of a loan discount considering the other fee's and what the discounted fee was adjusted from. We currently make a point discount or waive fee's for customer's all the time, are these people being brought up on accepting VIP? The concern With Mozilo is he cashed out and left his employees retirements drained when he cashed out on their retirements. Trust me a Point discount is nothing vs. the hundred of millions that were cashed in and current higher upper's are retiring while we are making for Literaly Minimul wage.

2008 Jun 14 12:45 AM

[Cella:]

Angelo Mozilo would obviously recommend friends and relatives to the company for loans. As such they would be handled by the VIP unit. No different than if Henry Ford sent his daughter to purchase a new car. Bet she would get VIP treatment and special pricing.

I am sure that when the loan application was taken, the manager of the VIP processing unit designated the loan as an FOA to make sure that a US Senator received VIP treatment. These files are flagged to make sure that the borrower's receive the utmost in knowledge and superior service.

2008 Jun 14 07:36 PM

[Otto:]

@azem

If it is no big deal, where do I go to get my $2700? Thought so.

I guess you have been too busy lending money out to people who can't pay it back. You didn't notice there are rules against lawmakers accepting gifts. I wonder why Dodd was designated as a "VIP". I am sure it had nothing to do with him being a US Sentator!

2008 Jun 14 07:54 PM

[What goes a...:]

I originated over a billion and made over a million from '96 to '06 as an account executive. As god is my witness, and from day one, there was a "disposition" button to designate the marketing "source" for a customer (ex: radio, advertising, print,etc). The 2 choices that cracked us up the most was (1) FOA: friend of Angelo and (2) FOD: fried of Dave (Dave Loeb-Angelo's partner/co-founder). He (Angelo) should be stripped, oiled-down, and assigned his "prison" pimp.

2008 Jun 15 01:32 PM

[Richard Weed:]

The funny thing is this coming as a shock to anyone. Politicians have been getting greased by big business since this country was founded. That's capitalism at its finest...

2008 Jun 17 03:39 PM