Buy My Book Here

Fox News Ticker

Please check out my new books, "Bullied to Death: Chris Mackney's Kafkaesque Divorce and Sandra Grazzini-Rucki and the World's Last Custody Trial"

Wednesday, July 2, 2008

Barack Obama's New Housing Problem

This past weekend I commented on a report from the Boston Globe regarding a story from Barack Obama's days as a State Senator. This report revealed that Obama landed several lucrative contracts for real estate developer power players like Tony Rezko to build private low income housing. It turns out that Obama did a horrendous job of "watching the money" and most of these projects are now unlivable.

Now, comes a report that Barack Obama received his own VIP loan from Northern Trust.

Shortly after joining the U.S. Senate and while enjoying a surge in income, Barack Obama bought a $1.65 million restored Georgian mansion in an upscale Chicago neighborhood. To finance the purchase, he secured a $1.32 million loan from Northern Trust in Illinois.


The freshman Democratic senator received a discount. He locked in an interest rate of 5.625 percent on the 30-year fixed-rate mortgage, below the average for such loans at the time in Chicago. The loan was unusually large, known in banker lingo as a "super super jumbo." Obama paid no origination fee or discount points, as some consumers do to reduce their interest rates. Compared with the average terms offered at the time in Chicago, Obama's rate could have saved him more than $300 per month.

Obama spokesman Ben LaBolt said the rate was adjusted to account for a competing offer from another lender and other factors. "The Obamas have since had as much as $3 million invested through Northern Trust," he said in a statement.

I am going to travel fairly far back in interest rate time, however the market for a loan of $1.3 million dollars, thirty years fixed, 80% Loan to Value, owner occupied, full documentation (I am taking the best case scenario here) was nowhere near 5.625%. Obama's claim that another bank offered such a rate and that is why Northern Trust matched it is ridiculous. These rates are determined by a market. The rate for such a loan was significantly higher. The Washington Post estimates that he saved $300 a month. I think this number is way off. On a loan amount of this size, each quarter of a percent in savings is just over $200 per month. This story is then assuming a savings of about .375%. If that is the case, there is no story. .375% in savings could have happened by merely timing it right.

The reality is that the market for a loan, in my estimation, the size of Obama's was nowhere near 5.625%. If memory serves me right, such a loan would have gone for nearly 7%. Obama is right in saying that banks often match rates. He is also right in saying that banks offer discounts to customers that hold multiple accounts with said bank. He is wildly overstating the degree to such a discount for a normal customer. A customer might save up to a quarter of a percent by having multiple accounts with the bank they do their mortgage with. I believe he saved a full percentage point or more.

Here is how the story explains it.

In Obama's case, he received a lower rate than the average offered at the time in Chicago for similarly structured jumbo loans. He secured his final mortgage commitment on June 8, 2005, and during that week, rates on similar loans for which information is available averaged 5.93 percent, according to HSH Associates, which surveys lenders. Another survey firm,, placed the average at 6percent.

However, the story then reveals a huge caveat on the numbers they use.

The Obamas had no prior relationship with Northern Trust when they applied for the loan. They received an oral commitment on Feb. 4, 2005, and locked in the rate of 5.625 percent, the campaign said. On that date, HSH data show, the average rate in Chicago for a 30-year fixed-rate jumbo loan with no points was about 5.94 percent.

Jumbo loans are for amounts up to $650,000, but the Obamas' $1.32 million loan was so large that few comparables are available. Mortgage specialists say that many high-end buyers pay cash.

When the story says that the average rate was 6%, that is on a loan amount of 417k to 650k. Obama's loan amount was 1.32 million dollars. There is a massive price adjustment for such a loan amount. Banks take an enormous risk loaning such a large loan amount to one borrower. 1.32 million dollars is the equivalent of six or seven regular sized loans. If Obama went bad, that would be an enormous hit to the balance sheet of Northern Trust. I suspect that if the normal jumbo loan was going for 6%, this so called super jumbo was 6.5% minimum. As such, if he received a rate of 5.625%, he would have enjoyed an enormous savings.

Barack Obama received the same rate that an individual that was taking a loan amount less than 417k would have received at the time. As such, he received enormous cosideration and not the sort of consideration he would have received merely for doing a lot of banking business with Northern Trust. The sort of discount he received he only got because of his position in the Senate.

For an updated summary of all the corruption and hypocrisy that Barack Obama has committed in real estate and mortgages, please click this link.


Anonymous said...

It is funny how when drug users liars cheats and other unethical men and women take office but are western decent there is no problem. When millions of people have been dying for no reason under the crooked system that is for control and unequality and greed people that speak like the person speaking of the housing problem, they forget that their forefathers are the ones corrupting the world, they have been in power and look what they have messed up, Barack did not oversee the park but the caucasian man being so irresponsible did not oversee the world or this country and look how greed and unGodliness tears up everything. Socialism is decay and plague. Maybe if people would stoptrying to be God and be his obedient open minded children we were created to be, we would not have mass poverty in this country somany murders and crimes. If Barack is a hypocrite God will fix all evil. As for the past where were you and your parents when your politician that you voted for violated their words and sent your job over seas, where were you guys when they passed out brains in heaven, if you have one, stop seeing color and start seeing that your past forefathers of this divided nation clinton bush sr. reagan ............, has done nothing but threw out bones while the food went in their pocket and overseas, now you wake up because they sold you out and all their people, because they are already though with minorities, so now they have to end the people that look like themselves. Now you wake up jobless because of your people congressmen, alderman, mayors, ...... that do nothing for God, these people have betrayed not only you but the nation and now we have racist blogs and people who are mislead believing stupid and follower news reporters that are not as knowledgeable as you lazy brain thinks they are. Read the Bible and seek God, then you will know how to think..

mike volpe said...

It's times like these when that excellent Billy Madison line is appropriate.

"Mr. Madison, what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul."