Shortly after joining the U.S. Senate and while enjoying a surge in income, Barack Obama bought a $1.65-million restored Georgian mansion in an upscale Chicago neighborhood. He secured a $1.32-million mortgage from Northern Trust in Illinois.
The freshman Democratic senator received a discount. He locked in an interest rate of 5.625% on the 30-year fixed-rate mortgage at a time when such loans in Chicago averaged as much as 6%. 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 did 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 Sens. Christopher J. Dodd (D-Conn.), chairman of the banking committee, and Kent Conrad (D-N.D.) by another lender, Countrywide Financial, had brought new scrutiny to the practice and resulted in a preliminary Senate ethics committee inquiry into the Dodd and Conrad loans.
Within Obama's presidential campaign organization, former Fannie Mae Chairman James A. 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 illegal gifts.
Obama secured his final mortgage commitment on June 8, 2005. During that week, rates on similar loans for which information is available averaged 5.93%, according to HSH Associates, which surveys lenders. Another survey firm, Bankrate.com, placed the average at 6%.
"It's certainly safe to say that this borrower did better than average," said Keith Gumbinger, an HSH vice president, noting that consumer rates vary widely. The Obama campaign called the rate "consistent with Northern Trust policies."
