While a number of conservatives over at National Review are grousing about abortion-proponent and welfare-reform opponent Donna Shalala receiving the Presidential Medal of Freedom on June 19–what is more worrisome is the sweetheart deal she got from Countrywide mortgage.

The former Clinton official was able to refinance her house under a special “V.I.P.” program that waived points and thousands of dollars in fees. Her loan received the code “FOA”–for Friends Of Angelo Mozilo, the Countrywide chief executive.

The “V.I.P.” program was not open to the public. Mom and Pop Countrywide borrowers have to pay thousands more in points, fees and other charges for loans of the same size.

Shalala received two insider mortage loans in 2002.

The legality of the loans is in doubt. Certainly, the terms of the loans violates Countrywide’s published ethics policy, which forbids executives from pressuring  loan officers to give preferential to their friends.

Porfolio.com, the new Conde Nast business magazine, reveals just luxurious the treatment was for Shalala:

According to company documents and emails, the V.I.P.’s received better deals than those available to ordinary borrowers. Home-loan customers can reduce their interest rates by paying “points”—one point equals 1 percent of the loan’s value. For V.I.P.’s, Countrywide often waived at least half a point and eliminated fees amounting to hundreds of dollars for underwriting, processing and document preparation. If interest rates fell while a V.I.P. loan was pending, Countrywide provided a free “float-down” to the lower rate, eschewing its usual charge of half a point. Some V.I.P.’s who bought or refinanced investment properties were often given the lower interest rate associated with primary residences.

Of course, Shalala is not the only Democratic Party worthy cashing in on this insider mortgage deal. Portfolio.com again:

Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s “V.I.P.” program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.

Other participants in the V.I.P. program included former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke. Jackson was deputy H.U.D. secretary in the Bush administration when he received the loans in 2003.

The White House needs to rethink awarding Shalala a prestigious Medal of Freedom. At a time when millions of Americans are struggling to pay their mortgages and the sub-prime crisis is in full swing, it looks odd to hand the nation’s highest civilian honor to Washington insider who benefited from crony connections to get a cheaper mortgage.

If the White House thinks it is too late to revoke the presidential medal, staffers might want to reflect on the press conference that naturally follows. Imagine the gotcha questions. Imagine the tv and radio coverage. Imagine another black eye for the president.

Thanks to breaking news from Portfolio.com, the White House staff has an opportunity to protect the president and safeguard the integrity of the Medal of Freedom. It should announce an investigation and withhold the medal until it is completed.

If Shalala did no wrong, the next president can give her the gong.