What do you do when the guy who is supposed to be vetting your team turns out to have potential problems of his own?
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James Johnson, one of three people tapped by Illinois Sen. Barack Obama to oversee the search for a running mate, was the recipient of at least five real-estate loans totaling $7 million from financially beleaguered Countrywide Financial as a friend of chief executive Angelo R. Mozilo, according to The Wall Street Journal.
At least two of the mortgages were at rates below market averages, though it is difficult to predict a market rate without access to nonpublic information about a borrower’s credit history, according to Journal reporters Glenn R. Simpson and James R. Hagerty. They said the loans were among a series of special loans made to people whom Countrywide officials called “friends of Angelo,” or FoA.
Johnson, who conducted a series of interviews on Capitol Hill today on Obama’s behalf, and who vetted vice-presidential nominees for John Kerry in 2004 and Walter Mondale in 1984, was the chief executive of Fannie Mae from 1991 to 1998. The government-sponsored shareholder-owned company is the biggest buyer of Countrywide’s mortgages.
During his years at Fannie Mae, Johnson reportedly worked closely with Mozilo - naming him chairman of Fannie Mae’s national advisory council in 1996. An American Banker article in 1999 said the two men had a “close friendship.’”
The Journal notes there is nothing illegal about a mortgage firm treating some borrowers better than others.
But if Fannie Mae officials received special treatment, that could cause a political problem for the company - not to mention for Obama who recently denounced the $19 million in bonuses set to be paid to Mozilo after his company reported billions in losses, most of them from so-called subprime loans to unqualified borrowers. Countrywide is in the process of being bought out by Bank of America Corp. for a fraction of its former value.
The Obama campaign had also criticized Hillary Rodham Clinton because her then-chief strategist Mark Penn had lobbying ties to Countrywide.
Property records show the first of Johnson’s loans from Countrywide came towards the end of his Fannie Mae tenure. He borrowed $392,950 on a row house in Washington’s Dupont Circle neighborhood, with the rate set for the first five years at 6.37 percent.
At the time, initial rates for such loans ranged from about 6.2 to 6.5 percent, according to data compiled for The Wall Street Journal by HSH Associates Inc., which surveys lenders. Rates depend partly on how much borrowers pay in points, if any, to lower their interest charge, the Journal said. Records don’t show whether. Johnson paid points or if so how many.
In November 2001, he received a Countrywide loan of $1.3 million for a home in Palm Desert, Calif. The rate was 5.25 percent for five years, then became adjustable. Rates on such loans averaged about 6 to 6.2 percent about that time, HSH said.
In June 2003, Johnson obtained a $971,650 mortgage on a house in upper northwest Washington, D.C., with a rate of 3.87 percent for the first five years. About that time, the market average was about 4.3 to 4.9 percent, according to HSH.
In January 2006, Johnson got a $5 million home-equity line of credit from Countrywide on a residence in Ketchum, Idaho, near the Sun Valley ski resort. And in December 2007 he received a Countrywide home-equity line of credit for $1.01 million and executed a $1 million promissory note in connection with that home, according to the Journal.
Asked about the loans, Johnson’s lawyer Brian Brooks told the Journal that “it appears that the arrangements you cite are well within the band of standard industry practices with regard to price and structure of loans to borrowers of Mr. Johnson’s background.”
Johnson is now vice chairman of Perseus LLC, a merchant bank with offices in Washington and New York.
The Obama campaign has yet to comment on the story. But earlier this year, Obama lambasted the $19 million in bonuses set to be paid to Mozilo and the president of Countrywide, David Sambol. “They get a $19 million bonus while people are at risk of losing their home. What’s wrong with this picture?” Obama told the Chicago Tribune.
A spokesman for the Republican National Committee, Danny Diaz, yesterday called the loans to Johnson “highly questionable” and said they conflicted with Obama’s public comments. “Barack Obama needs to immediately address this matter; otherwise, his rhetoric will continue to prove to be nothing more than complete hypocrisy,” he said.
Update:
Doug Holtz-Eakin, domestic policy adviser to McCain, said this in a conference call this afternoon on Obama’s economic remarks in Raleigh, N.C.:
“It was remarkable that Sen. Obama could talk about housing, talk about ethics, and fail to mention that he entrusted the single most important decision in his campaign, the choice of the vice-presidential running mate, to a gentleman, Mr. Johnson, who benefited from preferential lending at Countrywide and state financial payouts from that company, and is thoroughly entangled in the sub-prime housing mess.”
And this response from Obama spokesman Bill Burton:
“It’s the height of hypocrisy for the McCain campaign to try and make this an issue when John Green, one of John McCain’s top advisers, lobbied for Ameriquest, which was one of the nation’s largest subprime lenders and a key player in the mortgage crisis. As president, Sen. Obama will crack down on fraudulent lenders and bring real relief to Americans struggling in the grip of the housing crisis - the kind of change that works for the American people.”
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