Preliminary notes on the Obama mortgage; Obama’s “sweetheart deal” (Updated 6x)

This will be RW’s 29th post about Obama’s “Rezko” house. Two recent events have brought the mortgage of Sen. Barack Obama (D-Ill.) and his wife, Michelle Obama, who took theirs out with Northern Trust on their Hyde Park townhouse, back into the news. First, Countrywide mortgage lenders is being sued in Illinois by Attorney General Lisa Madigan. Second, The Politico asked all 100 Senators “about their home mortgages in the wake of the revelations that Senators Chris Dodd (D-Conn) and Kent Conrad (D-ND) received special treatment from their lenders. In Obama’s case, he stated that he did not receive any such favors.”

Finally, a retired Illinois state employee, writing under the pseudonym “Richard Henry Lee”, in a July 1, 2008, article at American Thinker, shed some light on the Obama’s mortgage itself:

According to the mortgage documents which his campaign released, the Obamas obtained a $1.32 million mortgage from Northern Trust. … The Obamas’ loan documents (warning: large file) show that they received a 30 year fixed rate loan at an interest rate of 5.625% with no points. This interest rate is seems to be in line with the going rates for a Jumbo mortgage which are typically about 0.25 to 0.5% higher than a smaller, conventional mortgage. Freddie Mac lists an average rate of 5.58% for June 2005 and 0.6 points. Obama paid no points and given the jumbo differential, his rate is better than the average. The first payment is given as $7,598.67 presumably due August 1, 2005 which is consistent with the loan terms.

The second mortgage, dated November 25, 2005, is also a loan from Northern Trust, for an amount not to exceed $250,000. This appears to be a credit line for whatever purpose. It could have been used to purchase a 10 foot portion of the adjoining lot from Rita Rezko for $104,500 on January 11, 2006. There is no interest rate given for this credit line and it may be a variable rate.

Another unanswered question was who paid Obama’s 2005 property taxes. On May 5, 2008, RW wrote:

Cook County Tax Assessors’ Office shows that Sen. Obama’s 2005 assessed taxes were, as we already know, $21,729.03, and for the “current year”, 2006, $22,162.47, which had been paid in March and December 2007. The taxes for both years had been paid; there were no open years, back taxes due, or any additional taxes or special assessments noted.

Additionally, William Miceli is clearly identified on this tax document as the assessee for Sen. Obama’s entire real estate holding. In the upper righthand corner of the page is the handwritten notation “Assessee is with Miner, Barnhill & Galland PC @ 14 W Erie”, which is the law firm’s address.

We now learn from Lee that the mortgage documents show that William Miceli “signed the real estate documents on behalf of the trust,” making him the trustee, which explains why the property tax documents were to be sent to him and not Northern Trust.

The Obama’s declared mortgage interest deductions on their tax returns of $32,418 for 2005, $60,449 for 2006, and $57,838 for 2007. But their Northern Trust loan at the terms stated would have generated interest payments of about $30,871 for 2005, $73,395 for 2006 and $72,368 for 2007. For 2005, there would have been additional interest payments for their Hyde Park Condo which they sold on April 29, 2005 so even the 2005 deducted amount is low.

Using the mortgage interest deducted for 2006 and 2007, one can estimate an effective interest rate of about 4.6 to 4.65%, far below the stated interest rate in their loan documents of 5.625%, assuming no prepayment of the loan. After the Obamas got their loan, interest rates were increasing. See http://www.freddiemac.com/pmms/pmms30.htm and click on the link in the article for 30 year fixed rate mortgages. So there were no declining rates to take advantage of.

The Obama’s might have refinanced with an Adjustable Rate Mortgage whose rates are lower, but the loan documents released by the Obama campaign did not include an ARM mortgage. See http://www.freddiemac.com/pmms/pmms5.htm for a five year adjustable rate. For June 2005, it was 5.06, but would be higher for a jumbo.

It is of course possible that the Obamas were able to pay down their mortgage loan. His books were selling and Michelle had nearly tripled her income from the University of Chicago Hospital when her husband was elected a United States Senator. So the Obamas may have chosen to apply some of the windfall toward paying down the mortgage. It would have required about $240,000 in paydown for the reported mortgage interest to equal 5.625%.on the reduced principle.

But this calculation ignores any possible interest payments on their quarter million dollar line of credit, something they should not have needed if they had spare cash to pay down their mortgage.

It seems inconceivable that the Obamas simply forgot to include all the interest. Another possibility is that they skipped some payments, but that too seems unlikely. Maybe his campaign can explain this discrepancy.

Oh, Mr. “Lee”, have you not yet learned that with the Obamas every question answered just leads to another hall of mirrors?

# #1: Joe Stephens, Obama Got Discount on Home Loan. Campaign Defends Lower Rate as Lender Competition for Business, Washington Post, July 2, 2008; also posted at CBS News.

# #2: Ed Morrissey, Obama got sweetheart deal on home loan, Hot Air, July 2, 2008.

# #3: John Ruberry, Washington Post: Obama got discount on mortgage for his mansion, Marathon Pundit, July 2, 2008.

# #4: Ed Lasky, The Obamas’ mortgage (cont.), American Thinker, July 2, 2008: “It is absurd for the Obama campaign to justify this beneficial by disclosing a large amount of funds that Northern Trust now holds for the Obamas when these amounts were earned and deposited substantially after the mortgage was placed and when their then current income and [assets] did not justify such a ‘competitive rate’.”

* Frank James, Did Obama get sweetheart mortgage?, The Swamp/Chicago Tribune, July 2, 2008.

* SusanUnPC, Chicago Billionaire Industrialist on Board of Obama’s Mortgage Provider, No Quarter, July 2, 2008. See RW/RBO article for information about Lester Crown.

Sounds less like fraud and more like Obama had friends who pulled strings and made verbal promises on his behalf that his circumstances were only going to get better.

Essentially, by the book - he probably shouldn’t have gotten that loan, but given who he is friends with, there were probably some words exchanged to the fact that the Obamas were going to be earning substantially more sooner than later, a fact that appears to have panned out well for the loan officer who took the risk of making the loan to the Obamas.

When he entered the U.S. Senate in 2005, he reported assets worth between $200,000 and $400,000.
He only got the loan because of his position, and NOrthern Trust and Obama’s statements that since he agreed to move 3 million $ there is an outright lie. By his own Senate filings even by the end of 2006, 18 months AFTER he got this mortgage,At the end of 2006, Obama’s holdings were worth $455,000 to $1.125 million.

MOre than smoke here folks, a lot of enterprising mortgage and finance people starting to dig.

http://www.latimes.com/news/politics/la-na-money17-2008may17,0,3496427.story

That’s exactly why I question the amount of interest and dividends from Northern Trust on his 2006 tax returns. It doesn’t look like he could have had anywhere close to $3 million there but I could be very wrong. I don’t know enough about it.

I doubt there was fraud but I do suspect there was a lot of winking going on.

More likely alot of cash that found it's way to the OBama's in "undocumented" ways behind the scenes than anything else.

So what I'm curious to know is, where the property taxes escrowed with the mortgage payment (answer: they apparently weren't reading this story) and then who walked into the Cook County Assessor's office and paid them FOR OBAMA? Was it a cash transaction in paying the taxes, or is there a receipt with someone's name on it somewhere?

Answer that question, and there's your smoking gun (coming from someone who knows how the mortgage industry works from the inside....)

Sorry to disappoint everyone, but the article above has at least one lame assertion. Trying to back into the loan interest rate from the amount deducted for tax purposes is ridiculous, since the loan was for 1.3mm and interest is only deductible on a mortgage balance UP TO ONE MILLION. There is no issue here.

You can't reverse engineer the rate. But the question remains, how did OBama qualify for the loan based on his financials?

If you understand who Northern Trust's clientele are, and a thorough read-through of their website and services would tell you that they cater to the uber-wealthy of the world, then how did OBama qualify for the loan?

OBama didn't at the time, and still doesn't qualify based on his financials to be a client of Northern Trust.

Unless you take into account Northern Trust's long standing policy of investing in economically depressed neighborhoods in/around the Chicago area as part of a minority lending program. Then the question becomes, how did OBama qualify for that, and was that the program used to "qualify" him for his loan?

I think it's clear some cash changed hands behind the scenes unbeknownst to Northern Trust, but that also there was some manipulation of a loan policy somewhere to take him on as a client.

Why not, if you know it was interest on $1M’s worth of loan? But the claim that he got a below-market rate on that level of mortgage because of his net worth is preposturous. As I wrote elsewhere:

“The idea that the Obama family, with a listed net worth of less than half a million in ‘05 had above average assets for those taking out super super jumbo loans at the time is just ridiculous.

At least it’s got some coverage in the press. Having him really get nailed for it by an effective commentator or whomever would at least help to dispel the nonsense that he is somehow above the taint of normal politics.”

I don’t know whether cash changed hands other than possibly someone paying off his RE tax, etc., but I do know that banks, like other highly regulated businesses, are terrified of politicians and regulators coming after them if they don’t pay what amounts to ‘protection money’. People always assume that such businesses support candidates to buy favor, whereas it’s actually seen as part of the cost of business to contribute to campaigns—because it is understood they will be targeted if they don’t.

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