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The Countrywide Bailout Explained

Posted By Conn Carroll On June 13, 2008 @ 11:07 am In Economics | Comments Disabled

We have been calling Sen. Chris Dodd’s (D-CT) housing bailout bill “The Wall Street Bailout Enhancement Act [1]” for over a month now. In particular, we have singled out Countrywide Financial [2] as the bank with most to gain from the federal government’s generosity. Countrywide is the largest loan servicer in the nation [3]. 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 [4]. In the last three quarters, Countrywide has lost $2.5 billion [5], and has $6 billion in nonperforming assets.

Now Portfolio.com [6] 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.

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URL to article: http://blog.heritage.org/2008/06/13/the-countrywide-bailout-explained/

URLs in this post:

[1] The Wall Street Bailout Enhancement Act: http://www.foundry.org/2008/05/12/morning-bell-the-wall-street-bailout-enhancement-act/

[2] singled out Countrywide Financial: http://www.foundry.org/2008/05/19/more-than-roof-missing-from-house-housing-plan/

[3] largest loan servicer in the nation: http://www.nytimes.com/2008/06/08/business/08country.html?pagewanted=2&ei=5087&em&en=22f54c392f906580&ex=1212984000

[4] at the center of the nation’s still-unfolding mortgage crisis: http://www.upi.com/Business_News/2008/06/08/Analysts_worry_about_Countrywide_deal/UPI-29791212946091/

[5] has lost $2.5 billion: http://www.nytimes.com/2008/06/08/business/08country.html?em&ex=1212984000&en=22f54c392f906580&ei=5087%0A

[6] Portfolio.com: http://www.portfolio.com/news-markets/top-5/2008/06/12/Countrywide-Loan-Scandal

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