WASHINGTON -- The former Countrywide Financial Corp., whose subprime loans helped start the nation's foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and executives of troubled mortgage giant Fannie Mae, according to a House report.
The report, obtained by The Associated Press, said the discounts from January 1996 to June 2008 were not only aimed at gaining influence for the company but also to help mortgage giant Fannie Mae. Countrywide's business depended largely on Fannie, which at the time was trying to fend off more government regulation but eventually had to come under government control.
Fannie was responsible for purchasing a large volume of Countrywide's subprime mortgages. Countrywide was taken over by Bank of America in January 2008, relieving the financial services industry and regulators of the messy task of cleaning up the bankruptcy of a company servicing 9 million U.S. home loans worth $1.5 trillion at a time when the nation faced a widening credit crisis, massive foreclosures and an economic downturn.
The House Oversight and Government Reform Committee also named six current and former members of Congress who got discount loans, all of whom had been identified previously. Other previously mentioned names included former top executive branch officials and three Fannie Mae chief executives.
"Documents and testimony obtained by the committee show the VIP loan program was a tool used by Countrywide to build goodwill with lawmakers and other individuals positioned to benefit the company," the report said. "In the years that led up to the 2007 housing market decline, Countrywide VIPs were positioned to affect dozens of pieces of legislation that would have reformed Fannie" and its rival Freddie Mac, the committee said.
Some discounts were ordered personally by former Countrywide chief executive Angelo Mozilo. Those recipients were known as "Friends of Angelo."
The Justice Department has not prosecuted any Countrywide official, but the House committee's report said documents and testimony show that Mr. Mozilo and company lobbyists "may have skirted the federal bribery statute by keeping conversations about discounts and other forms of preferential treatment internal. Rather than making quid pro quo arrangements with lawmakers and staff, Countrywide used the VIP loan program to cast a wide net of influence."
The Securities and Exchange Commission in October 2010 slapped Mr. Mozilo with a $22.5 million penalty to settle charges that he and two other former Countrywide executives misled investors as the subprime mortgage crisis began. Mr. Mozilo also was banned from ever again serving as an officer or director of a publicly traded company. He also agreed to pay another $45 million to settle other violations, for a total settlement of $67.5 million that was to be returned to investors who were harmed.
The report said that until the housing market became swamped with foreclosures, "Countrywide's effort to build goodwill on Capitol Hill worked." The company became a trusted adviser in Congress and was consulted when the House Financial Services Committee and Senate Banking Committee considered reform of Fannie and Freddie and unfair lending practices.
The report said Fannie assigned as many as 70 lobbyists to the Financial Services Committee while it considered legislation to reform the company from 2000 to 2005. Four reform bills were introduced in the House during the period, and none made it out of the committee.
Hit with staggering losses, Fannie and Freddie came under government control in September 2008. As of Dec. 31, 2011, the Treasury Department had committed more than $183 billion to support the two, with no end in sight.
Among those who got loan discounts from Countrywide, the report said, were:
Former Senate Banking Committee chairman Christopher Dodd, D-Conn.; Senate Budget Committee chairman Kent Conrad, D-N.D.; and Mary Jane Collipriest, communications director for former Sen. Robert Bennett, R-Utah, then a Banking Committee member.
The report said Mr. Dodd referred Ms. Collipriest to Countrywide's VIP unit. Mr. Dodd, when commenting on his own loans, said he was unaware of receiving preferential treatment but knew that his loans were handled by the VIP unit.
The Senate's ethics committee investigated Mr. Dodd and Mr. Conrad but did not charge them with any ethical wrongdoing.
Other recipients included House Armed Services Committee chairman Howard "Buck" McKeon, R-Calif.; former Oversight Committee chairman Edolphus Towns, D-N.Y.; Rep. Elton Gallegly, R-Calif.; and former Rep. Tom Campbell, R-Calif.
Mr. Towns issued the first subpoena to Bank of America for Countrywide documents, and current Oversight panel chairman Darrell Issa, R-Calif., subpoenaed more documents. The panel said Bank of America, in responding to the Towns subpoena, left out documents related to Mr. Towns' loan.
Former Housing and Urban Development Secretaries Alphonso Jackson and Henry Cisneros as well as former Health and Human Services Secretary Donna Shalala also were recipients. The VIP unit processed Mr. Cisneros' loan after he joined Countrywide's director board.
Former Fannie Mae heads James Johnson, Daniel Mudd and Franklin Raines also got discounts. Countrywide took a loss on Mr. Mudd's loan. Fannie employees were the most frequent VIP loan recipients. Mr. Johnson got his after Mr. Mozilo waived problems with his credit rating.
Mr. Johnson in 2008 resigned as a leader of then-candidate Barack Obama's vice-presidential search committee after The Wall Street Journal reported that he had received $7 million in Countrywide discounted loans.