The Countrywide Bailout Explained

Conn Carroll /

We have been calling Sen. Chris Dodd’s (D-CT) housing bailout bill “The Wall Street Bailout Enhancement Act” for over a month now. In particular, we have singled out Countrywide Financial as the bank with most to gain from the federal government’s generosity. Countrywide is the largest loan servicer in the nation. It has been accused by bankruptcy judges of using dubious tactics to issue mortgages to unqualified borrowers, and has been at the center of the nation’s still-unfolding mortgage crisis. In the last three quarters, Countrywide has lost $2.5 billion, and has $6 billion in nonperforming assets.

Now reports:

Senator[] Christopher Dodd, Democrat from Connecticut and chairman of the Banking 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.

According to company documents and emails, the V.I.P.’s received better deals than those available to ordinary borrowers. … 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.