Countrywide Financial Corp. gave discount loans to former and current members of the U.S. Congress and executives at Fannie Mae (FNMA:US) as it lobbied to scuttle legislation that would have diminished its sale of sub-prime mortgages, according to a report released today by House Oversight and Government Reform Committee Chairman Darrell Issa.
The report, which caps a three-year inquiry by the panel, concluded that between 1996 and 2008, Countrywide executives used a special VIP loan program to try to stop legislation that would have restrained the company’s business with Fannie Mae, a government-sponsored mortgage company. Countrywide had an exclusive agreement to sell billions of dollars in mortgages to Fannie Mae at a discounted rate, according to the report.
“This report sheds new light on Countrywide’s relationship with Fannie Mae and how Countrywide used its VIP program to cement its ties to its taxpayer backed business partner,” Issa, a California Republican, said in a statement accompanying the report. “Other than Countrywide, no other entity’s employees received more VIP loans than Fannie Mae.”
The report contained new details about the lengths to which Countrywide executives were willing to go to accommodate Fannie Mae leaders who were looking for good deals on mortgages. Countrywide was based in Calabasas, California, and was acquired by Bank of America Corp. (BAC:US) in 2008.
Jim Johnson, chief executive officer of Fannie Mae from 1991 to 1998, earned $100 million during his time at the company. Nonetheless, Countrywide employees expressed concern about giving him a loan because he didn’t pay his bills regularly and had a low credit score, according to e-mails published in Issa’s report.
Because of Johnson’s credit report, “I’m concerned about signing on these loans,” Countrywide underwriter Gene Soda said in a 2005 e-mail to another Countrywide employee, according to the report.
Countrywide’s chief executive officer, Angelo Mozilo, who had a close relationship with Johnson, wrote back, instructing his employees to give Johnson a loan “1/2 below prime.”
“Don’t worry about” the credit score, Mozilo wrote. “He is constantly on the road and therefore pays his bills on an irregular basis but he ultimately pays them.”
In another e-mail, Mozilo wrote, “Jim Johnson continues to be a source of many loans for our company and this is just a small token of appreciation for the business that he sends to us.”
Mozilo’s view of Johnson’s successor at Fannie Mae, Franklin Raines, wasn’t as favorable, according to e-mails quoted in the report.
“There is no question, in retrospect, that Franklin Raines was the cause of much of his problems,” Mozilo wrote in a 2005 e-mail after an accounting scandal led Raines to step down from Fannie Mae. “His arrogance and his total lack of sensitivity to the world around him was at the root of all that you read today.”
Nonetheless, Countrywide gave Raines five VIP loans, the report said.
“Even as Countrywide’s CEO Mozilo mocked Fannie Mae and top executives for its crony capitalism business model, he would nonetheless personally intercede to ensure executives had access to discounted Countrywide loans,” Issa said in his statement. “These relationships helped Mozilo increase his own company’s profits while dumping the risk of bad loans on taxpayers.”
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac were taken into conservatorship by the U.S. government in September 2008 after purchases of risky loans almost pushed the companies into insolvency. Since then, the two taxpayer-owned companies have received almost $190 billion from the U.S. Treasury.
Issa’s investigation found that Countrywide’s VIP unit processed loans for several lawmakers, including then-Senator Christopher Dodd, a Connecticut Democrat who led the committee with jurisdiction over banking; Senator Kent Conrad, a North Dakota Democrat who is chairman of the Senate Budget Committee; Republican Representatives Howard P. “Buck” McKeon and Elton Gallegly of California and Pete Sessions of Texas; and Democratic Representative Edolphus Towns of New York.
Sessions requested that he not receive special benefits or treatment from Countrywide, according to the House panel’s findings. As a result, Countrywide didn’t give Sessions a discount on his loan, the panel said in the report.
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