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Monday, August 3, 2009

Dodd,Conrad, and the Friends of Angelo: Burying a Scandal

When I read last week about the hearings regarding Senator Conrad, Senator Dodd, and the friend of Angelo, I immediately recognized a serious scandal. Some of that has to do with my background in mortgages, and some simply has to do with common sense.

Last fall, it was first reported that Senator Dodd and Senator Conrad were among dozens of powerful people, including the former HUD Secretary Alphonso Jackson, who received sweetheart deals from Countrywide by using their relationship with their the CEO, Angelo Mozillo. When this story first came out, both Dodd and Conrad denied knowing they were receiving any special treatment. This was a bit of a stretch. The two were receiving favorable treatment. They were also both powerful people and in a position to help Countrywide. It's very unlikely that Countrywide would do all this without informing them because Countrywide would likely want something in return. It was made all the more unbelievable because Countrywide, and Mozillo personally, have been implicated in corruption that had reverberations throughout the financial crisis.

Then, last week a loan officer with Countrywide, Robert Feinberg, testified that he personally informed both Conrad and Dodd that they were receiving special treatment. This is of vital importance. Both Dodd and Conrad are major players on several committees that affect Countrywide and banking in general. Both are major players in health care reform. If they are in fact using their positions, which this story clearly shows they are, to fatten their own pockets, they are totally compromised. How can we move forward with health care reform when we know that two major players are totally compromised?

We learned even more as a result of the hearings. We learned that the deal that Senator Conrad received was not merely a small favor but a total dismissal of all basic mortgage rules. Senator Conrad was able to refinance an 8 unit building as a residential property even though residential properties are four units and less. An eight unit building is a commercial building. It requires a totally different loan, with totally different underwriting guidelines, and a totally different appraisal. It's more difficult, takes much more time, and has a much worse rate and mortgage terms. To put this in perspective, this is sort of like a health insurance company giving a Senator that's been a lifetime smoker the rates a non smoker would get. Only in this case, it's much worse. Yet, not only did Senator Conrad receive this deal, but here's how he explained it.

Conrad's spokesman, Chris Gaddie, said Monday that the senator "never asked for, expected or was aware of loans on any preferential terms" and has "worked overtime to set the record straight."

"He went with Countrywide simply because they already had his financial information," Gaddie said. He added that a Countrywide official had told Conrad that "it is not unusual for them to make exceptions for good customers if they could sell the loan in the secondary market. We now know that they did sell the apartment building loan in the secondary market."

How would Conrad even know about the "secondary market"? Even better, how would he know his loan was sold in the secondary market? The borrower is not informed of such backroom information. Those loans are part of a sophisticated investment product that is done behind the scenes. Borrowers aren't informed that their loan was sold in the secondary market. That's not how things work. More than that, much more, if a commercial property was sold as a residential loan that's FRAUD. In fact, it's an obscene form of fraud that was likely very prevalent and lead to in part at least to the crisis we are in now.

Since all of this is public information, why isn't the media all over this story? In fact, outside of the Associated Press, you are going to find scant little coverage of this story. You'll find nothing on the networks, nothing on the New York Times, nothing on the Washington Post, nothing in the Boston Globe, and only minor coverage in the Chicago Tribune.

This is a story that requires enough detail so that the reader understands just how obscene the corruption was and so, in effect, how important it is that Feinberg says that they knew this happened. These Senators have a lot to answer for but they won't have to face any tough questions if the media ignores the story and does scant reporting on it. A Republican Senate aide told me that their Senator knows the seriousness of the charges but that without media scrutiny this will lead nowhere.

With Democrats in charge, they are not likely to investigate one of their own without serious media scrutiny. In fact, they're now blocking subpoena efforts of the Republicans. That's not what's happening here. Instead, this story is receiving back page coverage. It's being lost in the shuffle. That's exactly how people get away with corruption. No one notices because there isn't enough media scrutiny. Here we have a Senator receiving a residential loan on a commerical property and justifying it with an absurd explanation that, if true, only means that more fraud was committed.

This story requires much more investigation, and yet, all that's happened is nothing short of a media blackout. As a result, Senator Conrad will not only get away with receiving a mortgage deal no one in his position should ever receive, but then coming up with a story that is not only absurd but would indicate even more corruption if true. If in fact this loan was sold in the secondary market, that would mean it was done fraudulently. That's how Conrad characterized the transaction. In effect, he opened the door on more corruption and said nothing else. Given all this, the media has moved on. There is nothing to see here anymore. A Senator received a sweetheart deal that means he can no longer be trusted to act on behalf of his constituents, he justified it with a story that simply doesn't pass the sniff test, and the media swallowed this whole and simply moved on.

The reason that corruption goes on is because not enough sunlight is shined on it as it happens, and here is just one example of that lack of sunlight.


Anonymous said...

Of course the media isn't going to hit Conrad with negative publicity, at least not until they're done using him to kill health care reform, anyway.

Anonymous said...

Conrad and Dodd are democrats, and with them in the majority, who is going to take them on? Why is it that government officals get away with what the common person is held accountable? I thought ALL the laws were made for All the people, even the privileged!! Don't they put their pants on just like everybody else??? Our government is going to hell in a handbag and taking us with it. God will only overlook so much and then.....