Experts: Murphy’s Loan Deal Not Unusual
Updated 11:24 p.m., Tuesday, September 11, 2012
While U.S. Senate candidate Linda McMahon is making a federal case out of opponent Chris Murphy’s home equity line of credit from Webster Bank, experts agreed available evidence does not support her allegations the congressman got a sweetheart deal or engaged in a quid-pro-quo arrangement with the bank.
“I don’t see anything here,” said finance professor Michael Tucker, of Fairfield University’s Dolan School of Business.
Tucker was one of a handful of individuals with banking and mortgage expertise who weighed in on the ethics charges McMahon’s campaign lodged Friday against Murphy with the Office of Congressional Ethics.
McMahon, a Republican, is locked in a too-close-to-call second bid for the Senate against Murphy, a former Democratic state legislator who since early 2007 has represented the 5th Congressional District. McMahon’s mostly self-funded campaign has been intent on portraying her as an accomplished business executive who overcame personal bankruptcy and Murphy as a career politician beholden to special interests.
McMahon’s campaign alleges Murphy, who was sued in early 2007 for foreclosure after missing payments on a 30-year, $180,000 mortgage underwritten by Webster and sold to Chase Home Finance, should have been damaged goods to lenders. Instead, Murphy in July 2008 received a “generous” $43,000 home equity line of credit at 4.9 percent interest from Webster because of a political and professional relationship with the institution, McMahon’s campaign said.
The ethics filing, which under the congressional office’s rules apparently won’t be taken up so close to November’s election, attempts to outline a quid pro quo. In a nutshell, the allegation is this: Because Murphy, an attorney, provided legal services for Webster prior to his election to Congress, because he was allowed to open the home equity line of credit and because the bank’s political action committee contributed to his congressional campaigns, Murphy, a member of the financial services committee, in October 2008 voted for the federal bank bailout.
Webster received a $400 million loan under the Toxic Asset Relief Program, which the bank has repaid.
In the ethics complaint, McMahon campaign manager Corry Bliss also argued Murphy in 2005 had a lien placed on his home for failing to pay taxes and missed rent payments on an apartment in 2003. Murphy said the tax lien was for a prior owner of the house.
“No average American would have been able to secure a loan such as Congressman Murphy’s,” Bliss wrote the Office of Congressional Ethics, referring to the arrangement as a “prohibited gift.”
Not so, said the experts contacted for this story. They supported Murphy’s defense that, based on available information, the terms of the home equity loan Webster granted in July 2008, were reasonable given that the congressman’s personal financial situation had improved since the foreclosure proceedings more than a year earlier.
“How significant the dip in credit rating is depends on a number of variables,” said Mark Sank, a foreclosure defense attorney based in Stamford. He added the impact can be lessened if the debt is paid, which is what happened.
Robert Stone, a mortgage and credit risk consultant in California for Experian, agreed. He said banks use either generic underwriting scores developed by credit bureaus or customized scores.
“There are so many different factors,” he said. “Someone’s not going to just get knocked out for one factor.”
According to Murphy, he missed mortgage payments in 2006 because he and his then-fiancee, now his wife, were consolidating finances and there was a misunderstanding about who was responsible for that particular bill.
“I made a mistake,” he said.
By spring 2007 the couple had paid what they owed, and the foreclosure was withdrawn. In the meantime, Murphy had kept up with payments on a $22,500 home equity loan with Webster, and his household income had more than tripled, from its previous $70,000, because of his election to Congress and his wife’s job as a legal aid attorney.
In 2008, the couple refinanced the $22,500 home equity loan and added about $20,000 to the credit line in order to renovate their kitchen. Ultimately, Murphy said, only a portion of those funds was used.
“His income has increased, things are better, he’s married, his wife is working. The underwriting makes sense,” said William McCue, president of McCue Mortgage of New Britain, who freely admits he is supporting and donating to Murphy and other Democrats.
And Tucker and Sank agreed that the $43,000 line of credit was modest and hardly an extravagant gift.
“Look at the value of homes in Connecticut — $43,000 is not a lot of money (and) at 4.9 percent is not that great a situation,” Tucker said.
Webster weighed in Friday. In a statement, the bank insisted the $180,000 and $22,500 loans “conformed to all underwriting guidelines, were approved with no exceptions and were priced in line with prevailing market rates and terms.” The bank noted Murphy’s 4.99 interest rate on the credit line opened in July 2008 was “well above the 3.99 percent rate the banks’ most credit-worthy customers were receiving at the time.”
Stone and Tucker said 4.99 percent was not an unusual rate for that time.
For comparison’s sake, Bridgeport-based People’s United Bank, one Webster competitor, was, according to a spokesman, offering a monthly average 5.5 percent interest rate in June 2008.
Bliss on Friday sought to turn the tables on Webster, demanding the bank release its underwriting guidelines.
Stone agreed that information would provide more insight, but added, “Without that, it’s purely speculation that anything abnormal happened.”
McCue said it is fair to say Murphy’s cause was helped by the fact he had been a Webster customer.
“They really mean it when they say that it’s a relationship — ‘We’re your community bank,'” McCue said.
“If he walked into Linda McMahon’s bank, where he’d never done any business before, they might have said ‘thanks, no thanks.’ ”
The credit line was repaid when the home was sold in 2010, Webster said. Murphy has no outstanding loans, the bank said.
As for the McMahon campaign’s charge that Murphy thanked Webster by voting for TARP, the bank noted it had not sought the assistance and initially was undecided about whether to accept.
Tucker dismissed McMahon’s quid-pro-quo charges against Murphy, noting of the 172 House Democrats and 91 House Republicans — including GOP vice presidential contender Paul Ryan — who voted for the bailout, all of them likely had mortgages and bank loans.
During her failed 2010 bid for Senate, McMahon said she would have reluctantly voted for TARP to avoid an economic meltdown.