Dick Blumenthal has tried to cast himself as a white knight in the Countrywide Mortgage scandal that forced Chris Dodd into retirement after the exposure of his sweetheart mortgage deals under the “Friends of Angelo” program at Countrywide. Blumenthal points to his $8.6 billion settlement with Bank of America over the mortgage giant’s remaining loans, one that supposedly “won’t cost taxpayers a dime,” as an example of his beneficial work for Connecticut voters and his ability to get tough with fraudsters. Linda McMahon takes aim at this argument with her new ad released yesterday titled “Taking Care,” which alleges that Blumenthal took more care of himself than the citizen of the Nutmeg State:

The McMahon campaign found Blumenthal’s connection to Countrywide by “sifting through the Securities and Exchange Commission’s files,” according to National Review, finding a $3 million Blumenthal investment in the Blue Ridge Limited Partnership.  Blue Ridge took a significant interest in PennyMac, a fund formed by former Countrywide executives to purchase and restructure some distressed Countrywide loans to turn them towards profitability.  It’s not clear whether Blumenthal was aware of Blue Ridge’s stake in PennyMac — Blue Ridge says it’s “proprietary” and doesn’t even discuss them with clients, but the McMahon campaign found it through public sources easily enough.

Did the settlement actually do what Blumenthal claims?  The cost of a good portion of the settlement wound up being paid by taxpayers after all.  The campaign points to an article in The Nation that reports that Bank of America is allowed to use the Obama administration’s HAMP program incentives to fund the restructuring of the Countrywide loans it assumed — and that could amount to more than half of Blumenthal’s settlement:

Only about 12 percent of the first-lien loans initiated by Countrywide remain on BofA’s books. Investors in mortgage-backed securities, including major pension funds like CalPERS (the California Public Employees’ Retirement System), own the other 88 percent, and it is these investors who will bear most of the expense of complying with the settlement, in the form of permanently reduced principal and interest payments on their bond holdings. Believe it or not, this aspect of the deal was overlooked by the settlement. Richard Blumenthal, attorney general of Connecticut, one of the original parties to the suit, seems to have missed it entirely, claiming in his October 2008 announcement, “This settlement will cost BofA as much as $8.6 billion, but no cost, not a dime, to taxpayers.”

In fact, as it turned out later, much of the settlement’s cost would be covered by taxpayers. Bank of America is allowed to use federal incentives under President Obama’s $75 billion Home Affordable Modification Program (HAMP) toward the loan modifications it is required to make as the mortgage servicer for the Countrywide portfolio. In total, of its entire Countrywide financial servicing portfolio—which goes beyond the loans covered by the settlement—BofA is eligible for as much as $4.5 billion in federal incentives for completed modifications, according to an analysis by the Center for Public Integrity as reported in Mother Jones. That’s a hefty government rebate.

So Blumenthal got it wrong to the tune of $4.5 billion.  Given that he already has some serious credibility issues in this campaign, it’s hardly helps to have Linda McMahon pinning this one on him in the final fortnight before the midterm election.