Democrats claim their sweeping financial-sector reforms will guard against the kind of problems that triggered the recent economic meltdown. But if they really wanted to do that, they would’ve focused on how so many US officials were simply . . . bought. Fat chance.
Nonetheless, Rep. Darrell Issa (R-Calif.), ranking member of the House Committee on Oversight and Governmental Reform, is demanding just such a review — and, for the sake of the nation, he should get one.
Last week, Issa wrote to Alfred Pollard, general counsel to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, asking for a probe of “VIP” mortgage loans given to Fannie and Freddie executives by Countrywide Financial Corporation. He also disclosed that Senate staffers got 30 low-rate mortgages under the program.
Founder Angelo Mozilo built Countrywide into the nation’s largest mortgage lender, with a portfolio at one point worth $1.4 trillion, by selling billions in mostly subprime loans to Fannie and Freddie. Clinton Attorney General Janet Reno, using the anti-redlining statute — the Community Reinvestment Act — relentlessly pressured banks to make loans to “the underserved.” But the banks could not make enough subprime mortgage loans to satisfy our lawmakers unless the federal government bought the loans they originated. That’s where Fannie and Freddie came in.
Eventually, Congress and the Department of Housing and Urban Development ordered Fannie to spend 50 cents of every dollar buying subprime loans. Today, Fannie and Freddie are wards of the state and own, or are responsible for, $5.5 trillion worth of mortgages.
Documents strongly suggest that, through a VIP loan program at Countrywide for “Friends of Angelo,” Mozilo helped spur officials to keep up Fannie and Freddie’s multitrillion-dollar mortgage-spending spree and, especially, buying Countrywide’s junk mortgages. Special account executives were hired to administer the “FOA” loan program. Their business cards contained the designation “VIP Loan Program,” so that the VIPs who received these discounted loans would know they were being given special treatment. Thousands of dollars were saved by each VIP borrower, and each had to have known it.
“Friends of Angelo” loans went to Sen. Chris Dodd (D-Conn.), the Senate Banking Committee chairman; Sen. Kent Conrad (D-N.D.), Budget Committee chairman and a Finance Committee member; Secretary of Housing and Urban Development Alphonso Jackson; Jim Johnson, a former Fannie CEO and adviser to candidate Barack Obama; Clinton Jones III, senior counsel to the House Financial Services Subcommittee on Housing, and Franklin Raines, since-disgraced Fannie CEO.
But the more than 44,000 documents subpoenaed by Issa showed that the corruption in the system ran even deeper. They show that a staggering 153 VIP loans were extended to the quasi-governmental employees who decided what loans Fannie would buy with the taxpayers’ money. Another 20 VIP loans were made to Freddie Mac executives.
Mozilo’s seemingly systematic efforts to sway lawmakers, a cabinet member, White House staff and the executives at Fannie and Freddie appear to have paid off. In 2007, Countrywide alone originated 23 percent of a massive volume of Fannie and Freddie’s mortgage purchases. In that year alone, Mozilo made more than $140 million. VIP borrower and Fannie CEO Jim Johnson signed a strategic agreement with Countrywide granting Fannie exclusive access to Countrywide’s junk loans. Mozilo, in effect, had managed to make the United States and Countrywide joint venturers in the most prodigious — and dangerous — subprime-mortgage operation in our country’s history.
Mozilo also seems to have stifled numerous bills in Congress aimed at reform — despite warnings by Republicans that a failure to rein in Fannie and Freddie posed grave dangers to taxpayers. When Sen. Richard Shelby (R-Ala.) pushed for a comprehensive fix, Dodd successfully threatened a filibuster.
Meanwhile, despite ethical codes governing Congress, the Executive Branch and Fannie and Freddie, which ban the acceptance of gifts or discounts, influential “Friends of Angelo” accepted their discounted loans.
If House Leader Nancy Pelosi really were interested in reform and in “draining the swamp,” she’d have launched a probe long ago. She didn’t. Even worse, two-time VIP loan recipient Dodd served as sponsor of the financial-reform law, which makes no effort to deal with Fannie and Freddie, even though to date they’ve received $145 billion in taxpayer bailouts — with no end in sight.
President Obama and his fellow Democrats singled out Wall Street in their massive reform package. They should have looked in the mirror first.
Stephen B. Meister is a partner in Meister Seelig & Fein LLP.