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Connect The Dots

Obama Adviser Resigns as Loans Surface

June 12, 2008; Page A1

WASHINGTON -- Democratic Party stalwart James A. Johnson quit as an adviser to the Barack Obama campaign, where he was helping to screen potential running mates, as new details emerged about loans Mr. Johnson received from mortgage lender Countrywide Financial Corp.

WSJ's Glenn Simpson discusses James Johnson's resignation from his role as one of Sen. Barack Obama's running mate vetters. Johnson, former Fannie Mae CEO, resigned amid sharp criticism over personal loans from Countrywide Financial Corp. (June 11)

Mr. Johnson, who led mortgage buyer Fannie Mae from 1991 to 1998, received more than $5 million in loans from Countrywide that were arranged outside its normal underwriting process, according to loan records and people with knowledge of the transactions. The loans were first disclosed in The Wall Street Journal on Saturday. (See related article.)

Mr. Johnson received loans from Countrywide on at least six properties between 1998 and 2007, some at lower-than-average interest rates. His debts to Countrywide as of mid-2007 exceeded $5 million, people familiar with the matter said.

For one previously undisclosed loan last year for a Montana real-estate project, Countrywide overrode its internal limits on loan size, amount of allowable debt and number of loans to a single borrower, the lender's loan records show.

Countrywide didn't respond to requests for comment.

In a statement, Sen. Obama said, "Jim did not want to distract in any way from the very important task of gathering information about my vice presidential nominee, so he has made a decision to step aside that I accept."

A Democratic power broker who remains a paid consultant to Fannie Mae, Mr. Johnson was a major beneficiary of a Countrywide program known as "Friends of Angelo," which arranged loans for friends of Chairman and Chief Executive Angelo Mozilo at attractive rates.

A lawyer for Mr. Johnson, Brian Brooks, said the former Fannie Mae chief is a client of Countrywide's "private mortgage banking" division, which caters to wealthy customers. He said Mr. Johnson never sought special treatment. "He submitted applications in the normal course like anyone else would," he said.

Associated Press
Jim Johnson was on Capitol Hill Monday for a meeting with House Speaker Nancy Pelosi.

The loans to Mr. Johnson became an embarrassment to the campaign of Sen. Obama, who has repeatedly denounced Mr. Mozilo for the large compensation he got from Countrywide just before the mortgage crisis struck. Republicans are accusing Sen. Obama of hypocrisy for criticizing the mortgage industry and the special-interest culture of Washington while turning to Mr. Johnson, a Washington insider and former Fannie Mae chief, for help in picking his running mate.

When asked about the matter earlier this week, the presumptive Democratic nominee said he shouldn't be expected to "vet the vetters." The controversy has diverted attention from expected Republican nominee John McCain's repeated problems with lobbyists who have worked for his campaign, but stepped aside because of perceived conflicts of interest between their clients and the senator's political positions.

In its terms, the Friends of Angelo program resembled a program for Countrywide's own employees that offered slight discounts on prevailing interest rates, several people with knowledge of it said. They said Friends-of-Angelo borrowers typically got interest-rate discounts of around 0.25 to one percentage point.

Whether that brought them lower rates than other similarly qualified customers can't be determined for sure, because several variables can affect loan rates. In any case, low rates were only one aspect of the program. Perhaps more significant, insiders said, was that for Friends-of-Angelo customers, Countrywide sometimes overlooked its own rules on debt ratios, down payments and other matters.

Friends-of-Angelo loans were manually underwritten, avoiding the limits imposed by Countrywide's computer system.

Within Countrywide, Mr. Johnson was designated both a Friend of Angelo and a "High Profile Borrower," according to documents and people familiar with the matter. His loans were handled by Mr. Mozilo and his lieutenants Andrew "Drew" Gissinger III and Wes Lazear.


Bank of America Corp., which is acquiring the struggling Countrywide, has chosen Mr. Gissinger, a former San Diego Chargers offensive lineman, and several other Countrywide executives to help run its mortgage business after the acquisition. Mr. Gissinger will head several groups responsible for selling mortgages to consumers.

Perhaps the most unusual of Mr. Johnson's loans was one for more than $1.5 million last year for a real-estate project in Big Timber, Mont. At the time he got the loan, what the records indicate were Mr. Johnson's monthly obligations were nearly twice his stated monthly income, according to documents and to people familiar with the matter.

The records say Mr. Johnson's "total income" was $55,834 a month, while his "total obligations" were $97,708.97 a month. The result was a total debt ratio of 175%, which Countrywide's records say was "too high."

Countrywide handled this as a house construction loan, which meant that Mr. Johnson wasn't required to make a down payment apart from the $240,000 investment he had already made in raw land and a payment for construction. A requirement for a second appraisal was waived by Mr. Gissinger.

The loan's size also exceeded Countrywide rules, but that limit was overridden as well. The document indicated that the size limit was $1.5 million for a second home. In addition, Countrywide borrowers are supposed to have no more than four currently financed properties at a time. Countrywide waived that rule, too. Mr. Johnson was in the processing of selling one of his properties.

"The borrower of this loan is the former CEO of Fannie Mae," Countrywide records state. "This is a very high-profile and visible loan that needs...immediate attention."


Senior executive Mr. Lazear overrode Countrywide's rule prohibiting loans to a borrower with such a high debt-to-income ratio (DTI) in an April 19, 2007 memo. "Mr. Johnson's profile in many ways, including the existing performing loans at Countrywide, supports the exception," Mr. Lazear wrote. "This email gives you my approval for the DTI exception." Mr. Lazear couldn't immediately be reached including through messages on his personal mobile-phone number.

Countrywide processed the loan through a process known as the "Exception Processing System," which the lender used to handle loans that didn't comply with its own regulations.

Mr. Brooks, the lawyer for Mr. Johnson, declined comment on specifics of the Montana loan.

Mr. Johnson, a native of Minnesota, has long been a mostly behind-the-scenes adviser in the political and business worlds. He worked for former Democratic Sen. Walter Mondale and was chairman of his unsuccessful 1984 presidential run. Mr. Johnson also advised 2004 Democratic nominee John Kerry on running mates.

He and Countrywide's Mr. Mozilo became friends in the early 1990s when Mr. Johnson led Fannie Mae. During that period, Fannie Mae, a government-sponsored but shareholder-owned company, negotiated lower fees for guaranteeing loans made by Countrywide than those charged to smaller lenders.

Mr. Johnson also has served on corporate boards, including those of KB Home, Target Corp. and UnitedHealth Group Inc. He led the compensation committee at KB Home, which in 2007 restated seven years of earnings because it had backdated executive stock options. At the same time, Mr. Johnson led a board committee at UnitedHealth overseeing an internal probe of that company's options backdating.

A May 2006 report by Fannie Mae's regulator, the Office of Federal Housing Enterprise Oversight, on accounting violations said Fannie Mae failed to disclose that Mr. Johnson received a consulting contract from the mortgage buyer after leaving its board in 1999, on top of his $852,000 annual pension.

In December 2006, Fannie Mae disclosed that Mr. Johnson was receiving annual consulting fees of $300,000. A spokesman for Fannie Mae, Chuck Greener, said Wednesday that Mr. Johnson remains a consultant but declined to discuss his pay. "In this housing crisis, Jim Johnson is a valuable resource to our company," Mr. Greener said.

The controversy over loans made to James Johnson (left), a 'Friend of Angelo' Mozilo, the lender's CEO (right), began after this report in The Wall Street Journal on Saturday.

Write to Glenn R. Simpson at and James R. Hagerty at

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connect the dots

Quid pro quo??????



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Nye Lavalle
Like my friends and I say, it's nice to have friends, just depends on what "favors" they ask you to do!
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