Taking a Closer Look at Dodd’s Mortgage (Updated July 21)

Since I’m one of his constituents here in Connecticut, I figured that I would take a closer look at the two mortgages that Chris Dodd and his wife received on his property here in-state and in Washington D.C. As I write this post, I’m assuming Dodd did not ask for special treatment.

[Update June 18] He may have not known he received special treatment, but now he says he knew he was on a VIP list at Countrywide.

But there is one thing that really stood out for me when the particulars of his mortgages were released; the 30 year interest rate – fixed only for the first five years – the Dodd’s received.

[Update, July 21] Michelle Malkin brings this subject back up today referencing an editorial in the Hartford Courant written by Kevin Rennie.

Still noteworthy are my questions below. What was the going rate at the time, and what has happened now since the five year adjustable term has probably ended?

Also important to note from Rennie’s editorial is that one of Dodd’s loans was considered a “jumbo” so my numbers referenced in this post may be off a bit.

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Before we take a look at some facts released about the mortgages, I want to point out that this type of VIP service is everywhere. Republicans and Democrats alike will continue to get wrapped up in this type of stuff; especially since congress does not have term limits. Professional politicians – like Dodd and many others – are treated like rock stars instead of public servants.

Anyway…

In 2003, the Dodd family refinanced two homes with Countrywide. The family received a 30 year mortgage, with the first five years fixed, on their home in East Haddam for $275,000. The interest rate for this property was 4.5 percent, and no points were paid to get that rate.

This works out to be a payment of just under $1,400 per month for the first five years, exclusive of any property taxes. I’m not sure what the value of the home is, so we’re not certain if personal mortgage insurance (PMI) is required.

They also received a 30 year mortgage – again with the first five years fixed – on their Washington town home for $506,000. The interest rate for the Washington property was set at 4.25 percent, and no points were paid to get that rate. The payments for that loan would be just under $2,500 per month for the first five years.

What was the going rate for 30 year mortgages, fixed for the first five years, in 2003 at the time of the refinance?
If Dodd hit the low point in 2003 perfectly, that would mean that he refinanced in June. Portfolio.com indicates that the rates were pegged at 4.875 percent and was dropped to 4.25 and 4.5 percent for the properties.

The lower rates save the senator about $58,000 on his Washington residence over the life of the loan, and $17,000 on the Connecticut home.

Not a bad deal, but Portfolio.com does not indicate if the savings assumes that the rates will stay put after five years.

What will happen to the loans once the five year “introductory teaser rates” of 4.25 and 4.5 percent are adjusted?
Dodd really dislikes predatory lending and since his rate will jump up some time this year, I wonder how he feels about selecting a 30 year mortgage that was fixed only for the first five years.

Will he feel that he was taken advantage of?

Lots of blog posts are out there about the VIP program offered by Countrywide, and Malkin is certainly slamming him. I would suggest that you first read the exclusive report first published on Portfolio.com and written by Daniel Golden.

Also from The Day:

The 4.25 percent rate would have been significantly under the going rate for a fixed-rate mortgage in 2003, said Phil Turner, a broker at McCue Mortgage, who did not speak about Dodd’s loans but shared his expertise about recent market history.

But for hybrid adjustable-rate mortgages, of the type the Dodds entered, the rates might not have jumped out as noticeably generous, Turner said.

What if Dodd selected a straight fixed mortgage and got a similar discount?
Good question! In June 2003 the average interest rate at that point for a regular 30 year fixed was between 5.2 and 6.4 percent.

Let’s assume that the Countrywide CEO provided Dodd with the same five-eights of a point discount for the Connecticut property and three-eights of a point for the Washington town home.

Crunching the numbers show that over the life of the loan he would have saved more than $78,000 – guaranteed.

With interest rates rising and his five years up, want to bet he wished he went with the regular fixed mortgage?