James Moran's Defenders Dispute That Moran's 10.5 Percent MBNA Loan Was Offered To Him On Preferential Terms

There are two views of Jim Moran's 1998 loan from MBNA, which he received four days before Moran became the lead Democratic sponsor of an MBNA-backed bill that made it harder to discharge debt in bankruptcy proceedings.

On the one hand, Arianna Huffington couldn't say it any clearer on page 81 of her 2003 book Pigs At The Trough:

It seems that back in 1998, Moran was on the verge of being buried under an avalanche of hefty credit card balances that he couldn't pay off. Things looked grim for the Congressman—until he was bailed out by a sweetheart loan orchestrated by the folks of MBNA. The same folks later claimed that they had offered the loan to Moran not realizing that he was a member of Congress and that he might be involved in the bankruptcy bill. Instead, a spokesman said the loan 'made good business sense.'

It sure did, because, in a move as shameless as it is despicable, Moran then turned around and helped craft a bill that will pay back his loan to MBNA many times over—and make it harder for average consumers who find themselves in the same jam he was in to get out of debt. Do you think MBNA will ride to their rescue as well?"

On the other hand, you have a Moran defender on the Moran campaign blog. Referring to a 2004 Common Cause report entitled "Decade of House Ethics Inaction" that was critical of Moran, the defender maintains that:

The Common Cause report simply cites the two accusations against Moran that keep getting repeated over and over - alleged wrongdoing with the MBNA loan and the personal loan from Terry Lierman. There's no new information there.

The MBNA loan was not a sweetheart deal. 10.5% interest is sweetheart? I think not.

Fortunately, the Washington Post already did, in its 7/7/02 article entitled "Credit Firm Gave Moran Favorable Loan: As He Sought Deal, Lawmaker Backed Finance Industry Bill:"

Nearly $700,000 in debt and juggling two dozen credit cards, U.S. Rep. James P. Moran Jr. (D-Va.) had begun to slip behind on his payments. One bank had already rejected his application for a loan.

"I didn't see any way out," Moran said in an interview.

MBNA Corp., a credit card lender with critical legislation pending on Capitol Hill, came to his rescue.

On Jan. 30, 1998, MBNA gave its delinquent borrower Moran a $447,500 home refinancing package that consolidated much of his debt at a lower interest rate. It was the largest mortgage package MBNA reported giving to a single borrower that year, an analysis of Federal Reserve records shows.

Moran's loan had a number of favorable aspects that permitted him to borrow more money at a lower cost than was standard for the industry, according to a review of his financial records and interviews with a dozen lending experts.

...

The MBNA loan -- a first and second mortgage -- was awarded based on a generous appraisal of Moran's three-bedroom house in Alexandria, its subsequent sales price showed. Moran's poor credit and the loan's size placed him at high risk of default. Nevertheless, he secured an MBNA interest rate that saved him about $800 a month over what he would have paid if he'd gotten the average rate given similar high-risk borrowers in an analysis by Standard & Poor's.

MBNA said it granted the mortgage for sound business reasons, and two financial specialists who reviewed the loan at Moran's request found it reasonable.

"There's no question this is not an everyday loan," said one, then-U.S. representative Norman D'Amours, a past chairman of the National Credit Union Administration. "On the other hand, it's not unheard of. I would say that this is a loan that -- while it might raise an examiner's eyebrows -- might, would, very well could pass muster."

But lending experts consulted by The Washington Post questioned the deal.

"This loan was the worst," said Frank Raiter, a Standard & Poor's residential mortgage specialist who, like other experts, reviewed the loan without knowing the borrower's identity. "Whoever granted this loan gave this person an incredibly good deal. The person must have had extenuating circumstances for the lender to say, 'I want to do this loan' at that rate."

Four days after his MBNA home loan was final, Moran raised his profile in the bankruptcy debate, becoming lead Democratic co-sponsor of an even broader bill. Weeks later, Moran and the executive in charge of MBNA's loan department testified on the same day in favor of the bill before a House subcommittee.

...

As for the loan, Moran said it was initiated by a cold call from the company, that the contact he had with MBNA was limited to lower-level loan officers and that he was "stunned" to learn that experts considered the terms unusual.

...

House rules state that a loan may be considered an improper gift if it is made on terms more favorable than an ordinary citizen could obtain. A loan could fall into that category if it is "much riskier" than the lender normally allows, said Charles Tiefer, a University of Baltimore Law School professor and former House solicitor and deputy counsel.

"The test is whether the loan is commercially reasonable, taking into account lenders' practices in general and this particular lender's motives," he said.

...

"No matter what a bunch of industry experts say, we thought this was a good business deal," said spokesman Brian Dalphon. "It makes it easier for him to make his payment, which ensures that MBNA gets paid."

Bankers, industry analysts and federal regulators interviewed by The Post said that lenders often restructure delinquent loans to avoid losses, but that this loan was nonetheless irregular.

"Deals like this make sense, but only up to a certain point. It's going to cost you way more than $30,000 if the borrower defaults," said a stock analyst who studied MBNA for the firm A.G. Edwards. "This is not a prudent deal, and it's a highly unusual transaction for the industry."

...

The MBNA loan might easily have escaped public notice; disclosure rules exempt information about members' primary homes. Dealings with mortgage lenders -- even those with legislative interests before Congress -- may be excluded.

Details of the MBNA loan emerged in court documents filed as part of the Morans' December 2000 divorce. After The Post asked him about it, Moran voluntarily provided copies of loan documents.

...

MBNA loan worksheets listed Moran's occupation as "Congressman." But, said Dalphon, "when we initiated the call, we didn't know he was a congressman."

...

Winning Moran's backing was a breakthrough, said lobbyists on both sides, because it gave momentum to the industry's pursuit of bipartisan support.

"Jim Moran was an early and harmful presence," said bill opponent Travis Plunkett of the Consumer Federation of America.

...

'Faulty Logic'

On Nov. 24, 1997, 15 days after Moran signed on to McCollum's bill, MBNA sent an appraiser to the congressman's home. The value for the house and an adjoining land parcel was set at $460,000 -- "considerably too high" based on values at the time, according to Jan Symons, a Virginia appraiser at Renner, Hansborough & Reese, and one of three who reviewed the appraisal for The Post. All agreed it was overly generous.

Moran provided an earlier appraisal done on behalf of another bank that had rejected the Morans as borrowers. That appraisal put the house's value at $491,000.

Both appraisers used what Symons called "faulty logic": They assigned the same value to an adjacent empty lot owned by the Morans as they did to the lot underneath Moran's house. In fact, the empty lot was classified as "substandard" -- too small for a home to be built on it, said Cindy Page-Smith, Alexandria's director of real estate assessments.

Ultimately, neither appraisal was backed up by the market: When the Morans sold their house in March 2001, it netted $451,000 after givebacks to the buyer -- $9,000 less than MBNA's 1997 appraisal in a Zip code where the average sales price of homes had jumped 32 percent in the interim.

The appraiser hired by MBNA referred all questions to the company, which said only that she was independent and state-certified.

The appraisal was only one of several favorable turns for Moran.

The lending experts who reviewed Moran's MBNA loan for The Post without knowing the borrower's identity all agreed it was unusual. As Doug Duncan, chief economist for the Mortgage Bankers Association of America, put it: "It's unique; it's obviously not a mainstream loan."

Lenders rely on some basic standards to ensure that borrowers can make their payments. Generally, they will lend only a set percentage of a home's appraised value. They also generally decline to make loans that exceed a certain percentage of a borrower's monthly income.

MBNA spokesman Dalphon said the company's policy was to lend no more than 80 percent of a home's appraised value. Loan documents show that MBNA allowed Moran to borrow 97.2 percent, a ratio that would not have met the standards of one of MBNA's principal competitors: "We would not make that loan," said a Citigroup spokesman.

But Dalphon said MBNA decided to exceed its guidelines because Moran was an established customer and MBNA was vulnerable to a loss on the couple's credit card debt.

The MBNA loan package meant that Moran's monthly debt totaled 61 percent of his income, according to a Post analysis that used a standard formula employed by lenders. Other lenders said they would avoid such a loan.

"Our system is hard-wired so you can't go over 40 percent," said Household International Inc. spokesman Craig Streem, whose credit card company purchased Moran's mortgages along with MBNA's mortgage portfolio in 1999 and also has a stake in the bankruptcy debate. "It can only be overridden by a very senior member of the underwriting team, and even then it cannot go above 51 to 52 percent, max."

Another issue was Moran's impaired credit. MBNA gave Moran a credit score that today would place him in the bottom 14 percent of U.S. consumers. People in that category have a 40 percent chance of default, bankruptcy or 90-day delinquency within two years, according to Fair Isaac & Co., a firm that rates credit risk.

The loan's size and Moran's poor credit meant that he could not qualify for the lower-interest "prime" loans that were available at the time for about 7.5 percent. Instead, high-risk borrowers fall into the "subprime" market and pay much higher rates.

Little data are collected on subprime interest rates. But Standard & Poor's sees interest rates and other proprietary information because it rates loan portfolios sold on Wall Street. At The Post's request, S&P's Raiter reviewed Moran's loan, using the credit score on MBNA's worksheets and other financial information from Moran.

Raiter graded the loan package in the worst of seven risk categories, then compared it to a database of 1,106 similarly risky loans made in January and February 1998. The average rate was 12.84 percent, he said.

MBNA gave the Morans a 10.5 percent interest rate on both the first and second mortgages, documents show. Had Moran paid 12.84 percent, it would have cost him an additional $800 a month, or about $288,000 over 30 years.

Dalphon said Moran's rate fell within the range of loans the company offered at the time for between 9.5 percent and 11 percent. Moran said that MBNA first offered nearly 12 percent, but that he was able to negotiate the 10.5 percent.

"I think your experts are wrong," Dalphon said. "We'd had a previous loan experience with the customer, and I don't think that the Standard & Poor's model takes that into account -- any model is the average."

Doug Johnson of the American Bankers Association reviewed the loan for Moran and concluded that the interest rate fell at the low end of a reasonable range: "I'd make the loan," he said.

On Jan. 30, 1998, MBNA did. The company gave the Morans the largest home purchase or refinance deal the company reported making that year, according to an analysis of detailed neighborhood records compiled by the Federal Reserve.

Dalphon dismissed the loan's size as irrelevant. "There's some loan out there that's going to be the biggest for any mortgage holder," he said. "The key is how the whole picture fits together."

An MBNA employee who worked on the loan and spoke on condition of anonymity said it was so big that it required a senior manager's approval, possibly that of Bruce Hammonds, the vice president then in charge of MBNA's home loan subsidiary and an MBNA lobbyist through 1997.

Dalphon declined to identify the officers whose initials appear on loan worksheets detailing the first mortgage, except to say that Hammonds wasn't one of them. No approval documents were available for the second mortgage, and Dalphon wouldn't say who ultimately approved the two-loan package.

He said that Hammonds "does not remember approving James Moran's loan. In fact, he didn't even know who James Moran was until I asked him about it." Moran said he did not recognize Hammonds' name and did not recall ever speaking with him.

'A Source of Great Anxiety'

On Feb. 3, 1998, four days after he received the loan, Moran became the lead Democratic sponsor of an even broader bankruptcy bill sponsored by U.S. Rep. George W. Gekas (R-Pa.).

On March 10, 1998, with his own finances in better order thanks to MBNA, Moran offered impassioned support for the bill before a House subcommittee.

"The time-honored principle of moral responsibility and personal obligation to pay one's debts has been eroded by the convenience and ease with which one can discharge his or her obligations," he said.

MBNA's Hammonds, by then promoted to chief operating officer, testified after Moran and mentioned Moran and the three other lead backers in his written remarks.

Moran's financial stability was short-lived, however. Mary Moran filed for divorce in June 1999. By April 2000, Moran was four months behind on his mortgage and barely "staving off foreclosure," divorce records show.

Moran said he certainly never felt like he got a good deal from MBNA. "I spent the last several years putting virtually all of my money into paying off this mortgage every month, and it became a source of great anxiety," Moran said in an interview.

The loan wasn't a good deal for Household International, the company that took over Moran's mortgages when it purchased MBNA's loan portfolio.

The Morans said that when they sold their house last year, Household agreed in a fairly standard transaction called a "short sale" to accept less than it was owed. It forgave about $40,000 in principal, penalties and fees to avoid the costs and hassle of foreclosing on the house, according to the Morans and their real estate agent.

Household wasn't the only company that forgave Moran's debts: In 2000, GM Card and First USA Bank wrote off Moran's credit card balances totaling between $2,700 and $6,000, according to his financial disclosure reports.

Meanwhile, Moran's support for bankruptcy reform was unabated. In March 2001, he railed on the House floor against credit-dependent consumers.

"Some people are taking these credit cards in, they sign up, they max it out, whatever they can charge," he said. "They pile debt up, and then they get themselves relieved from paying off their debt, and oftentimes they can go right back to doing it all over again. It needs to be fixed."

In the fall of 2002 James P. Moran, Jr. appeared at a candidates debate at Bethel Hebrew Congregation in Alexandria. Moran claimed at the time that his MBNA loan had been "a sweet deal for the bank."

It is incredible that Moran could have made such a statement. The Post points out in its article that Moran failed to pay $40,000 that he owed. If the alleged purpose of this loan was to ensure that Moran paid a $30,000 credit card debt, then it didn't work. The loan resulted in Moran not paying $40,000 in new loans that MBNA gave him.

I am dumbfounded that Moran would have had the temerity to stand in a house of worship and declare that the loan that he failed to pay was a "sweet deal for the bank."

Not only has Moran lied about this loan, but so also has MBNA.

In the above article, an MBNA spokesman claims that MBNA executive Hammonds "does not remember approving James Moran's loan. In fact, he didn't even know who James Moran was until I asked him about it."

Yet the article points out that "MBNA's Hammonds, by then promoted to chief operating officer, testified after Moran and mentioned Moran and the three other lead backers in his written remarks."

As of 2002, James P. Moran, Jr. had been in office for twelve years. He had appeared on television numerous times during impeachment, even calling on President Clinton to resign in a September 1998 appearance on Fox News Sunday.

MBNA executive Hammonds had been so interested in passage of the MBNA-backed bankruptcy bill that Hammonds testified before Congress about it (on the same day that Moran did.) Moran had been the lead Democratic sponsor of MBNAs legislation. Hammonds mentioned Moran by name in Hammonds' remarks.

Most importantly, the Post describes Hammonds as "the vice president then in charge of MBNA's home loan subsidiary and an MBNA lobbyist through 1997."

This man Hammonds was a lobbyist for MBNA! And yet, MBNA claims that a mere four years later, MBNAs Hammond did not know who James Moran was! I find MBNAs claim unbelievable.

This whole, sorry account of Moran preferential treatment from MBNA demonstrates the corruption that Moran introduces into the Democratic party. Democrats who wish to support the incumbent, Moran, deny the obvious in an attempt to defend this incumbent. Here is what a Moran defender wrote about Moran's MBNA loan on the Moran campaign blog:

First of all, I think someone who faced massive debt but didn't declare bankruptcy (contrary to the lie that Rosenberg was telling about him) has credibility in my book in dealing with this issue.

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