Mayor Marion Barry admitted yesterday that he and his wife accepted a discount of 3.25 percent on a mortgage rate for their new home from a District bank, saving them $242 a month in loan payments.
In the face of what he termed "intense press speculation and false innuendoes," Barry said he would relinquish the discount in order to "scrupulously avoid any action that might cast the slightest doubt on the integrity of myself or my wife or the bank," the Independence Federal Savings and Loan Association.
The Barrys received the discount on their $100,000 loan, the mayor said, because Effi Barry has been a member of the board of the savings and loan association since shortly after her husband took office. A spokeswoman for Independence said discounts are given to all employes at the institution -- "including the janitor" -- and that other lenders have similar policies.
Most area banks give employes discounts on prevailing mortgage rates, but as a rule the discounts are less than 1 percent.
At the time the Barrys got the loan, Oct. 15, the going rate for such home mortgages was 12 percent. Barry said yesterday that he would pay at that rate. As a result, his monthly payments to Independence for principal and interest on the loan would be $1.028.62 instead of $786.71.
Barry made the announcement yesterday at a brief press conference in his office, hastily called in the wake of what evolved as the first public question of Barry using his office for personal benefit since becoming mayor nearly a year ago.
"We have decided that the monetary value to us of the interest discount is certianly not worth the intense press speculation and false innuendos that have been put forth in several news stories," Barry said.
"We also do not wish to create unwarranted difficulties for Independence . . . an institution which is well known for its community oriented goals, such as providing housing loan money to inner-city residents."
The Barrys' purchase of a $125,000 house at 3607 Suitland Rd. SE has been a sensitive and well guarded subject to the mayor. He said yesterday he had tried to "keep the purchase of my home . . . out of the public view" because he considered it a personal matter.
Last week, when reporters began asking questions about financial arrangements for the purchase, Barry summoned a reporter from The Washington Star to his office and disclosed most of the details. But he did not reveal that he had received a discount on the mortgage rate.
William B. Fitzgerald, president of Independence Federal, told The Washington Post that the Barrys had received no preferential treatment. He said that the loan had been made at 12 percent, the going rate at the time.
On Friday, however, The Star quoted unnamed sources and reported that the Barrys had received a discount of 1/2 percent. Neither the mayor, nor Effi Barry, nor Fitzgerald would confirm the report.
Fitzgerald told The Post it would be unethical for him to disclose any discount rate or even outline the association's policy. All such discounted loans have to be approved by the board. However, board Chairman Rudolph Arkin said he could not remember what discount had been given to Mrs. Barry.
The Barrys received the unusually low interest rate because of the "cost" formula used by Independence. That formula allows loans to be made to preferential customers at a rate that is only 1 or 2 percent above the interest rates it offers to depositors and certificate purchasers whose money provides the funds for the mortgage.
The 1 or 2 point difference is to cover the costs of handling the loan and to ensure that minimum profits are made from the deal.
Board member Effi Barry acknowledged in an interview last Friday that she and her husband received a discount, but she said she could not recall the rate of their mortgage. Several days afterward, she said she would no longer discuss the loan because it was "a private matter."
She said she did not know she would receive an employe discount until the house purchase went to settlement. And she said she was upset about all the attention the purchase was receiving in the news media.
"We have purchased the house as private citizens," Mrs. Barry said. "If there is so much interest in how much we paid, the city should provide a residence (for the mayor) and there would be justification for all this publicity."
Yesterday's press conference came one day after Richard Cohen, a columnist for The Washington Post whose writing has immensely irritated Barry, suggested that Mrs. Barry had gone on the board primarily because her husband was mayor. Cohen also suggested that it was a conflict of interest for Mrs. Barry to serve on the board because all of the other directors of the bank were partners in a $143 million hotel, office and commercial project to be developed on city-owned land downtown.
The mayor said nothing yesterday to indicate that Mrs. Barry would leave the savings and loan board. According to several sources, however, her resignation had been discussed earlier. But some persons close to the mayor were concerned that her departure from the board would be viewed as giving in to pressure from the press.
As one of the eight members of the Independence board, Mrs. Barry, who is director of conference management for Pacific Consultants and, according to her husband, earns $60,000 a year, votes on all board business except that directly affecting her. Fitzgerald said she receives a monthly fee of $250, standard for board directors.
Her joining the board in May was viewed by some political observers in the city as the culmination of a well planned effort by Fitzgerald to curry favor with the Barry administration. In last year's crucial Democratic primary for mayor, Fitzgerald was an ardent supporter of and fund-raiser for one of Barry's opponents, former City Council chairman Sterling Tucker.
One person familiar with development practices in the city, who asked not to be named, said yesterday that Mrs. Barry's presence on the board would be of invaluable help in Fitzgerald's effort to expand his development activities.
"It's a good contact at city hall; you have a way to carry messages to the mayor and to go to (potential development financiers) and say, 'Hey, I've got the inside track at city hall.' You can say, 'You don't have to worry. We have the mayor's wife on the board.' That's the kind of thing that is said in board rooms around here. It's just never reported."
Capital Landmark Associates, in which Fitzgerald is a principle partner and holds 8.5 percent interest, was chosen last month by the Redevelopment Land Agency to build a $143 million downtown project near the Gallery Place Metro stop at 7th and G streets NW.
The designation was only preliminary, however, and neither one of Barry's two appointees to the RLA board -- lawyer Nira H. Long and city housing director Robert L. Moore -- voted for it.
By the time Fitzgerald's group gets into the real nuts and bolts negotiations of developing the site, Barry will have had a chance to appoint a third person to the five-member RLA board -- making his appointees the board majority.
"Anybody who wants to nitpick you in a project like that can just put you to death," the development source said. "I've seen many a developer throw up his hands and walk away and say you can have this project."
Barry declared yesterday that discounts similar to those given to him and his wife are common in the Washington area. Interviews with several savings and loan association presidents in Washington indicated that while the practice is common, it is not universal, and discounts given to bank employes are normally small compared to the one the Barrys received.
Thomas J. Owen of Perpetual Savings and Loan Association said all of his employes receive discounts of one-half percent. Three of his nine directors have received discounts, Owen said.
William F. Sinclair, president of American Federal Savings and Loan, said his association has no standard policy and has not given a loan to a director in two years.
Robert A. Barton of Interstate Federal said most employes get discounts of no more than one-quarter percent.