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.