More Story Than a Loan Merited

By Deborah Howell
Sunday, July 13, 2008

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.

Holden Lewis, a reporter who covers mortgages for, said, "I realize that the story annoyed some people, but this was a case of an enterprising reporter asking a question that had to be asked and who got it answered thoroughly. I wish I had written the story."

Would he have done anything differently with the story? "I would have stressed that the mortgage rate was normal for someone who has $3 million invested with the brokerage lending the money. The money they invested was more than the mortgage, so they are incredibly good credit risks.''

Guy Cecala, owner of Inside Mortgage Finance newsletters in Bethesda, said the rate was not typical for most lenders to offer good customers. "It certainly raises eyebrows and suggests that Obama got the deal because he was a U.S. senator," he said. "I don't think you will find that Northern Trust handed out any other 5.625 percent, 30-year fixed-rate loans that day or week." Cecala said he had negotiated hard with banks himself for several loans and the most he had ever gotten was an eighth of a percentage point discount.

O'Connell said information about the other loans given that week is not easily available. He said Cecala's statement does not reflect an understanding of Northern Trust's business. "Our core business is wealth management, and mortgages are one of many services we provide to our clients," he said.

Jill Hoogendyk, president and owner of HomePoint Mortgage Co. in Phoenix, said, "It's nothing for one borrower to get a quarter percentage point lower than another borrower on any given day. The industry is set up in such a way that owners have that kind of flexibility. If you have a high-net-worth customer, it makes perfect sense to develop a business relationship that would bring in more business to the bank" by giving a break on a rate. "There's nothing unethical or scary or anything else about it. It's good business. If you take away the fact that he's a U.S. senator, no one would have a problem with that."

I asked the advice of my longtime financial adviser and CPA, Stephen B. Smith of Williams-Keepers in Columbia, Mo., only because Smith is about the most Republican Republican I know when it comes to financial matters. And he's no Obama fan. After reading the article, he said: "No story. It's a very normal mortgage gotten by normal people, not even a sweetheart deal. The story quotes average rates. Averages have a range in this context. The rate charged is probably within the range of others in the sample who had no reason to get a favor. That is not a rate to shock the conscience."

Several other readers brought up the "average" rate. Sarah Zielinski of the District wrote: "When banks are making loans, they are giving people with better credit a better rate and those with worse credit a higher rate. Yes, some people are probably getting special consideration and others, definitely, were getting scammed. But with no other evidence than a slightly better rate for the senator -- who I would not be surprised to discover has a good credit rating -- the article's premise seems unfounded and useless."

The Post has teams of reporters on each candidate. Stephens, who came from the investigative unit, has been assigned to report on Obama; another reporter, Kimberley Kindy, is doing the same on McCain. There are some facts that Stephens did not have for the story, such as Obama's credit score; he said he is continuing to report on the issue.

To Stephens, "given the Countrywide controversy and the Senate's prohibition on accepting gifts of any size, it was a no-brainer to ask the presidential candidates whether they had home loans and whether their lenders had given them discounts. In Obama's case, the answers were yes, he had a million-dollar mortgage, and yes, he received a discount. That was worth getting on the public record."

Readers deserve to know everything pertinent The Post can find out about Barack Obama and John McCain's finances. In that context and in the context of the home mortgage crisis, the story had news value. McCain doesn't have any mortgages, due to his wife's wealth; that's not uncommon for rich people, I'm told.

Still, the story had a negative cast to it. It also lacked the important context that other wealthy and savvy borrowers could have done as well under similar circumstances.

A longer version of this column appears on Deborah Howell can be reached at 202-334-7582 or

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