The House Oversight and Government Reform Committee, Darrell Issa’s perch, has released a new report on the practice of now-defunct mortgage lender Countrywide handing out special mortgages at low rates to members of Congress and other key officials through their “VIP” program. And it does not appear to pick sides or divvy up the information to protect one party or the other.
The report clears Rep. Pete Sessions (R-Texas), the National Republican Congressional Committee chairman, but said several other sitting House Members accepted loans with special discounts.
“The VIP unit processed loans for Congressmen Howard ‘Buck’ McKeon [R-Calif.]; Pete Sessions; Edolphus Towns [D-N.Y.]; and Elton Gallegly [R-Calif.],” the report said. But Sessions specifically asked not to receive any discount.
Towns is the former ranking member of Issa’s committee.
The vast majority of the special loans went to employees at Fannie Mae, which was then deeply involved in business dealings with Countrywide and was lobbying against legislation that would restrict its ability to acquire and hold subprime loans.
The report can be found here. Chris Dodd and Kent Conrad are frequently the politicians brought up in association with the “Friends of Angelo” VIP loans from Countrywide; but as noted above, this report highlights several Republicans, including the former HUD Secretary, Alphonso Jackson, along with the Democrats. This appears to have been a bipartisan problem. The report provides documented evidence that all those who received VIP loans were well aware they were participating in a VIP program. You can say they may not have known how discounted the loans were, but I think VIP at least connotes something of value.
Incidentally, of all of the members named in the report, only McKeon is running for re-election. This report must be music to the ears of Lee Rogers, his Democratic opponent.
The Fannie Mae section is particularly troubling. This is from page 76:
In 1999, Fannie Mae CEO Jim Johnson and Countrywide CEO Angelo Mozilo
reached a strategic agreement giving Fannie Mae exclusive access to many of the loans
originated by Countrywide in exchange for a discount on fees Fannie charged when
buying loans. The agreement linked the growth and success of Countrywide to Fannie
Mae’s continued desire to acquire a large volume of loans.
Fannie Mae designed the deal to lock competitor Freddie Mac out of the market
for Countrywide’s loans […] Countrywide and Fannie Mae further expanded their relationship with another strategic alliance agreement in 2005. During each quarter, Countrywide was required to sell to Fannie Mae at least 70 percent of all “Expanded Criteria Mortgages,” and at least 65 percent of those mortgages each month […]
Throughout 2005, Fannie Mae and Countrywide continued to expand their
alliance. In April 2005, Fannie offered Countrywide “improved pricing for investor loan
products,” the goal of which was “to offer an execution that is more competitive with
private label execution.”
Days later, on April 19, 2005, a Fannie Mae official provided Countrywide executives with “a valuable heads up” on a change in loan collection policy. David Battany, former Director of Single-Family Business in Fannie Mae’s Western Region office located in Pasadena, California, emphasized the sensitive nature of the information. In an e-mail to Countrywide Chief Risk Officer John McMurray, Battany stated:
The above policy is not public, and you should be the first in the country to know this information. Please do not share this information outside of Countrywide at this time.
Needless to say, top Fannie executives got cheap loans, including Jim Johnson, the former CEO. Several Democratic-aligned individuals sat at the top of the Fannie board at this time. This certainly gives credence to the long-held belief by analysts like Jeremy Rosner that Fannie was deeply corrupt. When you have this quasi-private, quasi-public enterprise, the opportunity for corruption is pretty large. Fannie and Freddie didn’t cause the housing bubble, but that doesn’t mean their conduct was particularly defensible.
Issa is definitely a headline-grabber, but this case deserves a few headlines.