Before anyone had heard of a subprime mortgage crisis, one of the nation’s largest mortgage companies, Countrywide Financial Corp., was using discount loans to members of Congress and congressional staff to buy influence in what may turn out to be the biggest influence-peddling scandal in American history.
A House report obtained by The Associated Press identified discounts given from January 1996 to June 2008, targeted to gain influence for the company and mortgage giant Fannie Mae. Countrywide’s business model was dependent upon Fannie Mae that was fiercely fighting to avoid government regulations intended to reign in Fannie’s mortgage writing practices.
During the period leading up to the subprime collapse, Fannie purchased a large volume of Countrywide’s subprime mortgages. Bank of America was pressured by the Bush Administration to purchase Countrywide in January 2008, to reduce the stress on the financial services industry that might have buckled under the load of the bankruptcy of a company servicing 9 million U.S. home loans worth $1.5 trillion.
“Documents and testimony obtained by the committee show the VIP loan program was a tool used by Countrywide to build goodwill with lawmakers and other individuals positioned to benefit the company,” the report said. “In the years that led up to the 2007 housing market decline, Countrywide VIPs were positioned to affect dozens of pieces of legislation that would have reformed Fannie” and its rival Freddie Mac, the committee said.
Some of the discounts were ordered personally by former Countrywide chief executive Angelo Mozilo; these beneficiaries were collectively known as “Friends of Angelo.”
The Justice Department has not prosecuted a single Countrywide official, but the House committee’s report said documents and testimony show that Mozilo and company lobbyists “may have skirted the federal bribery statute by keeping conversations about discounts and other forms of preferential treatment internal. Rather than making quid pro quo arrangements with lawmakers and staff, Countrywide used the VIP loan program to cast a wide net of influence.”
In October 2010 the Securities and Exchange Commission fined Mozilo $22.5 million to settle charges he and two other former Countrywide executives lied to investors when the subprime mortgage crisis was exposed and banned Mozilo from ever serving as an officer or director of a publicly traded company.
Mozilo agreed to pay another $45 million to settle other violations that was to be returned to investors who were harmed; the status of those payments remains unknown.
The report said that until the housing market became swamped with foreclosures, “Countrywide’s effort to build goodwill on Capitol Hill worked.”
Countrywide served as an adviser to Congress, consulted with the House Financial Services Committee and Senate Banking Committee as they considered reform of Fannie and Freddie and unfair lending practices, all while using discount loans to members of Congress to buy influence.
“If Countrywide’s lobbyists, and Mozilo himself, were more strictly prohibited from arranging preferential treatment for members of Congress and congressional staff, it is possible that efforts to reform (Fannie and Freddie) would have been met with less resistance,” the report said.
The report said Fannie assigned as many as 70 lobbyists to the Financial Services Committee while it considered legislation to reform the company from 2000 to 2005; four reform bills were introduced in the House during this period and none made it out of the committee.
Fannie and Freddie came under government control in September 2008 as their staggering losses portended a likely failure of both organizations. Just this past December the Treasury Department up the government’s commitment to $183 billion to prop up the two companies, but additional financial support will be required for the foreseeable future.
Identified in the report as having participated in the discount loans were:
- Former Senate Banking Committee Chairman Christopher Dodd, D-Conn.
- Senate Budget Committee Chairman Kent Conrad, D-N.D.
- Mary Jane Collipriest, who was communications director for former Sen. Robert Bennett, R-Utah, then a member of the Banking Committee. The report said Dodd referred Collipriest to Countrywide’s VIP unit. Dodd, when commenting on his own loans, has said he was unaware of the discount program.
- Rep. Howard “Buck” McKeon, R-Calif., chairman of the House Armed Services Committee.
- Rep. Edolphus Towns, D-N.Y., former chairman of the Oversight Committee. Towns issued the first subpoena to Bank of America for Countrywide documents, and current Chairman Darrell Issa, R-Calif., subpoenaed more documents. The committee said that in responding to the Towns subpoena, Bank of America left out documents related to his Towns’ loan.
- Rep. Elton Gallegly, R-Calif.
- Top staff members of the House Financial Services Committee.
- A staff member of Rep. Ruben Hinojosa, D-Texas, a member of the Financial Services Committee.
- Former Rep. Tom Campbell, R-Calif.
- Former Housing and Urban Development Secretaries Alphonso Jackson and Henry Cisneros; former Health and Human Services Secretary Donna Shalala. The VIP unit processed Cisneros’s loan after he joined Fannie’s board of directors.
- Former heads of Fannie Mae James Johnson, Daniel Mudd and Franklin Raines. Countrywide took a loss on Mudd’s loan. Fannie employees were the most frequent recipients of VIP loans. Johnson received a discount after Mozilo waived problems with his credit rating.
| The report said Mozilo “ordered the loan approved, and gave Johnson a break. He instructed the VIP unit: `Charge him 1/2 under prime. Don’t worry about (the credit score). He is constantly on the road and therefore pays his bills on an irregular basis but he ultimately pays them.” |
| In 2008 Johnson resigned as a leader of then-candidate Barack Obama’s vice presidential search committee after The Wall Street Journal reported he had received $7 million in Countrywide discounted loans. |
- Rep. Pete Sessions, R-Texas, was identified as having been offered a discount loan through the VIP program, but instructed Countrywide not to give him a discount and did not receive one.
The report said those who received the discounts knew the loans were handled by a special VIP unit.
“The documents produced by the bank show that VIP borrowers received paperwork from Countrywide that clearly identified the VIP unit as the point of contact,” the committee said.
The standard discount was half of a point in interest or loan origination fees as well as waiving of other fees ranging from $350 to $400. The half point benefit in Mr. Johnson’s case alone represents a $35,000 kickback to the former executive of Fannie Mae.
As of this date nothing from the report has been referred to the Justice Department for prosecution when clearly members of Congress willingly participated in selling influence by accepting beneficial loan terms from Countrywide; a clear violation of federal law. Regardless of party affiliation there appears to have been a concerted effort to look the other way even though the “Friends of Angelo” program has been widely publicized over the past three years.
Today millions of American citizens are saddled by mortgages in excess of their home’s value. Companies like Countrywide dealt out mortgages beyond people’s ability to repay because they knew they could profit by reselling the loans to Fannie Mae. How nauseating is it to know that those we’ve entrusted to defend our Constitution and enforce our laws were selling that trust for personal gain?
Will this report be the start of Congress coming clean with the American people and insure that “justice for all” is more than just the last three words of the Pledge of Allegiance? Don’t hold your breath.
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