The Secret Affairs of Fannie Mae, Sallie Mae & Freddie Mac

The Secret Affairs of

Fannie Mae, Sallie Mae
& Freddie Mac

~ o ~

Oct 19, 2008

AP IMPACT: Mortgage firm
arranged stealth campaign

Freddie Mac secretly paid GOP
consulting firm to kill regulation

By PETE YOST, Associated Press Writer

WASHINGTON (AP) -- Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb. DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.

Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.

In the midst of DCI's yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.

"If effective regulatory reform legislation ... is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole," the senators wrote in a letter that proved prescient.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.

In the end, there was not enough Republican support for Hagel's bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.

McCain, R-Ariz., was not a target of the DCI campaign. He signed Hagel's letter and three weeks later signed on as a co-sponsor of the bill.

By the time McCain did so, however, DCI's effort had gone on for nine months and was on its way toward killing the bill.

In recent days, McCain has said Freddie Mac and Fannie Mae were "one of the real catalysts, really the match that lit this fire" of the global credit crisis. McCain has accused Democratic presidential candidate Barack Obama of taking advice from former executives of Fannie Mae and Freddie Mac, and failing to see that the companies were heading for a meltdown.

McCain's campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000. In December, Freddie Mac contributed $250,000 to last month's GOP convention.

Obama has received $120,349 in political donations from employees of Freddie Mac and Fannie Mae; McCain $21,550.

The Republican senators targeted by DCI began hearing from prominent constituents and financial contributors, all urging the defeat of Hagel's bill because it might harm the housing boom. The effort generated newspaper articles and radio and TV appearances by participants who spoke out against the measure.

Inside Freddie Mac headquarters in 2005, the few dozen people who knew what DCI was doing referred to the initiative as "the stealth lobbying campaign," according to three people familiar with the drive.

They spoke only on condition of anonymity, saying they fear retaliation if their names were disclosed.

Freddie Mac executive Hollis McLoughlin oversaw DCI's drive, according to the three people.

"Hollis's goal was not to have any Freddie Mac fingerprints on this project and DCI became the hidden hand behind the effort," one of the three people told the AP.

Before 2004, Fannie Mae and Freddie Mac were Democratic strongholds. After 2004, Republicans ran their political operations. McLoughlin, who joined Freddie Mac in 2004 as chief of staff, has given $32,250 to Republican candidates over the years, including $2,800 to McCain, and has given none to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.

On Friday night, Hagel's chief of staff, Mike Buttry, said Hagel's legislation "was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Sen. Hagel's legislation every step of the way."

"It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress's bill that would strengthen the regulation and oversight of that institution," Buttry said in a statement. "America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie."

Nine of the 17 targeted Republican senators did not sign Hagel's letter: Sens. Mitch McConnell of Kentucky, Christopher "Kit" Bond and Jim Talent of Missouri, Conrad Burns of Montana, Mike DeWine of Ohio, Lamar Alexander of Tennessee, Olympia Snowe of Maine, Lincoln Chafee of Rhode Island and George Allen of Virginia. Aside from the nine, 20 other Republican senators did not sign Hagel's letter.

McConnell's office said members of leadership do not sign letters to the leader. McConnell was majority whip at the time.

Eight of the targeted senators did sign it: Sens. Rick Santorum of Pennsylvania, Mike Crapo of Idaho, Jim Bunning of Kentucky, Larry Craig of Idaho, John Ensign of Nevada, Lindsey Graham of South Carolina, George Voinovich of Ohio and David Vitter of Louisiana. Santorum, Crapo and Bunning were on the Senate Banking, Housing and Urban Affairs Committee and had voted in favor of sending the bill to the full Senate.

On Thursday, Freddie Mac acknowledged that the company "did retain DCI to provide public affairs support at the state and local level." On Friday, DCI issued a four-sentence statement saying it complied with all applicable federal and state laws and regulations in representing Freddie Mac. Neither Freddie Mac nor DCI would say how much Goodyear's consulting firm was paid.

Freddie Mac paid DCI $10,000 a month for each of the targeted states, so the more states, the more money for DCI, according to the three people familiar with the program. In addition, Freddie Mac paid DCI a group retainer of $40,000 a month plus $20,000 a month for each regional manager handling the project, the three people said.

Last month, the concerns of the 26 Republican senators who signed Hagel's bill became a reality when the government seized control of Freddie Mac and Fannie Mae amid their near financial collapse. Federal prosecutors are investigating accounting, disclosure and corporate governance issues at both companies, which own or guarantee more than $5 trillion in mortgages, roughly equivalent to half of the national debt.

Freddie Mac was so pleased with DCI's work that it retained the firm for other jobs, finally cutting DCI loose last month after the government takeover, according to the three people familiar with the situation.

Freddie Mac's problems began when Hagel's legislation won approval from the Senate committee.

Democrats did not like the harshest provision, which would have given a new regulator a mandate to shrink Freddie Mac and Fannie Mae by forcing them to sell off part of their portfolios. That approach, the Democrats feared, would cut into the ability of low- and moderate-income families to buy houses.

The political backdrop to the debate "was like bizarre-o-world," said the second of three people familiar with the program. "The Republicans were pro-regulation and the Democrats were against it; it was upside down."

Sen. Richard Shelby, the committee chairman at the time, underscored that in a statement Wednesday, saying that with Democrats already on their side, it was not surprising that Freddie Mac and Freddie Mae went after Republicans. "Unfortunately," said Shelby, R-Ala., "efforts then to derail reform were successful."

In a sign of bad things to come, Freddie Mac was already having serious problems in 2005. Auditors had exposed massive accounting issues, so improved regulation was one obvious remedy.

Once Freddie Mac's in-house lobbyists failed to keep Hagel's bill bottled up in the committee, McLoughlin responded by secretly hiring DCI.

DCI never filed lobbying reports with Congress about what it was doing because the firm was relying on a long-recognized gap in the disclosure law.

Federal lobbying law only requires reporting and registration when there are contacts with a legislator or staff.

"To have it stealthy, not to let people know who is behind this, in my opinion is unethical," said James Thurber, director of the Center for Congressional and Presidential Studies at American University who long has taught courses about lobbying.

Goodyear is a longtime political consultant from Arizona who resigned from the Republican convention job this year after Newsweek magazine revealed he had lobbied for the repressive military junta of Myanmar.

McLoughlin, Freddie Mac's senior vice president for external relations, was assistant treasury secretary from 1989 through 1992 in the administration of President Bush's father. McLoughlin served as chief of staff to Sen. Nicholas Brady, R-N.J., in 1982 and to Rep. Millicent Fenwick, R-N.J., from 1975-79.

Seven of the 17 targeted Republican senators were in the midst of re-election campaigns in 2006, and according to one of the three people familiar with the program, Freddie Mac and DCI hoped those facing tough races would tell their Republican colleagues back in Washington that "we've got enough trouble; you're making it worse with Hagel's bill."

Five of the seven DCI targets who ran for re-election in 2006 lost, and Senate control switched to the Democrats.

A Freddie Mac e-mail on May 4, 2006 - the day before Hagel's letter - details the behind-the-scenes effort that Freddie Mac and DCI generated to hold down the number of Republicans signing Hagel's letter urging a full Senate vote. It said:

"What I'm asking is that DCI get a few of their key well-connected constituents from each state to call in to the DC office of their Republican senators and speak to the (legislative director) or (chief of staff) and urge them not to sign the letter. The following could be used as a short script."

The proposed script read: "We can all agree that Fannie's and Freddie's regulator should be strengthened but unfortunately, S.190 goes too far and could potentially have damaging effects on Georgia's - example - home buyers."

According to the third of the three people familiar with the program, "DCI was asked to help keep senators from signing; it was a big part of their effort that year and it was viewed as a success since many DCI targets did not sign the letter."

DCI's progress after the first four months of the campaign was spelled out in a 19-page document dated Dec. 12, 2005, and titled, "Freddie Mac Field Program State by State Summary Report."

A snippet of a senator-by-senator breakdown of the efforts says this about Maine's Snowe:

"Philip Harriman, former state senator, co-chair of Snowe's 2006 campaign, personal Snowe friend, major GOP donor and investment adviser, has written the senator a personal letter on this issue. Dick Morin, vice president Maine Association of Mortgage Brokers, has been in direct contact with Sen. Snowe's committee staff, has sent a letter to Snowe, and is pursuing a dozen(s) of letters from his members."

On Wednesday, Snowe's office issued a statement saying that she "literally gets hundreds of 'Dear Colleague' letters seeking support for their positions that she does not sign. Had this legislation come up for a vote in 2006, she certainly would have considered it on its merits - as she does every vote. Just last July, she voted for the housing bill that established a new, stronger regulator."

Rosario Marin, a staunch McCain supporter who spoke at the GOP convention in September, was among the people DCI used in carrying out the campaign.

Marin, the U.S. treasurer during the first term of the Bush administration, went to Missouri and to Montana, Burns' state, where she spoke out against Hagel's bill.

At the time, Burns, who ended up losing his re-election bid, was caught up in a Washington influence peddling scandal centering on disgraced lobbyist Jack Abramoff.

Marin's visit triggered a local newspaper story in which the reporter contacted Burns' staff for comment. Burns' office told the newspaper the senator was not supportive of the latest version of Hagel's bill.

On Wednesday, Marin, now state consumer services secretary in California, issued a statement confirming that her trips to Missouri and Montana were in her capacity as a DCI consultant.

The December 2005 summary listing 17 Republican targets outlines the inroads DCI was making.

"On day one" of the effort, Sen. George Allen of Virginia had not addressed Hagel's bill and his legislative aide for housing was not assigned to it, the report said.

"Today," the report added, "the senator is aware of the issue and ... at the moment he is undecided." Allen's deputy chief of staff "has said that the senator will take into consideration before he decides that Freddie Mac is located in Virginia and is one of the largest Virginia employers."

"Grasstops/opinion leaders James Todd, president, the Peterson Companies wrote to both senators," the report added. "Milt Peterson, the founder and CEO of the company is one of Allen's major donors."

In the end, Allen, who lost his bid for re-election in 2006, did not sign Hagel's letter.

On the Net:

DCI: http://www.dcigroup.com/

Freddie Mac: http://www.freddiemac.com/

Fannie Mae: http://www.fanniemae.com

September 24, 2008

FBI said to probe Fannie, Freddie, Lehman, AIG

By James Vicini

The FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc and insurer American International Group Inc, expanding its probe of potential corporate fraud, law enforcement officials said on Wednesday.

They said the probe of the four high-profile companies at the center of the current financial crisis that has triggered the Bush administration's proposed $700 billion bailout was in the preliminary stage and no criminal charges were imminent.

While declining to confirm that the four companies were under investigation, FBI spokesman Richard Kolko said the FBI now is probing 26 cases of potential corporate fraud related to the collapse of the U.S. mortgage lending industry.

Just last week, FBI Director Robert Mueller told the U.S. Congress that 24 cases of potential corporate fraud were under investigation.

The FBI has been under increasing pressure from lawmakers to investigate fraud related to the mortgage crisis, which has expanded to a broader credit crunch. The financial-market turmoil has prompted the Bush administration to seek a $700 billion rescue package.

A spokesman for AIG said, "We don't have details about the FBI investigation. Of course we will cooperate with the FBI." A spokeswoman for Lehman Brothers declined comment. Officials at Fannie Mae and Freddie Mac were not immediately available.

In testimony before the House of Representatives Judiciary Committee, the FBI chief vowed to pursue corporate executives if necessary in mortgage fraud cases.

Mueller said the FBI was looking at all levels of the mortgage systems. With respect to the corporate probes, which could result in federal charges, the allegations would deal with misstatements of assets, he said.

The officials refused to discuss details of the investigation, and said the matter was sensitive and could affect the stock market and any bailout.

"It's not helpful to anyone to name specific corporations under investigation," one official said.

Justice Department spokesman Brian Roehrkasse said, "As part of our investigative responsibility, the FBI conducts corporate fraud investigations. The number of cases fluctuates over time, however we do not discuss which companies may or may not be the subject of an investigation."

Yahoo News - Reuters Limited

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For more, GO TO >>> Confessions of a Whistleblower; Googling for the Vultures in AIG; The Antechamber

CHRONOLOGY OF POSTINGS

August 27, 2006: Originally posted in The Catbird Seat website.

March 13, 2007: Judge David Ezra signs Order to shut down website.

October 20, 2008: Latest update on phoenix site at www.kycbs.net

THE CATBIRD SEAT ARCHIVES

The Catbird Seat Archives: 2000-2002

The Catbird Seat Archives: 2002-2007

* * * * *

September 6, 2008

Candidates weigh in on stabilizing
Fannie, Freddie

By ALAN ZIBEL, AP

The historic takeover of Fannie Mae and Freddie Mac, which could come as soon as this weekend, moved to the forefront of the presidential campaign Saturday as candidates and congressional leaders seized on the enormous implications for taxpayers and the economy.

Fannie Mae and Freddie Mac together hold or back half of the nation's mortgage debt, and have played an increasingly important role in the real estate market since the credit crisis started in August 2007. A government bailout could cost taxpayers around $25 billion, according to the Congressional Budget Office.

Treasury Secretary Henry Paulson and two other regulators are working on a plan to put the troubled mortgage finance companies into a conservatorship, and remove Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.

The government is expected to control the two companies at least a year as it evaluates and debates whether Fannie and Freddie should remain government-run entities or be restructured in some fashion, Frank said in an interview.

At a rally in Colorado Springs, Col., Republican vice presidential nominee Sarah Palin said, "They've gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

Democratic nominee Barack Obama, speaking in Terre Haute, Ind., said, "These entities are so big and they're so tied into the housing market that it is probably true that we have to take steps to make sure they don't just collapse, because the housing market, which is already weakened, would be in even worse shape if we didn't take some steps."

News of the likely government takeover Friday followed a report by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June....

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Frank said the companies' financial picture was better than Wall Street investors assumed, but "it just plainly became clear that elements of the market wouldn't accept that."

The epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.

The crisis surrounding Fannie and Freddie promises to be a major challenge for the next president.

The role the two companies play in the U.S. mortgage market has grown dramatically over the past year as other lenders collapsed under the weight of bad subprime loans. The companies guaranteed about three-quarters of all new mortgages in the second quarter of this year, up from under 40 percent in 2006, according to the trade publication Inside Mortgage Finance.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the companies into a conservatorship as early as this weekend.

In July, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the companies if needed. Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Fannie Mae was created by the government in 1938, and was turned into a public company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.

www.news.yahoo.com

Questions for the Republican candidate from The Catbird -

1) HOW MANY HOMES DO YOU OWN, SENATOR McCAIN?

2) ANY FORECLOSURES IN YOUR FUTURE, SENATOR McCAIN?

3) DO YOU INTEND TO BE INVOLVED IN THIS CRISIS THE SAME WAY YOU DID THE SAVINGS & LOAN CRISIS IN 1980's AND 1990's AS ONE OF THE ‘KEATING FIVE’?

July 15, 2008

How Fannie, Freddie Became
Kings Of The Hill

by Peter Overby, NPR

Power And Influence

Homeowners might think of Fannie Mae and Freddie Mac as just the big dogs of the mortgage business, but in Washington, D.C., they're known as big players in lobbying. The two companies managed to stave off government regulation for years by lobbying hard — and spending generously.

In the first three months of the year alone, Fannie Mae and Freddie Mac spent a combined total of about $3.5 million on lobbying and hired 42 outside firms.

That kind of clout, coupled with huge mortgage portfolios reaching into every corner of the country, illustrates why they have never lacked for confidence on Capitol Hill.

Former Rep. Jim Leach (R-IA) is an old nemesis of Fannie and Freddie. In Congress, he helped lead efforts to rein them in.

"There've been a lot of rhetorical efforts to tighten regulation, but Fannie and Freddie have both done a pretty deft job of fending that off," Leach says. "Muscular" is another word he uses to describe those efforts.

Fannie and Freddie have kept their profiles high because of their odd situation: They're not government agencies, but they're not regular corporations either. As government sponsored enterprises, or GSEs, they're often thought to have guarantees of federal support. It lets them get discounts when they borrow money.

To maintain that advantage and others, they hire well-placed politicos for big salaries.

A rival lobbyist once described Fannie Mae as a political organization that happened to be in the mortgage business.

Past executives include Democratic operatives and appointees. Former CEO Jim Johnson made headlines last month after reports that he may have received preferential treatment in real estate deals forced him out as head of Illinois Sen. Barack Obama's vice presidential search team.

It's a similar story over at Freddie Mac: Former Rep. Susan Molinari (R-NY) is a contract lobbyist, and Democratic operative Harold Ickes used to be on the board.

And the two GSEs are famous for campaign contributions to both parties.

Leach, who is now the director of Harvard University's Institute of Politics and chairman of the watchdog group Common Cause, says he finds that especially troubling.

"They have done an awful lot in terms of the money game that have caused the kinds of conflicts of interest that have bedeviled the American political system," he says.

In 2006, Fannie farmed out almost a million dollars in contributions, while Freddie forked over more than $600,000. That same year, the nation's biggest lender, Countrywide, gave $250,000.

The GSEs also raise money from others. Five years ago, a Freddie Mac document described an 18-month push by the company's lobbyists in which they held more than 75 fundraising events for members of one House committee.

Freddie Mac later was forced to pay the Federal Election Commission a record-setting $3.8 million fine.

Even now, Fannie Mae and Freddie Mac's recent troubles may not dim their influence on Capitol Hill, says Mike House, director of FM Policy Focus, a lobbying group that's campaigned for years to regulate the GSEs more strictly.

"They'll have clout because of the role they have," House says. "Whether it's more or less, we'll just have to see."

The GSEs are waiting to see, as well. Spokespeople at Freddie Mac didn't return requests for comment Monday. And executives at Fannie Mae weren't talking.

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July 14, 2008

Political Networks Of Fannie Mae
And Freddie Mac

by Will Evans, NPR.org,

Fannie Mae and Freddie Mac have both had strong ties to the Washington, D.C., political community. The housing finance giants have counted government power brokers as board members and executive staff. Here, a look at key players, past and present.

Fannie Mae

James A. Johnson, former chairman and CEO: Aide to Vice President Walter Mondale; recently led Sen. Barack Obama's vice-presidential search team

Jamie Gorelick, former vice chairwoman: Deputy attorney general under President Bill Clinton; former Defense Department general counsel; member of 9/11 Commission

Franklin D. Raines, former chairman and CEO: Budget director under Clinton

Thomas E. Donilon, former executive vice president: Former assistant secretary of state under Clinton; senior adviser to Michael Dukakis' presidential campaign; national campaign coordinator for Walter Mondale's presidential campaign; congressional liaison for President Jimmy Carter.

Robert B. Zoellick, former executive vice president: Former deputy secretary of state and U.S. Trade Representative under President George W. Bush; currently president of the World Bank

Louis J. Freeh, board member: Director of the FBI under Clinton; federal judge

Stephen Friedman, former board member: Assistant to Bush for economic policy

Michele Davis, former senior vice president: Deputy assistant to Bush; currently assistant secretary of the Treasury.

Wayne Berman, outside lobbyist: Assistant Secretary of Commerce under President George H.W. Bush; senior adviser in Bush-Cheney presidential transition; currently a fundraiser for Sen. John McCain's presidential campaign.

Steve Ricchetti, outside lobbyist: Deputy chief-of-staff to Clinton

Kirsten Chadwick, outside lobbyist: Special assistant to President George W. Bush for legislative affairs; currently a fundraiser for McCain's campaign.

Freddie Mac

Richard F. Syron, chairman and CEO: Deputy assistant secretary of the Treasury

Ralph F. Boyd Jr., executive vice president: Assistant attorney general for civil rights

Dennis DeConcini, former board member: U.S. senator from Arizona

Robert R. Glauber, board member: Undersecretary of the Treasury under President George H.W. Bush

David J. Gribbin III, former board member: Aide to Vice President Dick Cheney; assistant secretary of defense under President George H.W. Bush

Harold Ickes, former board member: Adviser to President Clinton and Sen. Hillary Clinton; member of the Democratic National Committee.

Rep. Rahm Emanuel, former board member: Senior adviser to President Clinton; former chairman of the Democratic Congressional Campaign Committee and chairman of the House Democratic Caucus.

Susan Hirschmann, outside lobbyist: Chief-of-staff to former House Majority Whip Tom DeLay of Texas

Michael J. Bates, outside lobbyist: Campaign official for President Reagan, presidential candidate Bob Dole, President Bush.

Martin Paone, outside lobbyist: Secretary of the Senate

J. Patrick Cave, outside lobbyist: Acting Assistant Secretary and Deputy Assistant Secretary of the Treasury

Susan Molinari, outside lobbyist: U.S. Congresswoman from New York

Will Evans is with the Center for Investigative Reporting.