More Story Than a Loan Merited
Returning from vacation, I found many complaints from readers -- more than 1,700 comments online -- who saw unfairness and negativity in a July 2 story on Page A3 by national reporter Joe Stephens on a discounted mortgage rate for Sen. Barack Obama's home.
C.C. Benedict of the District said it was an "incredibly irresponsible story from any reasonable perspective. The fact is the rate was completely in line."
Stephens reported from documents off Obama's Web site that Obama and his wife, Michelle, locked in an interest rate of 5.625 percent on a $1.32 million, 30-year fixed-rate mortgage from Northern Trust of Chicago when they bought their $1.65 million Chicago home. He paid no discount points or origination fee. The deal offered the Obamas saved them about $300 a month on their mortgage payment. The average interest rate in Chicago on smaller mortgages in June 2005 was between 5.93 and 6 percent, the story said, and it noted that modest adjustments in mortgage rates are common when financial institutions compete for a borrower's business.
Readers also objected to the story's prominent mention of controversial mortgage loans given two other senators and a prominent Obama supporter by the troubled Countrywide Financial Corp. James Duemer of Potsdam, N.Y., said that "the inclusion of information in the story about Countrywide is irrelevant: the Obamas got their loan from Northern Trust. The rhetorical purpose of the details about Countrywide is to create an appearance that the Obamas got a special deal because Mr. Obama is a senator."
Of the seven financial and mortgage experts I talked to, three were former reporters. The reporters thought the rate was low enough to merit a story. Financial experts who weren't journalists thought the rate was normal and something that any other wealthy, smart borrower might have gotten.
Keith Gumbinger, vice president of HSH Associates, was quoted in Stephens's story as saying that Obama "did better than average. It's a good deal." Gumbinger also told me that the rate "was not out of the boundaries" of what other borrowers were offered. "Frankly, any reasonably savvy borrower should have been able to do better than average. That context was missing" from the story, he said.
The story quoted an Obama spokesman as saying that the rate was lower because of a competing offer. It is common for borrowers to shop for the best rate. The story noted that the Obamas had enjoyed a surge in income. This came through higher-paying jobs for both and a $2.27 million book deal for him.
Northern Trust Vice President John O'Connell said in an interview, "This was not a unique situation -- it is common and consistent business policy which shows no favoritism toward politicians, celebrities or any public figures. His rate was based on the fact this is a client who could potentially bring us more personal business." The Obamas since have invested about $3 million with Northern Trust, the Obama spokesman said.
O'Connell said that Northern Trust's rate on this type of mortgage at the time was 5.81 percent and that a discount of 0.125 percent was available to clients or prospective clients based on the potential for more personal business; 0.060 percent was subtracted from the rate because it was a competitive bid.
Bob Bauer, the Obama campaign's general counsel, is familiar with the mortgage and reviewed the loan with bank officials. He said that the story "tilted over, to any reader, into a story of preferential treatment, not justified by the facts. The fact that Obama is a U.S. senator is immaterial." After reviewing the loan file from an ethics point of view, he said, "it was a walkaway, a piece of cake." To Bauer, the rate Obama got wasn't as relevant as whether another borrower in the same circumstances would have received the same treatment and gotten a loan at the same rate.
Then why hadn't the Obama campaign complained about the story? Bauer, an expert on ethics and campaign finance, said a Columbia Journalism Review critique of the story was so good that "we didn't have a whole lot to add." CJR's Campaign Desk blog said that there "there doesn't seem to be much of a story here" and that the story raised more questions than it answered.
Christopher Cruise of Silver Spring, a national trainer of mortgage brokers and loan officers, thought the story was "fair, broad and deep." A former reporter, Cruise suggested that Obama should not have bargained for a lower rate if for no other reason than to avoid the appearance of preferential treatment.