Thursday, October 30, 2008

Feds probe Countrywide's 'V.I.P.' program

By Lisa Myers & Amna Nawaz, NBC News
The wide-ranging criminal investigation into wrongdoing at Countrywide - once the nation's largest mortgage originator - now includes serious scrutiny of a loan program that provided special mortgage deals to the well-connected and powerful, including two U.S. senators.
NBC News has learned that Robert Feinberg - a former Countrywide loan officer who handled what were known as the "V.I.P." mortgages - spent six hours last Thursday with a six-person team from the Justice Department. The team included prosecutors from the Public Integrity section, which handles investigations of possible public corruption.

"The Justice Department is making very serious inquiry into any possible wrongdoing that may involve (former Countrywide CEO) Angelo Mozilo, other Countrywide employees, Sen. Chris Dodd, Sen. Kent Conrad, (former Fannie Mae CEO) Franklin Raines or other public officials," said Feinberg's lawyer, Anthony Salvano. "Robert has always cooperated thoroughly with authorities and is strictly a witness in their investigation."

'Friends of Angelo's'Salvano said the prosecutors and FBI agents seemed focused on whether the preferential treatment given to V.I.P. customers was part of an effort by Countrywide to buy influence - as well as on the conduct of each public official who received a mortgage from Countrywide.

Feinberg says that Countrywide's clients in this program were known by a nickname.
"We called them F.O.A.'s," Feinberg told NBC News, "which were Friends of Angelo's."
"Angelo" is Countrywide's then-CEO, Angelo Mozilo, who once called an ordinary borrower's plea for help on his mortgage payments, "disgusting."

But Mozilo seemed to have a different attitude toward people of influence. In fact, Feinberg says part of his job was to hammer home to the V.I.P. clients that they were getting special deals.
"You spoke in a manner that was different than you spoke with a regular customer," said Feinberg. "'Your loan has been specially priced by Angelo.' 'You're getting special discounts because you're in the V.I.P. loan department."

So what would a "Friend of Angelo" get that an average customer would not? According to Feinberg, the possible benefits ran the gamut.
"They got a discount on the interest rate," said Feinberg. "They got discounts on their fees. They got a free floatdown option before closing."
In one instance of a "Friends of Angelo" deal, Mozilo sent an e-mail to Feinberg ordering him to "Take off one point" on a loan to Sen. Conrad. That one point equaled a savings of $10,700 in fees.

Feinberg's client list also runs the gamut. Among those benefitting from the VIP program were four former Cabinet members spanning Democratic and Republican administrations: Henry Cisneros, Richard Holbrooke, Alphonso Jackson, and Donna Shalala. Two former CEO's of Fannie Mae, James Johnson and Franklin Raines, heads of the government-sponsored entity which bought Countrywide's mortgages - also received VIP mortgages from Countrywide.
All have denied impropriety and declined to elaborate to NBC News. Some say they had no idea they were getting favorable rates or any sort of discount. But Feinberg insists part of his job was to make clear to VIP's they were receiving special treatment. "There were many, many taglines we used to let them know their level of importance to make sure that they understand where they're located," said Feinberg. "And nine times out of ten, once you mention 'V.I.P' the person's gonna ask you 'what am i getting for being in this V.I.P department?' Or 'what am I getting because I know Angelo?' Or 'I talked to Angelo and he said I'm getting this.'"

Senator Conrad says he never asked for, expected, nor was aware of any special treatment from Countrywide, and only found out about the discount after it had been reported in the press. He released and posted to his website all his mortgage documents, and donated all the money he saved to Habitat for Humanity.

Senator Dodd says he thought the VIP program just meant better customer service, and that he received market terms that he could have received from other lenders. The senator said in a press conference on the matter that if anyone had suggested at the time that he was receiving some kind of financial benefit on the loans because of his position, he would have terminated the relationship immediately.

Both Conrad and Dodd say they never sought any favors, and are cooperating with the Senate Ethics Committee investigation. Feinberg says he's not aware of any discounts linked to favors, but he did see e-mails noting the potential value of the relationships to Countrywide's political and business interests. The e-mails noted one particular client was "of importance to Countrywide." Another encouraged a discount, noting "they are incredibly important to us." Yet another asked that the loan officer, "make an exception" in Countrywide's lending rules, "due to the fact that the borrower is a Senator."

Daniel Golden investigated the program for Condé Nast's Portfolio magazine.
"There was a great variety of people who got special deals," said Golden. "Many of them were figures in Congress or government or business partners of Countrywide - all of whom were in a position to help Countrywide in one way or another." To Golden, the company's intention was clear.

"The purpose for Countrywide was to ingratiate itself with the people in Washington who might be able to help the company down the road," said Golden.
But was any of it illegal? Legal experts say prosecutors will be looking into whether Countrywide was trying to buy influence, and into whether public officials were taking improper gifts, or gifts they should have disclosed.

Tuesday, October 21, 2008

Round 4

I used this title because while I have been a supporter of the aggressive Fed action over the past several weeks, I believe we are early in this lengthy three sided fight with capital restrictions, the economy as a whole and inflation. This is a light week for economic news. I'll keep this report light as my follow up report is already looking lengthy.

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. Oct. 20, 10:00 a.m. ET
Sept. Leading Indicators
-0.3% vs. last -0.3%
This second tier economic report will likely draw little investor attention and should not be a factor in terms of the trend trajectory of mortgage interest rates.

Mon. Oct. 20, 10:00 a.m. ET
Fed Chairman Bernanke testifies before the House Budget Committee
This will be the “wild card” event of the week. Mr. Bernanke will provide prepared text testimony on the economic outlook and financial markets. It is highly unlikely this proceeding will include anything mortgage market moving – but you never know until you know. Heads up.

Tue, Oct. 21
Nothing posting today

Wed. Oct. 22
Thurs. Oct. 23, 8:30 a.m. ET
Initial jobless claims for the week ended 10/18
Up 9,000
The expected weakness in this data set takes on added importance because it coincides with the survey period for the more important October nonfarm payroll number. If the consensus estimate proves accurate, rising jobless claims will almost certainly be viewed by investors as supportive of steady to fractionally lower mortgage interest rates.

Fri. Oct. 24, 10:00 a.m. ET
Sept. Existing Home Sales
Up 0.2%
Investors have already priced in expectations that existing home sales will be puny in September. In the unlikely event the pace of existing home sales posted a gain of 1.1% or more last month – look for mortgage interest rates to edge higher. On the other hand, a September sales pace of 1.0% or lower will tend to be supportive of steady to fractionally lower mortgage interest rates.

Mon. Oct. 27
Sept. New Home Sales
Down 2.1%
No one doubts new home sales remain in a slump – the only question involves the depth of the slump. Mortgage investors will probably give news that new home sales fell by 2.0% or more in September little more than a passing glance. A sales gain of 0.5% or more will likely put some upward pressure on mortgage interest rates. For what it is worth, I think there is a better chance that you’ll find a multi-million dollar winning lottery ticket stuck under you windshield wiper this morning than there is that new home sales posted a huge gain in September.

Thursday, October 2, 2008


September 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.