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. 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.
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 Dodd, D-Conn., chairman of the banking committee, and Kent Conrad, D-N.D., by another lender, Countrywide Financial, has brought new 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.
In Obama's case, he received a lower rate than the average offered at the time in Chicago for similarly structured jumbo loans. He secured his final mortgage commitment on June 8, 2005, and during that week, rates on similar loans for which information is available averaged 5.93 percent, according to HSH Associates, which surveys lenders. "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. "It's a good deal."
The Obama campaign called the rate "consistent with Northern Trust policies, and it reflected the base rate set for that period.