By Boston Globe - July 2, 2008
WASHINGTON - Shortly after joining the US Senate and while enjoying a surge in income, Barack Obama bought a $1.65 million restored Georgian mansion in an upscale Chicago neighborhood. To finance the purchase, he secured a $1.32 million loan from Northern Trust in Illinois.
The freshman Democratic senator received a discount. He locked in an interest rate of 5.625 percent on the 30-year fixed-rate mortgage, below the average for such loans at the time in Chicago. The loan was unusually large, known in banker lingo as a "super super jumbo." Obama paid no origination fee or discount points, as some consumers do to reduce their interest rates.
Compared with the average terms offered at the time in Chicago, Obama's rate could have saved him more than $300 per month.
Obama spokesman Ben LaBolt said the rate was adjusted to account for a competing offer from another lender and other factors. "The Obamas have since had as much as $3 million invested through Northern Trust," he said in a statement.
Modest adjustments in mortgage rates are common among financial institutions as they compete for business or develop relationships with wealthy families. But amid a national housing crisis, news of discounts offered to Senators Christopher Dodd, a Democrat from Connecticut and chairman of the banking committee, and Kent Conrad, a North Dakota Democrat, by another lender, Countrywide Financial, has increased scrutiny to the practice and has resulted in a preliminary Senate ethics committee inquiry into the Dodd and Conrad loans.
Within Obama's presidential campaign organization, former Fannie Mae chief executive James Johnson resigned abruptly as head of the vice presidential search committee after his favorable Countrywide loan became public.
Driving the recent debate is concern that public officials, knowingly or unknowingly, may receive special treatment from lenders and that the discounts could constitute gifts prohibited by law.
"The real question is: Were congressmen getting unique treatment that others weren't getting?" associate law professor Adam Levitin, a credit specialist at Georgetown University Law Center, said about the Countrywide loans. "Do they do business like that for people who are not congressmen? If they don't, that's a problem."
Under financial disclosure rules, members of Congress are not obliged to disclose debts owed to financial institutions for personal residences.
Last week, during debate on a bill to help homeowners caught in the foreclosure crisis, members of the Senate ethics committee proposed an amendment to require that lawmakers disclose their mortgage lenders and terms in financial forms starting next year.
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