Tongues are wagging overtime on Capitol Hill over last week's bombshell revelations that top congressional leaders received preferential mortgage rates and fees from Countrywide Financial -- the ailing giant home loan company that will soon be acquired by Bank of America.

Connecticut Democrat Sen. Chris Dodd, chairman of the Senate banking committee, and North Dakota Sen. Kent Conrad, chairman of the Budget committee, admitted receiving "VIP" treatment on loans arranged through Countrywide chief executive Angelo Mozilo.

One of Conrad's mortgages was a million dollar super-jumbo on a beach house in Delaware.

Conrad said he "did not ask for or know that I was receiving a discount" on several loans from Countrywide. He sent a check last week to a housing charity -- Habitat for Humanity -- in the amount of $10,500, which represented his estimate of the value he received in one of the mortgage deals. Some critics said the benefits were higher, including an underwriting exception made by Countrywide on an eight-unit apartment building Conrad owns in Bismark, North Dakota.

Sen. Dodd said he was aware that he was a member of a special "VIP" program at Countrywide, but he never thought it involved preferential rates on his mortgage.

Under Dodd's leadership, the Senate began floor debate last Thursday on a massive foreclosure relief package that critics claim amounts to a potential bailout for Countrywide and other large lenders who specialized in subprime and negative amortization loans. Dodd frostily denied that there is any connection between his being in the so-called "Friends of Angelo" club and his legislative activities.

Meanwhile, Republicans in the House have called for investigations of potential conflicts of interest, and Senate Republicans asked Dodd to delay floor consideration of the housing bill.

The "Friends of Angelo" brouhaha also hit the presidential campaign, with the resignation of a senior advisor to Sen. Barack Obama after news surfaced that he had received significant mortgage discounts from Countrywide.

James Johnson, former chief executive of Fannie Mae -- Countrywide's largest loan investor -- received preferential rates on several real estate loans. He denied any wrongdoing in the deals, but stepped down as head of Obama's campaign committee vetting possible vice presidential running mates.

So what do we make of all this?

Well, as Capt. Renault famously said to Rick in the movie Casablanca, "I'm shocked … shocked!" to find that political heavyweights on Capitol Hill get sweet deals on their home mortgages while their constituents pay through the nose for subprime.

Published: June 23, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.