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Details emerge on Rep. Buck McKeon's Countrywide loan

Four years after Countrywide Financial became a symbol of the mortgage meltdown, the company and its questionable dealings have become a potent political issue in the Santa Clarita congressional district held by Republican Howard "Buck" McKeon.

Congressional investigators allege that McKeon and Rep. Elton Gallegly, a Republican colleague whose neighboring district includes much of Ventura County, got cut-rate home loans under a Countrywide VIP program known as "Friends of Angelo," named for the now-defunct Calabasas lender's former chief executive, Angelo Mozilo.

McKeon received a $315,000 mortgage refinance in 1998 as his family-owned business, Howard & Phil's Western Wear, was going through a Chapter 11 bankruptcy, according to documents reviewed by The Times. McKeon was no longer involved in the daily operation of the business after his 1992 election to Congress, but he had retained a stake in it. He saw his income plummet in the years before refinancing his Stevenson Ranch home, financial disclosures and bankruptcy filings show.

In spite of that, McKeon received a favorable rate and wasn't required to produce documentation proving he could repay the mortgage — terms ordered by Mozilo himself, according to documents subpoenaed for a House inquiry.

Both congressmen have denied that they knew they were getting special treatment. Gallegly, who received a $77,000 loan under the program in 2004, announced Jan. 7, a few days before the investigation was reported, that he would not be running for reelection. But McKeon is running against two Democratic challengers — Lee Rogers, a podiatrist, and Laura Molina, an artist affiliated with the Occupy Wall Street movement — who have seized on the scandal.

McKeon's district is largely Republican, and political experts think he can weather the political storm. But they believe damage has been done, especially in a region hit hard by foreclosures. Countrywide had offices in the Santa Clarita Valley and Ventura County when it was bought out by Bank of America in 2008, eliminating 7,500 jobs nationwide.

"When politicians take special deals like this, the real victim is the public," said Jon Fleischman, editor of the Flash Report blog. "When they get special favors that the rest of us don't get, it's very un-American and it increases cynicism."

Gallegly and McKeon are among several members of Congress accused of getting mortgage financing at below-market rates through the Friends of Angelo program. Preferential terms are not illegal but can be looked upon as a gift and must be declared in financial statements.

A probe of the VIP loan program initially focused on loans provided to Democratic Sens. Christopher Dodd and Kent Conrad. A Senate Ethics Committee dismissed the accusations.

Rep. Darrell Issa (R-Vista), chairman of the House oversight committee, expanded the probe, subpoenaing documents that turned up the names of four additional lawmakers whom he did not publicly identify. But in a Wall Street Journal article last month, McKeon and Gallegly confirmed they were on the list.

Gallegly said he has had more than a dozen loans on three homes in California and two homes in Washington, D.C., over the last 20 years. He said he could find only one that went through Countrywide: a 2004 loan for $77,000 at a 5.75% interest rate, which he paid off less than a year later.

McKeon's loan has come under greater scrutiny.

One email written by a Countrywide staffer included this instruction on McKeon's loan: "Per Angelo — take off 1 point, no garbage fees, approve the loan and make it a no doc." Another notation recorded by a Countrywide employee said McKeon seemed "edgy" and "wants to close ASAP," according to documents obtained by Issa.

McKeon's office said McKeon had never met or spoken to Mozilo and was "shocked and angry to hear this, as he had no knowledge of the Friends of Angelo designation." In an interview in his Capitol Hill office last month, McKeon said he had paid the "garbage fees" and did not get a point off on the loan.

"In other words, I didn't get a deal," he said.

Some mortgage experts who reviewed loan documents provided to The Times by McKeon's office disputed that. (None of the reviewers were told who the borrower was.)

The McKeons bought the Stevenson Ranch property, a foreclosed home, in August 1997 for $261,000, putting down 10% and getting a loan of $234,900, property records show. In January 1998, they took out a home equity loan of $31,500 through Valencia National Bank, where McKeon had previously sat on the board.

That October, Countrywide approved the $315,000 refinance loan. The loan paid off McKeon's original mortgage loan and the home equity loan and gave him $46,894 in cash.

Five months later, the couple took out another home equity loan through Valencia, in the amount of $30,000.

McKeon's interest on the refinance was locked in at a 30-year fixed rate of 6.75%, close to that month's national average of 6.71%.

But Guy Cecala, publisher of Inside Mortgage Finance, who reviewed the loan documents, said the national average included a one-point charge that was not included in McKeon's loan — a savings of about $3,000. And, contrary to McKeon's statement that he had paid the "garbage fees," Cecala said Countrywide did not charge a processing or underwriting fee or other fees beyond what was required.

Cecala characterized it as a good deal but not one that would raise suspicion.

David Jaffee, a Thousand Oaks mortgage broker, agreed that the costs were low but "nothing out of the ordinary." More important, he said, would be the McKeons' incomes and credit scores.

"If the borrower was able to verify income and had decent credit it would be a no-brainer loan," said Jaffee, a 30-year veteran in the mortgage industry.

Experts said the business bankruptcy might not have affected the loan's interest rate, since McKeon was not personally liable for the business debts and had another income stream. But they said reduced documentation loans were rare at the time and generally would have come with a price markup.

The Times attempted to question McKeon, but he did not return multiple messages left with his office last week.

His pay from Howard & Phil's Western Wear had evaporated from more than $325,000 in 1992 to zero in 1998 as the business struggled to reorganize. It liquidated the following year. In 1995, the last year before the bankruptcy filing, McKeon's financial disclosure showed more than $100,000 in income from Howard & Phil's and a related business. That income source had disappeared by 1998.

Apart from his $136,700 congressional salary, his only other reported source of income that year was investment income totaling less than $30,000. The amount of his wife's salary was not listed.

abigail.sewell@latimes.com

catherine.saillant@latimes.com

Times staff writer Richard Simon contributed to this report.

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