Stonewalling on Countrywide's Loans to Congress

After being stonewalled for nearly a month, Rep. Darrell Issa (R-CA) and Rep. Mark Souder (R-IN) have sent an official request for an Ethics Committee investigation into "disturbing allegations," first reported in Conde Nast Portfolio, that Countrywide Financial gave illegal mortgages prohibited by House rules to members of Congress, congressional staff and other officials (see blog "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.

Specifically, Countrywide's sweetheart mortgages were called VIP loans, in which lawmakers and government employees allegedly 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.

The mortgages were allegedly given to Congressional members and staffers championing this record bailout, a bailout that fast approaches 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.

Who Got the Sweetheart Deals?

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.

Dodd, who has helped shepherd the housing bill, has received about $107,800 in campaign contributions-nearly 50% higher than initially thought-from Bank of America's employees and political action committee, including the bank's predecessor companies, since 1989, according to Douglas Weber, an analyst with the Center for Responsive Politics.

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

Senate Budget Committee Chairman Conrad said he is donating $10,500 to charity and refinancing his loan on an apartment building after reviewing documents showing he received special treatment from Countrywide Financial Corp.

Conrad said it appears that Countrywide waived 1 point on his mortgage for a Bethany Beach, Del., vacation home. He said he would donate the equivalent amount of money to Habitat for Humanity.

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.

Rules on Illegal Gifts to Congressmen

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 serious and broad allegation" that elected officials and other government employees "were given preferential treatment - in the form of a gift from a corporation when mortgage lender Countrywide gave them loans on preferential terms - needs to be investigated," the two congressmen wrote Representatives Stephanie Tubbs Jones (D-OH) and Doc Hastings (R-WA) of the House Ethics committee.

High-level Footdragging on Hearings

The congressmen's complaint comes after two requests for an Oversight and Government Reform Committee investigation to chairman Henry Waxman came up short. 

Rep. Waxman punted on the hearing, passing the buck to the ethics committee. In his reply, Rep. Waxman drew comparisons with the hearings into former lobbyist and now convicted felon Jack Abramoff and the Clinton campaign finance investigations.

Waxman noted that, because the issues the two raise "would require the Committee to investigate the conduct of members, the precedents of the Committee indicate that the Committee on Standards of Official Conduct would be the appropriate venue for the issues you have raised."

Was Waxman's Decision Arbitrary?

As it's unclear how ‘precedents' is defined here, it's worth noting that 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.

Also, Waxman made room on his committee's schedule for hearings on alleged steroid use in major league baseball (where are oversight hearings on the deceptive accounting sleights of hand the government uses to mask the impact of Medicare and Social Security costs on the US budgets?),

Waxman stated, "because the issues you raise would require the Committee to investigate the conduct of members, the precedents of the Committee indicate that the Committee on Standards of Official Conduct would be the appropriate venue for the issues you have raised."

Reps. Issa and Souder shot a letter back to Rep. Waxman, noting that they would forward his response to the Ethics Committee and that "the precedent set by the Jack Abramoff investigation actually supports the committee conducting a probe of Countrywide VIP programs pertaining to the conduct of Franklin Raines, James Johnson, and others at Fannie Mae, Freddie Mac, and Administration officials."

Issa and Souder Not Having It

"The allegations of illegal gift giving swirling around the Country VIP program are broad and serious," Rep. Issa noted.  "In a Congress that was supposed to emphasize ethics, it's disappointing that no committee chairman seems to want to claim jurisdiction and investigate the nexus between the mortgage crisis and public officials who got too cozy with lenders."

Souder noted that: "Since the allegations surrounding the Friends of Angelo list first surfaced, I've been urging an investigation," adding that he has "also introduced the Financial Disclosure and Integrity Act to urge transparency and ethics reform in this area"

What's At Stake

Besides allegations of corruption, taxpayer money is at stake.

As I've already reported to you, 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 $5.3 debt, as well as $1.6 tn in borrowings to run their business. Fannie and Freddie buy and guarantee mortgages, with another $3.3 tn in hedges sitting off balance sheet, according to Lehman Bros. (LEH).

Who Else Got Sweetheart Loans?

Specifically, the two congressmen have cited the August 2008 article in 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.

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?'"

Another Congressman Demands Hearings

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.