Yesterday, the House Committee on Oversight and Government Reform issued a report — over three years in the making — detailing how Countrywide Financial used a program of preferential loans to lobby government officials, among others, over the last 15 years.
“Between January 1996 and June 2008, Countrywide’s VIP loan unit made hundreds of loans to current and former Members of Congress, congressional staff, high-ranking government officials, and executives and employees of Fannie Mae,” according to the report, authored by Chairman Darrell Issa (R., Calif.).
As the report explains, Countrywide used this VIP program — a division within the company that furnished preferential deals to select clients — to opportunistically target key people in Washington, including members of Congress and their staffs, to further the financial institution’s lobbying goals:
BLFannie Mae and Countrywide lobbied against government-sponsored enterprise (GSE) reform legislation that would have diminished Fannie Mae’s ability to acquire and hold subprime mortgages originated by Countrywide. Countrywide also lobbied against predatory lending bills. Documents obtained by the Committee show that several Members of Congress and congressional staff positioned to affect the legislation received VIP loans.
In fact, Countrywide lobbyists — and CEO Angelo Mozilo himself — referred several Members and staff from the Senate Committee on Banking and the House Committee on Financial Services to the VIP unit.BL
The report named names for a number of these politicians: Representatives Howard McKeon (R., Calif.), Pete Sessions (R., Texas), Edolphus Towns (D., N.Y.), Elton Gallegly (R., Calif.), as well as staffers and government officials.
Most notably, though, the report goes into detail on two key senators who were at the heart of potential regulation that could impact Countrywide: Senate Banking Committee chairman Christopher Dodd (D., Conn.) and Senate Budget Committee chairman Kent Conrad (D., N.D.).
While both Democrats have previously denied any knowledge or acceptance of preferential deals, the report outlines a much murkier account.
In 2009, a spokesman for Dodd stated: “As the Dodds have said from the beginning, they did not seek or expect any special rates or terms on their loans. . . .They were never offered special sweetheart deals and if anyone had made such an offer, they would have severed that relationship immediately.”
Internal documents reveal a much more complicated story. “Documents produced by the Bank show that the Dodds did in fact receive special rates and terms on their loans from Countrywide.”
As early as 1999, Countrywide internally identified Dodd as a “Friend of Angelo” (a term, named after the company’s CEO, Angelo Mozilo, for special clients). For loans in both 1999 and 2001, Dodd received serious discounts. For 2001, Mozilo, “knocked off a half point, waived garbage fees, instructed the loan to be processed with minimal documentation, and ordered the loan approved.” And after Mozilo structured this favorable deal, he instructed an employee to “stay close to this deal because this is a very important person.” All in all, the discount reduced the cost of Dodd’s refinance by $1,025.
So, while it is relatively clear that the Dodd family received special loan offers, is it possible that they accepted them ignorantly? Doubtful. Subpoenaed “pricing worksheets” for Dodd’s loan show multiple, explicit references to a “VIP discount.” Moreover, Maritza Cruz, a Countrywide employee who dealt with the Dodds, testified that she notified Dodd’s wife that the VIP unit was processing the loan: “She knew. She knew.”
Senator Conrad tells a similar story. In 2009, a spokesman for the senator said that he “never asked for, expected or was aware of loans on any preferential terms. He went with Countrywide simply because they already had his financial information.” But, again, the documents reveal a much thornier story:
BLIn fact, Jim Johnson referred Conrad to Countrywide. In August 2002, Johnson referred Senator Conrad to Countrywide through Angelo Mozilo. Conrad was seeking financing to purchase a vacation home in Bethany Beach, Delaware. He applied for a $1.16 million loan. Mozilo gave Kay Gerfen specific instructions for pricing Conrad’s loan. He told Gerfen (in an e-mail): “take off 1 point, no extra fees and approve the loan — if any problem, advise Angelo asap.”BL
Conrad afterwards refinanced his loan on his vacation home twice, receiving exclusive deals both times. “Mozilo ordered a discount well beyond what would be offered to a customer who walked in off the street. Mozilo instructed Brandt to take 1.25 points off the loan and to waive all extra fees.” The successive float downs that came from Conrad’s “Friend of Angelo” deal amounted to over $10,000 in savings.
With savings like these, there is little surprise that Conrad tried to refinance the eight-unit apartment building that he owned in North Dakota. Despite a Countrywide policy that prohibited loans for buildings of more than four units, Mozilo instructed an employee to “make an exception due to the fact that the borrower is a senator.”
Even if one were to give the highest benefit of the doubt to Dodd and Conrad — despite being chairman of the Banking and Budget Committees respectively — the later example of Representative Pete Sessions, also investigated in the report, casts further doubt on their explanations.
In 2007, Congressman Sessions applied for a loan to purchase a home in Dallas. The application was handled, like the others, by the VIP unit of Countrywide. However, unlike the two senators, Sessions reacted differently.
“Out of an abundance of caution in managing his personal finances, Congressman Sessions specifically requested that he not be extended any special benefits or treatment from Countrywide,” said a spokesman for Sessions earlier this year.
The committee, with documentary support, confirms this account: “Congressman Pete Sessions requested not to receive a discount from Countrywide. Countrywide commemorated Sessions’ request in internal e-mail. Countrywide did not apply the standard VIP discount to Sessions’ loan.”
The report also detailed Republican congressman Howard “Buck” McKeon’s dealing with Countrywide. In 2012, a spokesman said that the congressman had “no knowledge of the Friends of Angelo designation” and McKeon himself said he paid “garbage” fees and did not get a point taken off the loan.
Looking at the documentation, it is uncertain what exactly McKeon was presented with. From stationary and correspondences, the VIP unit appears to have made their offer clear to McKeon. But it does not appear that the lawmaker’s documents matched the internal orders.
“Internal Countrywide documents show that Angelo Mozilo ordered a point off McKeon’s loan and waived garbage fees. The discount is not reflected on documents signed by McKeon. However, internal Countrywide documents show that one point was in fact waived.”
Speaking to NRO, Representative Issa’s director of communications, Frederick Hill, said that the report, exposing this highly questionable, yet institutionalized, practice by Countrywide, “sends a message to Capitol Hill” that “this kind of lobbying effort is inappropriate.”
In response to the politicians’ respective explanations, Hill explained that future steps are largely out of the Committee’s hands. It is important to note, though, that the content of the report reveals that “Countrywide was very clear with individuals who were participating in the VIP Program. . . . It was typed in large letters across correspondences [and] it was their practice to identify themselves.” At the release of the report, the Ethics Committee has been made aware of the individuals mentioned.
While it is unclear still how lawmakers will receive the new report on Countrywide’s VIP loan program, the practice, as Hill stressed, is indicative of the need for reform: “Countrywide, by casting a wide net, could have circumvented the bribery statue [which requires an explicit quid pro quo]. . . . Policymakers may want to consider whether or not the rules on the books are really adequate.”
In total, the committee’s investigation found 29 loans issued by Countrywide’s VIP unit to twelve different members of Congress and staff.