The VIP Treatment: Countrywide CEO Offers Better Rates for Prominent Few

The brewing scandal surrounding VIP treatment hit the presidential campaign last week when James Johnson resigned from Senator Barack Obama's vice presidential search committee after reports that he received favorable mortgage terms from Countrywide Financial.

Johnson, the former head of Fannie Mae, the organization that guarantees mortgages for millions of American homeowners, received loans worth more than $5 million from Countrywide at below-market rates, according to the Wall Street Journal. Among the loans were a $5 million home equity line of credit against a house in Ketchum, Idaho, a 3.875% loan of $971,650 for a home in Washington, D.C., and a 5.25% loan of $1.3 million for a home in Palm Desert, Calif.

The loan figures were confirmed for by Johnson's lawyer, Brian Brooks, who emphasized that Johnson "never asked for a special deal. There was no conversation between Jim and Angelo Mozilo and we have no knowledge that he [Angelo] did step in."

In his resignation, Johnson added that recent news reports contained "blatantly false statement and misrepresentations" about him.

Brooks disputed the contention that the loans were below market, explaining that "these interest rates aren't that different from what you'd expect for a high-net-worth individual whose is borrowing less relative to the value of the house."

The revelation became a hot-button issue in the campaign, since Obama has frequently criticized subprime lenders, including Countrywide Financial CEO Angelo Mozilo as one of the executives of top mortgage lenders who Obama says "tricked" homeowners into loans they couldn't afford.

Jackson, the former secretary of Housing and Urban Development, a federal agency which worked closely with Countrywide through its regulation of real estate settlements and closing costs and by guaranteeing mortgages, insisted to Portfolio that he never received any discounts on his loans from Countrywide.

Shalala could not be reached for comment and Holbrooke did not return calls for comment.

The current head of Fannie Mae, Daniel H. Mudd, the son of veteran CBS newscaster Roger Mudd, also received two mortgage loans from Countrywide on his home in Washington, D.C. but did not receive favorable treatment, according to the former Countrywide executive and a spokesman for Fannie Mae.

"He never had any conversations with any executives at Countrywide about the loan and the terms and rates were in line with market range at the time," said the spokesman.

Mozilo's generosity to high-profile borrowers extended to their children, according to one former executive. "If someone's kid was going to get a loan and that person was someone well-established, Angelo would say, 'Don't worry, we'll get it done.' Sometimes the loan would come back and have a problem."

The informal process outraged some loan officers at the company, according to one former executive.

"He would make a credit decision without having an underwriter look at the mortgage. We were trying to create an environment where people abide by a set of rules and the head of the credit division doesn't go through the process?"

A spokesperson for Countrywide declined comment and declined to make Mozilo available to respond to the claims.

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