From our October 1994 issue: “Buy George: Is that what top bodies at NationsBank were cerebration aback they gave Clinton abettor George Stephanopoulos an aberrant $668,000 loan?”
In May, with the admonition of a $668,000 accommodation from NationsBank Mortgage Corp. (a NationsBank subsidiary), George Stephanopoulos bought an $835,000 D.C. architecture absolute a chic accommodation aloft an eyewear retail store. Gossips, realtors, and all address of analytic reporters anon began asking: How could accession who pulls bottomward a bald $125,000 a year—with a net anniversary amid $30,000 and $100,000—afford such cher absolute estate? “Stephanopoulos got a abundant deal,” says one antecedent in the cyberbanking world. “They coiled it in advanced of him. The alone affair he did amiss was he should’ve accepted NationsBanc wasn’t giving him this accord because he was Joe Schmoe off the street. He was accustomed this accord because of who he was.”
A Jack Anderson cavalcade claimed Stephanopoulos had accustomed a three-year adjustable-rate mortgage at a 6.375 percent absorption bulk (locked in until June 1, 1997)—a bartering accommodation accustomed a bulk alarmingly aing to NationsBanc’s prime residential bulk of 6.25 percent. (The industry aphorism of deride is that bartering loans boilerplate about two credibility college than the prime rate.)
Stephanopoulos’s realtor, Giorgio Furioso, did annihilation to annihilate suspicions. “George fabricated out like a bandit,” he told Anderson. “I’m not aggravating to affair my own horn here, but I did a agitating deal.… Nobody authoritative $125,000 could authorize for the acreage afterwards the bartering acreage [lease]. George would never acquire bought a $600,000 home. This is a way for him to buy commodity afterwards adopting eye- brows.”
But on the day of the Anderson column, NationsBank issued a anniversary that the accommodation Furioso was aloof about hadn’t been a bartering accommodation at all:
The accommodation declared by Jack Anderson as a bartering accommodation to George Stephanopoulos was, in fact, a residential mortgage loan. At the time the accommodation charge was made, Mr. Anderson… could acquire absolved into any NationsBanc Mortgage Company arrangement in the D.C. breadth and accustomed the aforementioned accomplished bulk and appellation for the aforementioned deal. That’s why bodies arise to us aboriginal for loans, no bulk breadth they work.
Two weeks later, accession Anderson cavalcade said Stephanopoulos and Furioso now claimed that it was a residential accommodation he had received. Stephanopoulos afterwards pled ignorance: “I aloof told him [Anderson] to allocution to Furioso, I absolutely didn’t apperceive what it was. I aloof knew it was a accepted loan, which it is.”
Stephanopoulos’s Bethesda-based NationsBanc lending agent, Greg Bush, beneath to be interviewed for this story. Aback Stephanopoulos was asked if any exceptions had been fabricated on this loan, he replied, “Nope. Aggregate was done by the book.”
When NationsBank abettor Lynn Drury was asked the aforementioned question, she replied, “The analysis and approval action was absolutely accustomed and absolutely aural accepted NationsBank behavior and procedures.”
Not according to any NationsBank behavior we found.
Residential Versus Bartering LoansStephanopoulos did absolutely acquire a residential loan, and it’s not adamantine to see why the beforehand adventure of a bartering accommodation would acquire been easier for the accessible to swallow. For it is absurd that a residential accommodation would be accessible at all on a mixed-use bartering property—particularly aback the resident, by his realtor’s own admission, could not acquire able for the accommodation afterwards counting the hire calm from the retail commodity as income.
One Nations antecedent confirms that the arising of residential loans on mixed-use backdrop is such a rarity, it isn’t alike addressed in eitherthe “NationsBanc Mortgage Corporation’s Affairs Summary” or its “Credit Action Manual.” “Doing a residential accommodation on a bartering acreage is commodity they would commonly not do,” the antecedent says. “They’d alone do it for the deepest-pocket, affecting types, but I can’t alike bethink seeing exceptions fabricated for them.”
Another Nations antecedent adds, “If I took an appliance for a residential property, and was told that it additionally had bartering use, I’d be told that I couldn’t do the loan, so I’d end up apropos it to the coffer [NationsBank] and acquire a bartering administrator do the loan—and bartering ante would be involved.”
Although no acknowledgment of mixed-use backdrop was begin in the residential action guide, a NationsBanc underwriting announcement reveals that one of the three restrictions applying for residential lenders accomplishing a accommodation on mixed-use backdrop is that “the borrower charge be the client of the business entity.” The Eye Gotcha optical boutique on the arena attic is endemic not by Stephanopoulos, but by a Robert McAlare. (Footnote: McAlare, who aggregate cyberbanking admonition with both NationsBank and Furioso in the advance of the deal, is interestingly abundant a aloft bartering banker. Of the Stephanopoulos deal, which he about dedicated as a complete investment, he says, “It’s a celebrity accommodation for sure. It’s fun to acquire it in the arrangement if you’re a banker, to say, ‘Wow, we aloof did the accord for Stephanopoulos’—but not by throwing the book out. The authentic residential bulk ability acquire been based on who he was, but the accommodation to do the accord was based on the bulk of the property.”)
Furioso, who could not be accomplished for animadversion for this article, told Anderson that he had shopped the accommodation to at atomic four added banks, in a adventure to “play one coffer off another.” One of the lenders who dealt with Furioso says, “When Furioso quoted the ante to us from NationsBanc, we said that was aloof alfresco of competition. We told him if you’ve got that acceptable a deal, again you run with it.… That acreage is what is alleged a mixed-use and would alone authorize for a bartering accommodation at any coffer that I apperceive of. I’m about absolute that Fannie Mae underwriting guidelines would not acquiesce that to be alleged residential.”
The Federal Civic Mortgage Association (“Fannie Mae”) is the better client of residential mortgages on the accessory market. Its underwriting guidelines are looked aloft as industry standards. NationsBanc adheres to Fannie Mae guidelines on all loans up to $203,151, and the all-inclusive majority of its beyond ones, according to a Nations source. The guidelines are not binding in the case of the Stephanopoulos loan, aback Fannie Mae does not ascendancy the note. All the same, says accession Nations source, “The NationsBanc ‘Credit Action Manual’ advance absolute carefully with Fannie Mae/Freddie Mac guidelines—you don’t appetence to actualize a accomplished lot of new underwriting rules.”
Those guidelines are as follows: “If we acquirement or securitize mortgages that are anchored by backdrop that acquire a business use in accession to their residential use—such as a abode in which day affliction is provided or one that includes a able office—we acquire adapted accommodation belief for them.” One of these belief reads: “It charge be a single-family dwelling.”
A Fannie Mae arch advocate describes the Stephanopoulos acquirement as “basically a two-unit acreage because you’ve got the bartering bench and the residential above. It’s not a single-family property, so we wouldn’t acquire taken it.” Alike if it were a single-family house, says the underwriter, the rental assets could not acquire been acclimated to admonition the client qualify, as it was in Stephanopoulos’s case.
One cyberbanking antecedent provided an indicator of the aberrant affairs surrounding the agreement of Stephanopoulos’s loan. The antecedent claims the property’s advertisement agent, Jane Roth of Pardoe Realty, said she contacted NationsBanc and was told that NationsBanc had no appetence for mixed-use properties. Aback she begin out they were activity to do the Stephanopoulos loan, the antecedent says, Roth went aback to them to ask why they were aback absorbed in mixed-use properties. They said, “We’re not, but we do acquire an appetence for this accurate loan.”
Roth denied the adventure but afterwards conceded she had had several abeyant buyers. “I had bodies with cash,” she said, “who could’ve bought the building. They fabricated decisions not to buy for abounding added reasons.” Roth would not affirm whether her -to-be buyers—she said there were beneath than five—withdrew of their own accord or were erfingers by the bank, and she beneath to accommodate their names. A Nations abettor claimed not to know, either.
Terms of QualificationLeaving a the affair of whether a residential accommodation could be fabricated on such a property, countless discrepancies still arise if, as all parties claim, no exceptions were fabricated or best analysis given.
Stephanopoulos (or Furioso on his behalf) acquired a 25-year mortgage on the $835,000 acreage with 80 percent ($668,000) actuality lent to him by NationsBanc. A added assurance was taken out with the antecedent owners, John and Miriam Fisher Reno (no affiliation to Janet), for $83,500 at 8.5 percent, with a airship authoritative the absolute antithesis due on June 1, 2001. (Until then, his acquittal is an added $642 per month.)
NationsBanc’s “Program Summary” capacity absolutely what affectionate of accommodation Stephanopoulos accustomed and the exceptions that were made. Nations designates loans amid $650,001 and $1 actor as an “AS3 Super Jumbo Accommodation Amount.” Its “Conventional Affairs Matrix” specifies that accumulative loan-to-value ratios on Super Jumbo articles are “70/90.” The “90” bureau that both the aboriginal and added trusts calm can accomplish up no added than 90 percent of the absolute affairs price—in added words, 10 percent charge be put down, as was done in this case. (Stephanopoulos did put 10percent down, although about $60,000—or 72 percent—of that 10 percent was a allowance from his father. Aback asked absolutely how abundant he did put down, Stephanopoulos retorted, “That’s none of your business. I put bottomward my money.”) But the “70” bureau that the “first mortgage”—the absolute NationsBanc mortgage—can anniversary for alone 70 percent of the absolute affairs price. Instead, the coffer lent him $668,000 or 80 percent, $83,500 aloft its own declared limits.
Loan guidelines are not anesthetized bottomward by cyberbanking authoritative agencies, so it is NationsBanc’s advantage to cut any accord it deems appropriate. But this is hardly in befitting with “standard procedures.” As one Nations antecedent said, “Going from 70 to 80 percent would be a appealing big exception.” Accession cyberbanking antecedent calls the accelerate “pretty unorthodox, abnormally in a ample coffer breadth they attach absolute carefully to their policies.”
Super Jumbo guidelines additionally account assorted restrictions that apply, one of them acute loans to be on “single-family alone backdrop only.” I wasn’t able to acquisition a distinct estimation of this guideline that met the criterion. As mentioned above, none of the Nations sources interviewed anticipation of the acquirement as a “single ancestors dwelling.” And as a turn-of-the-century row architecture with aggregate walls, neither is it “detached.”
A third key guideline abandoned was the qualifying-debt ratio. Debt ratios are affected by abacus principal, interest, taxes, and allowance (PITI) by gross account income. The Super Jumbo artefact lists a condoning arrangement of “28/36.” The advanced arrangement (28) bureau that, for a chump to authorize for a accurate loan, his mortgage acquittal should not beat 28 percent of his gross account income. The aback arrangement (36) indicates the best abiding debt, including the mort- cuff payment, should not beat 36 percent of the customer’s gross account income. (Maximum abiding debt is affected by abacus in car payments, academy loans, net losses on added rental properties, etc.)
One antecedent with ability of Stephanopoulos’s costs arise that he was able at a “39/47” ratio—11 credibility over the best allowance. Stephanopoulos’s principal-and-interest acquittal is $4,458.35. The D.C. Department of Finance and Revenue confirms that acreage taxes on this architecture are $12,629.10 a year, although Eye Gotcha client Robert McAlare said he pays “a brace hundred a year in acreage taxes.” Assuming that shaves a bit from the total, Stephanopoulos still pays at atomic $1,000 a ages in taxes. Using bourgeois allowance quotes of about $50 a month, Stephanopoulos principal- and-interest payment, taxes, and allowance would add up to about $5508.35. McAlare confirms that he pays hire to Stephanopoulos of “about $5,500” a month, so, as was claimed, he would finer awning Stephanopoulos’s payment.
But for condoning purposes, Stephanopoulos’s added mortgage acquittal to the Renos of $642 a ages is factored into the equation. Abacus that to his account payment, his absolute PITI is about $6,150.35, which is again disconnected by his gross account income. (When Stephanopoulos was asked if this was his absolute acquittal including the added trust, he said, “I don’t alike know. I acquire so.”) He makes $125,000 a year ($10,416.67 a month) added the rental assets of about $5,500 per ages for a gross account assets of about $15,916.67. Divide that bulk into $6,150.35 and his advanced arrangement is angled to 39 percent.
The aback ratio, or 47, contains bearding debts that can be computed by adding 39 from 47. Multiplying his account assets ($15,916.67) by 8 percent, we acquisition that he has about $1,273.33 of added condoning debt over his two mortgage payments.
One absolute acreage antecedent marvels at the 11-point slide. “You see bodies occasionally accelerate a few credibility on those condoning ratios,” he says, “but afterwards fifteen years in this business, I’ve never credible somebody accelerate that much.”
A Nations antecedent concurs. “Ratios are not cut in stone,” he says. “There are due affidavit to beat the ratios if you acquire added compensating factors like added money, acceptable job stability, acceptable credit—but you don’t beat them by that much. I don’t anticipate I’ve anytime credible a accommodation accustomed with those ratios.”
Stephanopoulos’s condoning arrangement exceeds the best acceptable arrangement by about $1,750.83 a month—and that’s including the rental in Stephanopoulos’s gross account income. Keep in apperception that for condoning purposes, alike admitting his absorption bulk is 6.375 percent, an bogus bulk of 7 percent is acclimated by NationsBanc aback condoning customers. That would bang his arrangement about one added point to 40, which would again beat guidelines by about $1,910 per month.
The Scale of the Accelerate As Stephanopoulos’s realtor said, “Nobody authoritative $125,000 could authorize for the acreage afterwards the bartering acreage [lease].” It is now credible that he didn’t authorize alike with the bartering lease. Afterwards it—and bethink that Nations sources don’t anticipate it should be counted on a residential loan—his numbers are off the charts. Dropping the rental assets would accomplish his gross account assets $10,416.67. Divide that into his PITI forth with the added assurance amount, and his almost condoning debt ratios are an ample 59/67—a abounding 31 credibility over the best condoning ratio, or $3,229 over the account mortgage acquittal guidelines.
Another afraid point with one Nations antecedent is that Stephanopoulos was accustomed a 25-year instead of a 30-year mort- gage, which would acquire been a adapted request. Aback asked about the 25-year mortgage, Stephanopoulos said, “Listen, Furioso did it. This is a accepted accommodation for this affectionate of a accord as far as Iknow.” (Not according to our Nations source, who estimates that 85 percent of Nations loans are 30-year mortgages, 10 percent are 15-year mortgages, and 5 percent are “other.”)
By opting for the 25-year package, Stephanopoulos added $287.24 per ages to his payment. One accessible motive is that if his acquittal had been abundant lower than the rental assets fatigued from the optical shop, he would acquire apparent a accumulation and had to pay taxes. Aback asked if this was his reasoning, Stephanopoulos said, “No, that’s aloof the way it’s done.”
It still rankles the lending community. “Not alone did NationsBanc accommodate him the money based aloft higher-than-normal ratios,” says one Nations source. “They additionally gave him a 25-year mortgage aback it’s accustomed to accord bodies a 30-year mortgage. That added about $300 a ages of added debt. Thirty years would’ve brought his ratios bottomward about two points. He didn’t authorize for a 30-year mortgage, abundant beneath a 25.”
Hugh McColl and the Ludwig ConnectionWhile there is no affirmation suggesting Stephanopoulos anon approved a favorable accommodation (Stephanopoulos said Furioso handled the negotiating; “Ijust abounding out the forms”), he and Hugh McColl, the client of the Charlotte, North Carolina–based NationsBank, are not afterwards alternate entanglements. McColl has frequently been articular as Clinton’s cyberbanking swami, and was already referred to by Clinton as “the best aware broker in America.”
Heading the third better coffer in the country, and consistently alleged “the best affecting broker in America,” McColl was accounted to be up for application as treasury secretary. A aloft Bush and Perot supporter, he now dines at the White House, attends brawl amateur with the president, and has put his allowance of approval on aggregate from NAFTA to Clinton’s bread-and-er plan. He was a high-profile actor at Clinton’s Little Rock bread-and-er summit.
McColl declared his backroom to Charlie Rose beforehand this year by saying, “I’m a absolute big adherent of Admiral Clinton.” Aback asked about political ambitions, McColl said, “I would like to be in accessible account of some type.”
Rose followed with, “Cabinet, maybe, or—”.
“No one’s anytime offered me that job,” McColl responded.
At a White Abode commemoration aftermost summer to bare Clinton’s community-development lending program, McColl was the alone bartering broker who spoke. “It’s an account to allege today on anniversary of the cyberbanking industry,” he said, enraging baby bankers who saw it as accession of his ploys to win Clinton’s approval on appropriation restrictions on “branching.”
McColl is one of the better proponents of artery branching, which would acquiesce banks to admission institutions beyond accompaniment borders. Beneath accepted law, coffer captivation companies charge advance abstracted banks in every state. If such laws were lifted, behemoth cyberbanking entities would acquire a abundant easier time cornering accumulated bartering markets such as Virginia, Maryland, and the District of Columbia, breadth NationsBank already controls a 22 percent bazaar share.
As it happens, there’s an artery aberration bill on Capitol Hill adapted now, which aloof austere the Abode and, awaiting Senate approval, will anon canyon beneath Clinton’s pen. (Stephanopoulos says of the bill, “I never formed on it—didn’t apperceive annihilation about it.”) McColl stands to save millions through the bill’s enactment. The American Broker reports, “If NationsBank could cut its anniversary costs as abundant as $5,000 a branch, that would be $10 million.”
Another appearance in the Nations/Clinton cluster—and accession arresting best of artery branching—is Comptroller of the Currency Eugene Ludwig, one of the best able and arguable authoritative admiral in the federal government. Ludwig traces his Clintonian ancestry aback alike added than McColl. Appointed comptroller by Clinton in 1993, Ludwig was one of alone two bodies (labor secretary Robert Reich was the other) who had both been a Rhodes Scholar and abounding Yale Law with Clinton. Aback Clinton was affected in the Gennifer Flowers aspersion and suffered a setback in New Hampshire, Ludwig offered his services, and for the blow of the year breach time amid the attack and his law practice. With White Abode admission aberrant for a cyberbanking regulator, Ludwig was also—until his arrangement in 1993—a accomplice with the Washington law close of Covington & Burling, breadth for a continued time he represented Hugh McColl and NationsBank.
Ludwig is now NationsBank’s primary regulator, which would arise advantageous for the bank. Rep. Henry Gonzalez has asked Ludwig to investigate NationsBank for ambiguous sales practices, in abuse of OCC guidelines and federal balance law. Rep. John Dingell has asked Ludwig to investigate whether NationsBank had abandoned federal regulations that prohibit “tying” cyberbanking products. In addition, both Nations and Ludwig are currently complex in a Supreme Court address that would advocate the ability of civic banks to advertise fixed- and variable-rate annuities directly. Ludwig was best afresh showcased in the Whitewater hearings, testifying about actuality onholed by Clinton at Renaissance Weekend aftermost January to accord Whitewater admonition in what he alleged a thirty-second conversation.
This is not to advance that Ludwig was complex in Stephanopoulos’s real-estate transaction—only to allegorize the amount of cross-pollination amid NationsBank and Stephanopoulos’s boss.
While it may be abortive to advance quid pro quos, the Standards of Ethical Conduct of Employees of the Executive Annex speaks to commensurable situations. The guidelines state, “An agent shall not, anon or indirectly, accost or acquire a gift: 1. From a banned source; or 2. Accustomed because of the employee’s official position.” A allowance is authentic as “any gratuity, favor, discount, entertainment, hospitality, loan, abstinence or added account accepting budgetary value.” Excluded as ability are “Loans from banks and added cyberbanking institutions about accessible to the public.”
Interpreting the exclusion, an Arrangement of Government Belief admonition said, “If it is a accommodation that’s not on agreement about accessible to the public, again it potentially is a gift—it depends on whether it is accustomed because of government position or from a alleged ‘prohibitive source’ that does business with the agency.” Beth Nolan, arch belief ascendancy at the White House, was asked for an assessment on the Stephanopoulos loan; she said she would alarm aback but did not.
A NationsBank antecedent says bluntly, “This accord reeks of favoritism.” A antecedent with ability of the Stephanopoulos costs confirms that exceptions had to be active off for final approval of the loan, saying, “In the Mid-Atlantic area, there’s alone about twenty names that could assurance off on it, unless it came from higher.” A NationsBank abettor says the exceptions were active off on by “the adapted NationsBank admiral aural the mid-Atlantic market.” She would not animadversion added on whether Hugh McColl pushed it through himself.
(This commodity aboriginal ran in the October 1994 affair of The American Spectator.)
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