The former Countrywide Financial Corp., whose subprime loans helped start the nation's foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials, and executives of troubled mortgage giant Fannie Mae, according to a report from the House of Representatives.
The report said loans handled by a "VIP" unit-providing discounts, faster service, and waived fees from January 1996 to June 2008-were not only aimed at gaining influence for the company but to help mortgage giant Fannie Mae fight off more government regulation.
Countrywide's business depended largely on Fannie, which purchased a large volume of Countrywide's subprime mortgages. Bank of America took over Countrywide and its 9 million home loans worth $1.5 trillion in January 2008.
"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," said the report from the House Oversight and Government Reform Committee, chaired by Rep. Darrell Issa, R-Calif. "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.
The Justice Department has not prosecuted any Countrywide official. The report said documents and testimony show that Countrywide chief executive Angelo Mozilo and company lobbyists made no quid pro quo arrangements with lawmakers or staff but used the VIP program to "cast a wide net of influence" without which there may have been "less resistance" in Congress to efforts to reform Fannie and Freddie.
The report said Fannie Mae assigned as many as 70 lobbyists to the Financial Services Committee while it considered legislation to overhaul the company from 2000 to 2005. Four reform bills were introduced in the House during the period, and none made it out of the committee.
The program spread to Congress, according to The Wall Street Journal, in part because congressional staffers were complaining about their Countrywide mortgages to the company's lobbyists. Former Countrywide lobbyist Jimmie Williams told committee investigators, "I quickly figured out you are not going to hear anything I said when you had a bad problem with Countrywide," adding, "I can't do my job if I am spending time taking complaints."
Issa said that while 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. "These relationships helped Mozilo increase his own company's profits while dumping the risk of bad loans on taxpayers," the report said.
Hit with staggering losses, Fannie and Freddie came under government control in September 2008. As of Dec. 31, 2011, the Treasury Department had committed more than $183 billion to support the two companies-and there's no end in sight.
Among those who received loan discounts from Countrywide, the report said, were:
- Sen. Christopher Dodd, D-Conn., former chairman of the Senate Banking Committee
- Kent Conrad, D-N.D., chairman of the Senate Budget Committee
- A staffer for former Sen. Robert Bennett, R-Utah, then a member of the Senate Banking Committee
- Rep. Howard "Buck" McKeon, R-Calif., chairman of the House Armed Services Committee
- Rep. Edolphus Towns, D-N.Y., former chairman of the House Oversight Committee
- 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 House 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
- Former Fannie Mae heads James Johnson, Daniel Mudd, and Franklin Raines
Countrywide took a loss on Daniel Mudd's loan. Fannie Mae employees were the most frequent recipients of VIP loans.
James Johnson received a discount after Countrywide head Mozilo personally waived problems with his credit rating. Johnson in 2008 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 notable for refusing the VIP discount.
The standard discount was 0.5 waived points. Countrywide also waived junk fees that usually ranged from $350 to $400.
The Associated Press contributed to this report.