Housing bailout bears foul aroma

The News Virginian
Published: June 18, 2008

Barack Obama identifies Countrywide Financial as a contagion, which might explain the onset of unsettled stomach in the Illinois senator and economic diagnostician. Countrywide pulses through the Obama campaign’s veins, even after the flushing of a toxin in former aide and Fannie Mae CEO James Johnson. Lingering in the bloodstream is Sen. Christopher Dodd, a Connecticut Democrat and an endorser of Obama’s presidential candidacy.
Dodd is the lead writer of a plan to bail out mortgage lenders, Countrywide being the largest. The bill is troubling on its face. Dodd’s part in it is pungent. He was one of two U.S. senators – Kent Conrad, D-N.D., was the other – who received favorable loan terms from Countrywide, according to Portfolio magazine. The savings for Dodd on two mortgages totaled $75,000.
To this, both senators respond like children scurrying from the kitchen with stains of chocolate on their fingers. How’d that get there? Both Dodd and Conrad insist they knew nothing of preferential treatment. Well, of course not. Dodd paid no closing costs and received fixed mortgage rates of 4.25 percent and 4.5 percent. Bounce those terms off a lending officer, then brace for the inevitable roars of laughter.
Demonstrating that he grasps a piece of Obama mantra, Dodd stretches audacity to the point of violent snap. Dodd’s bailout would strap taxpayers with $300 billion in loan guarantees for Countrywide and others. Backers say the bill’s principal beneficiaries would be homeowners on the brink of default. This requires us to consider as merely ancillary Countrywide escaping the financial fallout from so-called negative-amortization loans, which trigger escalating payments at set intervals that will in turn push scores of borrowers into foreclosure.
The Congressional Budget Office estimates that up to 35 percent of loans refinanced under Dodd’s bill would default, with lenders shielded from the losses and the burden instead shuffled onto taxpayers through the Federal Housing Administration, which, by the way, recently announced $4.6 billion in new losses.
Obama, meanwhile, turns in his sick bed while visited by friends of Angelo Mozilo, the Countrywide CEO who engineered sweetie loans for Dodd, Conrad (another Obama endorser) and Johnson. While on the campaign trail in March, Obama chastised Mozilo for “infecting the economy and helping to create a home foreclosure crisis.” Dodd, Conrad and Johnson soon thereafter felt feverish.
Passing the Dodd bill, for the Senate, should be something like sharing a drinking glass with a measles patient – inadvisable under the circumstances. Democrats have made habit of pillorying greedy lenders who roped unwitting borrowers into bad terms. The criticisms are valid, except for their failing to sufficiently account for borrowers’ fault for their own mess. Rescuing lenders from themselves hardly seems the appropriate response. Dodd’s part adds the taint of corruption to deeply flawed legislation.
Not only should the housing bailout be summarily rejected, the Senate should proceed with perhaps more important business at the moment, investigating the Dodd deals and whether the unwritten terms included legislative favor for an economic contagion. The more we learn about Dodd and Countrywide, the sicker we feel.