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  • July 25, 2008 08:42 AM EDT by Elizabeth MacDonald

    Where Are the Ethics Hearings into Countrywide’s VIP Loans?

    Sweetheart mortgages given by Countrywide Financial, the nation's biggest mortgage lender, to elected officials and government bureaucrats seem tailor-made for an ethics inquiry by Congress, especially as the country is seeing a rising tide of voter anger in this presidential election year due to the massive $300 bn bailout of the housing industry at taxpayers' expense.

    The mortgages at issue were allegedly given to Congressional members and staffers championing this record bailout, a bailout that now surpasses the taxpayer cost of the S&L crisis in the late ‘80s and early ‘90s.

    But Rep. Darrell Issa (R-Calif.) and Rep. Mark Souder (R-Ind.) say Rep. Henry Waxman (D-Calif.), chairman of the House Committee on Oversight and Government Reform, is ignoring their demands for an investigation into cheap, VIP mortgages allegedly given by Countrywide Financial to House staff members and elected officials.

    Countrywide allegedly gave cheap, sweetheart mortgages to Sen. Kent Conrad (D-ND) and Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking committee who reportedly saved $75,000 on his inside deals from Countrywide.

    At issue are Countrywide's VIP mortgages, in which borrowers received lower interest rates and point shaves on their mortgages. Countrywide's controversial VIP mortgages were given under the "Friends of Angelo" program, nicknamed after Countrywide chief executive Angelo Mozilo, a story that first broke in Portfolio Magazine.

    Both Senators have denied wrongdoing and both repotedly welcome a Senate ethics inquiry (to date, no Senate ethics hearings on the matter have been announced).

    The Wall Street Journal has also reported that James Johnson, a former chief executive of Fannie Mae, resigned recently as an adviser to the presidential campaign of Sen. Barack Obama after it was disclosed that Johnson received sweetheart loans from Countrywide. Johnson's lawyer has said those loans were made on normal terms. Franklin Raines, a former head of Fannie Mae, also received sweetheart Countrywide loans, the Wall Street Journal reports.

    Rep. Waxman's office did not return calls for comment.

    Reps. Issa and Souder wrote to Rep. Waxman that, "given the fact that Congress is actively considering bailing out Fannie Mae, Freddie Mac, Countrywide, and other lenders, it is essential that Congress investigate to determine the extent that public officials and staff have been compromised by improper gifts," adding, "for all the hearings your committee has held on subjects other than waste, fraud, and abuse in the Federal government, it is an appalling lapse that the Committee is not investigating this matter."

    House and Senate rules bar members from knowingly receiving gifts worth $100 or more annually from companies that use registered lobbyists. Countrywide's ethics code restricts executives, employees and board directors from improperly trying to influence government employees with money, gifts, loans, rewards, favors or anything of value.

    The House committee on Oversight and Government Reform has already held hearings that attempted to link the housing bubble to outsized executive pay packages given to Countrywide's chief executive Angelo Mozilo, Merrill Lynch's former chief executive E. Stanley O'Neal and Citigroup's former head, Charles O. Prince.  

    In their letter to Rep. Waxman, Representatives Issa and Souder demanded that Waxman use his "influence as chairman to stop any legislation bailing out mortgage lenders until all tainted individuals have recused themselves and the legislation has been examined and declared free of any undue influence."

    The housing bailout bill would provide $300 bn worth of taxpayer funds to rescue borrowers who took tens of billions of dollars worth of mortgages from lenders like Countrywide, among other things. Bank of America (BAC), helped shape the legislation via two lobbying documents outlining how to construct the bailout, obtained by Fox Business, after it announced its $2.5 bn purchase of Countrywide last January (see blog "The Bank of America Housing Bailout Bill").

    The housing bill would also provide rescue funding to Fannie Mae (FNM) and Freddie Mac (FRE), two publicly traded companies who critics say have gunned their lobbying engines on Capitol Hill in order to lighten regulatory oversight, including any increases in their capital cushions, now at perilously low levels.

    The two mortgage finance giants have a total $54 bn in net worth, upon which sits a pyramid of debt, including $1.6 tn in borrowings to run their business. Fannie and Freddie operate a $5.3 tn book of business in which it buys and guarantees mortgages, with another $3.3 tn in hedges sitting off balance sheet, according to Lehman Bros. (LEH).

    The two publicly traded companies have had a history of accounting misdeeds and have reported a total of $11.1 bn in losses over the last few quarters. Freddie and Fannie combined have on their balance sheets $260 bn in subprime and Alt-A (just a notch above subprime) securitizations, backed by potentially shoddy loans.

    Freddie also has disclosed it has $156.8 bn in level three assets nobody wants and for which it can't get pricetags on since the market for them is frozen; Fannie has $56.1 bn.

    So far, any money given to Fannie and Freddie has not been conditioned on capping executive pay or receivership, which would include breaking up the companies and cleaning out their richly paid management and boards that concocted these two potential economic sinkholes.

    A growing number of economists and analysts belive the two are insolvent, as home foreclosures rise to record levels and borrowers fall underwater on their mortgages. Senate majority Leader Harry Reid (D-Nev.) is now blocking a vote on an amendment proposed by South Carolina Republican Jim DeMint to bar the two from lobbying in the future.

    In their letter to Rep. Waxman, Representatives Issa and Souder refer to fresh details on Countrywide's sweetheart loan deals given to government officials via its VIP mortgage program.

    Specifically, the two cite an August 2008 article in Conde Nast's Portfolio Magazine, which reports new allegations that House of Representatives staffers, a California state appeals court judge, and other current and former federal officials received special treatment in their mortgages from Countrywide due to their positions.  

    Portfolio has reported that former Clinton cabinet member Donna Shalala, former Bush Cabinet member Alphonso Jackson, as well as former United Nations Ambassador Richard Holbrooke also received VIP mortgages from Countrywide.

    And Portfolio says that VIP Countrywide loans were given to former Countrywide director Henry Cisneros, who served as secretary of Housing and Urban Development in the Clinton administration; former White House staffer Paul Begala, now a commentator on CNN; and Postmaster General John Potter. Countrywide also offered special discounts to Congressional staffers involved in housing issues, the magazine says (http://www.portfolio.com/news-markets/national-news/portfolio/2008/07/16/Countrywide-Deals-Exposed?print=true).

    The Portfolio article reported that former Countrywide Financial loan officer Robert Feinberg stated that he personally spoke with Senator Dodd and Senator Conrad about their special mortgage deals.  It also noted the existence of e-mail traffic between Mr. Feinberg and former Countrywide CEO Angelo Mozilo on the subject of VIP loans and notes that Mr. Feinberg is in possession of "stacks of documents about the VIP operation."

    On the subject of Countrywide's federal lobbying efforts, the Portfolio article provides quotes from retired Countrywide managing director Sidney Lenz, who oversaw government relations for the lender. Lenz reportedly says the company's lobbyists identified potential customers on Capitol Hill and in federal agencies and directed them to Countrywide's VIP program.  

    The company's lobbyists were "incredibly receptive" to loan requests  from officials, Portfolio quotes Lenz as saying, adding, "Countrywide had an incredibly good relationship with Congress. It was not unusual for us to get a call saying, 'A bill's being introduced. It's a little technical, and there are parts we don't understand. Can you help educate us on this?'"

    Similarly, Rep. Jeb Hensarling (R-Texas) has also called for hearings to determine whether members received "preferential treatment" with their mortgages from Countrywide, "while millions of hardworking Americans struggle to repay their mortgage debts and cope with $4 [per] gallon gasoline and soaring foods prices," he noted in an open letter to Congressional colleagues.

    I will let the letter from Representatives Issa and Souder to Rep. Waxman speak for itself:

    "As members of the House Committee on Oversight and Government Reform, we are troubled by your lack of response to our previous request and would like to know why the Committee is hiding from its duty to investigate this matter. Both documents and witnesses are clearly ready and available for an investigation and we would note that the Committee has investigated other improprieties committed by lobbyists."

    The letter adds: "The Committee's failure to act when presented with rapidly growing evidence of wrongdoing makes a mockery of Speaker Pelosi's election promise to improve House Ethics."

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Tripp

Greedom, clearly you do not understand how advertising works. Fox gets paid for those advertisements, it does not necessarily endorse them, and it is not a crime (saying it's a "crime in my book" is meaningless. You don't have a book. There are actual laws, and breaking them constitutes a crime. The definition of crime is not as flexible as you would like it to be. (Thank God) However, it is amusing how you turn from housing issues, to oil, to Iraq, to... you got it... hatred for GWB. It's really funny how *everything* comes back to how much you hate GWB. I'm not a fan either, but grow up. Countrywide was the one making loans and buying advertisements. Not Fox. Not GWB. Not the Exxon. Not the military. Please try to stay on topic.

July 25, 2008 at 3:36 pm

Greedom

prior comment: Comment by barbara babby Jul 25th, 2008 at 10:16 am I personally know one of the people in question regarding Countrywide—-Henry Cisneros. There is no way that man ever tells the truth about anything unless he can see either some monetary or political gain for himself. He is a true melgamanic!! These folks keep repeating their little games and no one even bothers to make them accountable for their deeds against the public trust. What kind of system permits this abuse of the public? - end comment What kind of system ? Why an unregulated system. Just imagine if plumbing inside homes was less regulated. Imagine all the crap we'd have all over. No, bad jonathon, down jonathon, no jonathon, no clue how you ended up where you are - regulation and LAWS are a good thing pal, oh yeah Jonathon, it's not your money, and it never was.

July 25, 2008 at 3:41 pm

Greedom

from a prior comment: Comment by RobertC Jul 25th, 2008 at 11:25 am This is all par for the course…There seems universal sentiment that as American’s we are getting screwed by our congressmen and women. We have hard facts that there are mis-deeds, yet no one seems to be able to break away from watching American Idol to do anything to make a difference. Seems the fat congressmen and women really are only concerned with covering banks and wallstreet… end comment: Sheesh, as I read this comment, I couldn't help on the American Idol comment thinking, the entire phony iraq fiasco is part of the distraction - while the US homes are looted ! ok, not the homes, just the contract backing them!

July 26, 2008 at 3:32 am

Greedom

from: Comment by Tripp Jul 25th, 2008 at 3:36 pm Greedom, clearly you do not understand how advertising works. Fox gets paid for those advertisements, it does not necessarily endorse them, and it is not a crime (saying it’s a “crime in my book” is meaningless. You don’t have a book. There are actual laws, and breaking them constitutes a crime. The definition of crime is not as flexible as you would like it to be. (Thank God) response Tripp, Fox has high stakes in promoting CountryWide and GMAC's DiTech You got the greenlight baby products. It's going to take 4, 3 to do the work, and one to organize them - to solve this mess. Currently the FBI has full plates, the SEC is paralyzed as a pork that's just been fried on the bone during electrocution. Tripp, I 'get' advertising, I also 'get' your response and position I think to what I was 'speculating' in regards to (I would have just 'on' but - hey, more fat for prepping prepositions). I'm not sure you're aware how far Fox crossed the lines - more so upstream than Fox all in all - Kevin Martin isn't going to be the chair of the FCC forever - you can take THAT to the bank - the Bank of America of course ! On subject is 'Where are the Ethics hearings in countrywides widespread rampant abuse in illigitematly concieved relationships bearing the birth child of the loan products we see settling onto the laps of - why - it's Freddie Mac - Fannie Mae - awe gee... I just KNEW the cause for the ethics violations of countrywide's criminal loan products promoted - some could argue - namely - by NewsCorp- all interwoven to become as attractive as any 350k home would be to someone being told by GERALDO - of all people - lol - please - pinch me, - that the world is going to end because non-christian terrorist islamicists are all over and need to be watched, watched MORE than the canned runaway bride sequel - where they actually follow her into her work place and seek to completely destroy her life ? No, fox has a 'special' relationship with CountryWide more special than any 'sweetheart' deals - trust me Tripp Fox indictments are coming, sooner than later. if you have anything to do with this group involved, i'd consider Uraguay.

July 26, 2008 at 3:43 am

Greedom

from: Comment by Tripp Jul 25th, 2008 at 3:36 pm Greedom, clearly you do not understand how advertising works. Fox gets paid for those advertisements, it does not necessarily endorse them, and it is not a crime (saying it’s a “crime in my book” is meaningless. You don’t have a book. There are actual laws, and breaking them constitutes a crime. The definition of crime is not as flexible as you would like it to be. (Thank God) end comment: Tripp- all I meant by 'in my book' was that - crime - realistically to me, philosophically contemplated - to me ? is that which is disadvantageous to a community, and yes, there are 'laws' - and those 'laws' can be signed off on. Don't you think laws should be signed off on ?

July 26, 2008 at 3:45 am

Greedom

If I'm not mistaken Tripp, the alleged president has 'signed off' on more laws than likely actual red traffic arrows have been accurately comprehended by drivers in any state that has them - and adhered to in accordance with local/state law. Sure there are laws- but then there are lawyers ! And then there are judges, and then ! there are politicians, and then ? there is just those who have power - power peaking on node of this hierarchy, and the powerless at the other, and yet ? I don't have any problem just sweeping the chess board on this one, we're in the middle of deep black space - in a contained biosphere, breath what you like - subject? stay on the subject ? tripp- try the subject of you imagining the person on a bike or - perhaps a mother - running to your car - wrapping their lips around your exhaust pipe - hey, I just type and think as I type, but I do say, thinking about this - didn't expect to end up here but are you a killer ? Hey - I want credit on that one.

July 26, 2008 at 3:52 am

Greedom

David, I think I avoided addressing your other comment. Yes, I do think and know Fox has 'special' interests beyond the scope of ANY panel that will - maybe - make it through the red ink on CW beneficiaries. Perhaps that is a healthy way to address this issue further in dialog. CountryWide Beneficiaries under THAT canopy of declarance - I think we can still keep a close eye on what corporation topped advertising for CountryWide. Correct me if I'm wrong, but I do like this one rung on the ladder I found myself on which left me with a realization that you really would have to believe the world was coming to an end to either issue OR sign onto the CW loan products I think at the least we will both agree are in question. I think Liz MacDonald did a par excellent job on eval of BoA/CW's books. I didn't say sub par, and I didn't grant any hole in ones here either ( I don't golf by the way, I will eventually, ONLY - and ONLY to play carelessly with the ball and enjoy the scenery ), but she certainly hit the monkey button on these CW loans resetting. Hey, again, Fox + Terror Alert Elevated >>> + Excessive 'would have to believe the world is ending tomorrow ads' to me ? equals well - we'll just have to let the jury decide, won't we DOJ is out to lunch, PLENTY of good people in the FBI left, CIA - seems Goss chased out the 'good' people on his first memo didn't he now ! "Play ball, or get lost" SPJ's are as Liz MacDonald might say 'teetering' - on word usage - but - I think the last appointment of Frank Burns set this country on a course not unlike that Gary Larson cartoon - of a man and a woman in a convertible - driving into a massive hole - apparantly an entrace to hell - she's yelling 'hell hole, I told you we were driving into a hell hole'.

July 26, 2008 at 4:53 am

Greedom

I do mean that last post in all respect ! Subject on VIP CW ? I'd say subject on CW exploitations - UP (VIP) and DOWN (non qualifying US citizen that WAS granted something out of their league). I think CW made a STRONG effort to entice people into that which was beyond their means. Sheesh, forget the money side of that, could you imagine if that happened regarding - instead of a house ? your entire infra-structure from which you derive meaning ? fed ? to you by NewsCorp's 3000 + newspapers, radio stations TV stations - thanks to Kevin Martin at FCC on Dec. 18th - my oh my - now even MORE ! Remember, watch Fox, - don't ask why - just do. If you don't watch Fox, just watch one of the mirror stations presented as if it's aomething different. Gain equity in the integrity of your daily living I'd get a brokered deal with Muriel for 1 year Liz ? and leave.

July 26, 2008 at 5:06 am

F-Stop

Getting Congress to investigate itself properly because of ethics violations and malfeasance would be like getting Clinton to swear to tell the truth.. It's just not possible.. There should be some sort of mechanism that is independent of Congressional control that we could use to investigate and prosecute these thieves, when necessary ... Aren't they supposed to be our representatives and civil servants ?? What a CROCK !!!

July 28, 2008 at 3:29 pm

Steve

Fox-thanks for this article. Unless CNN would do an about face, I doubt they would have the courage to relate any Democrat for wrongdoing; they are too busy with Obama-gasms at the moment....

July 28, 2008 at 5:08 pm

about this blog

  • Elizabeth MacDonald is the stocks editor for Fox Business Network. She is recognized as one of the top prize-winning business journalists in the country, and has received 14 awards, including the top prize in business journalism, the Gerald Loeb Award for Distinguished Business Journalism, and the Newswomen's Club of New York Front Page Award for Excellence in Investigative Journalism.

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