Obama's mortgage stirs smoke, but no fire

Media report questions Obama's 2005 mortgage rate, but there's not much of a "controversy."

Published July 2, 2008 2:02PM (EDT)

In recent weeks we've seen some controversies, most notably surrounding Sens. Chris Dodd, D-Conn., and Kent Conrad, D-N.D, in which certain politicians received dubious mortgage discounts, thanks to personal connections.

Based on the evidence, it looks like this is far more benign.

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.

The Washington Post clearly wants to characterize this as a serious story. It even adds a superfluous non sequitur, noting that the former CEO of Fannie Mae briefly served on Obama's V.P. search committee in June, as if that has some relevance to the mortgage rate Obama received in 2005.

In this case, there's less here than meets the eye. Nearly four years ago, Obama received a 30-year fixed rate of 5.625 percent. The average at the time was 5.93 percent. As such, it was a good deal, but not a sweetheart deal. Obama had received competing offers from another lender and, as a result, got a more competitive rate. As Oliver Willis, who used to work for a mortgage company, put it, "The idea that the lender gives a few fractions of a percent to a borrower of a jumbo loan is about as common as breathing air."

As controversies go, this is pretty thin. Obama got a legitimate mortgage, at a competitive rate. He didn't try to conceal anything, and even posted the records related to his house purchase on his website.

As the Chicago Tribune's Swamp blog concluded, "Obama's political opponents will certainly try to make something out of this story. But contrary to the famous adage, not all smoke means there's a fire."

By Steve Benen

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