As reported by The Hill, an ethics complaint has been filed with the Senate Ethics Committee and the FEC regarding Barack Obama’s home mortgage.
Judicial Watch, a conservative legal watchdog group, filed the report after The Washington Post reported that Obama received a discount on a mortgage for a Chicago home valued at $1.65 million. The complaints said the Illinois senator received a loan at the interest rate of 5.625 percent, which Judicial Watch says is lower than the standard rate of between 5.93 and 6 percent indicated by surveys.
The complaint asks the Senate Ethics Committee to investigate whether the favorable rates constitute a prohibited “gift” under Senate rules.
Let’s take a look at the Senate Ethics rules regarding gifts.
1. (a)(1) No Member, officer, or employee of the Senate shall knowingly accept a gift except as provided in this rule.
(b)(1) For the purpose of this rule, the term “gift” means any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value. The term includes gifts of services, training, transportation, lodging, and meals, whether provided in kind, by purchase of a ticket, payment in advance, or reimbursement after the expense has been incurred.
Well, the definition clearly includes the words “discount” and “loan” so perhaps there is something here. What we are to make of loans is a bit of a mystery as the word never appears again in the rules and guidelines applying to gifts. Discounts, however, are examined in detail, though they primarily apply to tickets for entertainment events, hotels and airline flights. The key there comes in references to “face value” of the article and the actual price paid.
Mortgages, as anyone who has been through the process knows, don’t have a face value. There are numerous considerations which determine what sort of rate you will get, depending on factors such as competitors’ rates, how much of a down payment you make, your credit history, income, and a variety of factors which the bank will factor into the “risk” associated with granting you the loan. And, yes, there is a marketing factor involved. Financial institutions will go the extra mile to get desirable accounts. Since Barack Obama had recently ascended to the U.S. Senate and his family had just realized a serious increase in their income, they were clearly a desirable account to land. (It’s always good to land such a customer, as wealthy people will often bring other business with them and require other financial instruments which will benefit the bank.)
The conservative blog Redstate quickly moved to draw a comparison between Obama’s mortgage and the situation between Senator Chris Dodd and Countrywide Finance. The Dodd situation, however, has a bit of a different look to it. Dodd was given a special “VIP status” by Countrywide, receiving a 4.5% loan with all points and fees waived. (Now that is a sweetheart of a deal!) And of course it is also worth mentioning that Dodd was the chair of the committee overseeing the banks at the time. For Obama’s bank to shave three tenths of one percent off of the current average for his rate, reportedly in response to an offer from a competing bank, doesn’t seem quite so generous.
Is it fair that banks give special treatment to famous, wealthy and powerful people? Speaking as one who will likely never get such an offer, I’d love to shout out, “No!” But then again, I long ago gave up on the idea that the world was fair. Since the charge has been made, it should be promptly looked into, but it seems like a tricky case to pursue at best. I’ll leave it up to the reader, at least for now, to decide if there is some sort of ethics breach here.
UPDATE: From the comments section, a link to FiveThirtyEight.com providing an earlier analysis of the story. An interesting addition, but it really provides nothing but more detailed speculation on what may have been contributing factors which I mentioned in general already. One of the more useful bits was this:
According to current rate quotes from myFICO.com, a borrower with very good credit can expect a mortgage rate about 30 basis points better than someone with pretty good credit, and a borrower with excellent credit can expect about a 50 basis point discount.
Obviously one of the factors the bank considers is the credit rating of the applicant, and it would come as no surprise at all to find out that the Obamas have a very good to excellent credit rating. This would go along with the factors I cited above in explaining why a 30 basis point “discount” might be offered to them, along with their general desirability as a customer. But unless someone would care to produce a copy of Obama’s credit report, it’s still speculation. The bottom line, yet again, is that the case for there being an ethics violation here is “sketchy at best” and the rate they received on their mortgage really doesn’t look all that surprising as compared to the Chris Dodd case. It’s a nice deal, to be sure, but nothing that any high profile customer with significant assetts and a great credit rating couldn’t land.
BONUS ROUND: Ed Morrissey thinks the deal smells bad, based mostly on the political contributions made to the Obama campaign from persons associated with Northern Trust, but doesn’t anticipate the case going anywhere.