WSJ: Investigate Countrywide political links

posted at 9:05 am on June 16, 2008 by Ed Morrissey

The Wall Street Journal apparently didn’t know just how big a story they had with Countrywide Financial. Not only did they expose Barack Obama adviser Jim Johnson’s conflict of interest in receiving favors from Countrywide while CEO of Fannie Mae, they also found that several members of Congress have benefited from similar sweetheart deals from the lender while its bad loans helped trigger the subprime meltdown. Now the Journal wants a little competition in its investigation — from the feds:

For the sake of its shareholders and the taxpayers who are ultimately on the hook, Fannie should immediately launch an internal investigation into the terms offered to Countrywide, and exactly what role Messrs. Johnson and Raines played in the negotiation of these terms. Did these men exert any pressure on Fannie employees to do business with Countrywide?

Congress also needs a full accounting of the contacts between Countrywide and the politicians receiving favors from the lender. Did Countrywide ask for and receive assistance from the Friends of Angelo? With Senate Banking Chairman Dodd at the center of the scandal, ranking member Richard Shelby (R., Ala.) and House Financial Services Chairman Barney Frank (D., Mass.) will have to lead the inquiry.

But taxpayers should not have to wait for the results of an investigation. Democrats in Congress are trying to pass a bailout for mortgage borrowers and lenders like Countrywide, and they have been holding reform of Fannie Mae and its cousin Freddie Mac hostage to get President Bush to agree. Mr. Dodd is one of the main hostage-takers. It is time he and Mr. Frank dropped this political ransom-taking and finally subjected Fannie and Freddie to tough oversight. This means giving a regulator the power to set their capital ratios and portfolio securities limits, so that taxpayers have some protection against their potential losses.

Meanwhile, until it is clear how much Countrywide will benefit from Senator Dodd’s proposed $300 billion mortgage rescue – and exactly how Mr. Dodd came to do business with Countrywide – Congress should call a halt to legislating bailouts. Taxpayers deserve no less.

Where exactly is Barack Obama on this? When he could score a few populist points on the campaign trail, Obama had no problem casting Countrywide as the main villain in the credit crisis. Now that Angelo Mozilo’s private loan program to high-ranking Democrats has been discovered, including his now-departed adviser, Obama’s silence has been positively deafening.

The FBI needs to look into these connections, not just Fannie Mae and Congress. If Fannie Mae did business with Countrywide because of their political connections and their sweetheart loans, then serious fraud may have been committed. The losses which Congress intends to cover will come out of our pocketbooks, and we need an objective look at whether we’re paying for someone else’s crime. Both Congress and Fannie Mae have plenty of motivation to keep taxpayers from discovering that truth.

Countrywide accounted for 26% of Fannie Mae’s business. Bank of America accounted for 4%. Yet it’s BofA buying Countrywide, not the other way around — and the Journal wonders how that happened. Perhaps Chris Dodd, Kent Conrad, Barbara Boxer, Nancy Pelosi, and others can explain that. Maybe the Democrats can explain what happened to “the most ethical Congress ever”. They can start explaining it to the FBI, and then get back to the voters afterward.


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Nationalize Fannie Mae!

Akzed on June 16, 2008 at 9:18 AM

More pols will be sweating than when another madame steps forward with another black book.

Women included.

madmonkphotog on June 16, 2008 at 9:19 AM

Don’t you know? The housing crisis has now ended — or at least, the tsunami of stories we’ve heard the last two years is going to peter out like a pond ripple in the big media, if further investigations of financing irregularities means they’re going to have to report on the Countrywide “Friends of Obama” list of Democrats who got sweetheart deals from Angelo.

jon1979 on June 16, 2008 at 9:21 AM

Any HA readers out there wanna refinance my Countrywide loan?

jgapinoy on June 16, 2008 at 9:24 AM

Chances of such an investigation happening BEFORE the upcoming election are?

Yakko77 on June 16, 2008 at 9:28 AM

Leave Chris Dodd Aone! He and Kennedy were just joking around, plus the waitress wasn’t injured.

a capella on June 16, 2008 at 9:31 AM

I guess I won’t be doing a re-fi with Countrywide. We need an Obama doom patrol here to chronicle his descent in the national polls as this stuff comes out. He’s a political gonner.

Mojave Mark on June 16, 2008 at 9:33 AM

Where is Jack Abramoff investigator McCain? He is interested only chiding Republicans? Why the hell he is silent about Rezco & this one?

Anita on June 16, 2008 at 9:34 AM

Chances of such an investigation happening BEFORE the upcoming election are?

Yakko77 on June 16, 2008 at 9:28 AM

My bet: Zero.

Color me jaded.

petefrt on June 16, 2008 at 9:35 AM

Obama had no problem casting Countrywide as the main villain in the credit crisis. Now that Angelo Mozilo’s private loan program to high-ranking Democrats has been discovered, including his now-departed adviser, Obama’s silence has been positively deafening.

I love hypocrite boomerangs. It’s as if they are guided by an unseen hand intent on seeing justice served.

TheBigOldDog on June 16, 2008 at 9:40 AM

Chances of such an investigation happening BEFORE the upcoming election are?

Yakko77 on June 16, 2008 at 9:28 AM

Zero. Very little chance of it happening ever, unless Pelosi, Reid and their media cheerleaders can somehow manage to completely blame it on the real enemy.*

.

.

*Bush, McCain and all Republicans

Gilda on June 16, 2008 at 9:43 AM

jon1979 on June 16, 2008 at 9:21 AM

Now all we need is some sort of ecological scandal so the media can shut up about ‘Climate Change’ or whatever it may be now.

But yeah, I am not holding my breath for an investigation into this matter. The media will not stick any negativity about this to Democrats, especially Obama. They will find one republican house member involved and crucify him.

Grafted on June 16, 2008 at 9:46 AM

Countrywide accounted for 26% of Fannie Mae’s business. Bank of America accounted for 4%. Yet it’s BofA buying Countrywide, not the other way around — and the Journal wonders how that happened.

Maybe that is because BoA is a worldwide bank that does some loans (home, and commercial), and CW is a US home lender only.

The Market Capitalization of BoA is $132.6 billion this morning and CW is $2.8 billion.

You need a better investment writer :)

The return on equity for BoA last year was 10+% and just short of 8% this year.

for CW, 8% loss on equity last year and 18% this year.

this is known as a fire sale.

the drill sgt on June 16, 2008 at 9:48 AM

Ahh, Fannie Mae. We long for the good management era of yesteryear: Raines and Gorelick (snicker).

whitetop on June 16, 2008 at 9:53 AM

I’m with both Countrywide and BofA. I didn’t like it when my personal bank of 45 years bought my mortgage company too.
Makes me unconfortable having one outfit with that much power looking over my shoulder.

Limerick on June 16, 2008 at 9:53 AM

Anita – in case you didn’t notice, Democrats control Congress now. John McCain isn’t chairman of the Senate Commerce Committee anymore.

Fannie Mae and Countrywide spent years buying off half the Democratic Caucus in the House and Senate. It was a mutual back-scratching arrangement that allowed both companies to get huge and their executives to get insanely rich. As a government sponsored enterprise, Fannie cannot have a PAC, so instead it put a proverbial gun to its biggest customer’s head and made it use its PAC to support Fannie’s political objectives – namely, no serious regulation.

There’s a real, real big story here if anyone cares to follow it. Countrywide made the first “exclusive” deal with Fannie Mae in 2002 and started sending 100% of its loans there. Countrywide until recently was a non-federally-regulated mortgage bank, meaning it did not have to undergo the rigorous examination or capital requirements that the big banks have to and that it could offer almost any kind of risky mortgage it wanted to. Fannie Mae’s price break to Countrywide allowed it to undercut the banks and gain massive market share with very little regulation.

As other lenders saw Countrywide gobbling up a bigger and bigger share of the market courtesy of Fannie Mae, they were effectively forced to start selling more and more subprime loans to make money. The banks were constrained in offering these products because of the federal banking laws. Countrywide then moved into the subprime market in a big way and started muscling the smaller “monoline” subprime lenders out of that market too. And it was all enabled by Fannie Mae.

What I am saying is that this entire subprime mortgage crisis can be traced directly back to that sweetheart deal between Countrywide and Fannie Mae, and their mutual use of the Countrywide PAC and Fannie Mae’s lobbying muscle to keep the federal government from regulating them. And this political machine was aimed almost 100% at Democrats.

rockmom on June 16, 2008 at 9:53 AM

Ahhhh….I’d love to see them all go to jail…doesn’t Pelosi have a son that has a percentage of Countrywide?

DCJeff on June 16, 2008 at 9:53 AM

Let the frog-marching begin!

Dr.Cwac.Cwac on June 16, 2008 at 9:56 AM

Anita – in case you didn’t notice, Democrats control Congress now. John McCain isn’t chairman of the Senate Commerce Committee anymore.

rockmom on June 16, 2008 at 9:53 AM

Fair point, but he could atleast in his townhalls could stop beating Republicans and start exposing these corrupt democrats – like Jefferson, Dodd, Conrad, Obama (by way of Rezco). And AP reported this morning that South Carolina Rep. James Clyburn has earmarked millions of taxpayer dollars to directly benefit his friends and family members.

Anita on June 16, 2008 at 10:03 AM

Countrywide then moved into the subprime market in a big way and started muscling the smaller “monoline” subprime lenders out of that market too. And it was all enabled by Fannie Mae.

Rockmom: I don’t think CW muscled any of the smaller subprime lenders out of any market. There was room for all of them. CW simply expanded is subprime wholesale mortgage business and made it attractive to catch that piece of the market. Brokers and lenders got into it with CW. It was too attractive not to. A lot of other lenders did it too (expanding their wholesale base) – doesn’t make it right given the nasty end results – it was simply the way the market went. I certainly agree with you in regards to the oversight and regulation part – those lenders owned by banks were kept from getting into this mess. I think CW’s regulatory body was the FTC – no teeth.

mimi1220 on June 16, 2008 at 10:03 AM

Sorry, I did that blockquote backwards. Wish I were more of a geek.

mimi1220 on June 16, 2008 at 10:04 AM

What was it, ’93 I think. The newly elected president was giving his first state of the union speech to congress. Clinton said, (more or less) “My administration will be the most ethical administration . . .”

I was struck by two questions:

Why would Clinton feel the need to say that? And
why was that line not an applause line?

So I have to ask, does smoking pot really destroy your memory, or does it just make you not care?

rockhauler on June 16, 2008 at 10:07 AM

rockmom on June 16, 2008 at 9:53 AM

Thanks for explaining.

joeswampy on June 16, 2008 at 10:18 AM

mimi –

It was not “simply the way the market went.” This mortgage market has been grossly “bent” by Fannie Mae and Freddie Mac for the last 15 years. It’s not a true free market when a government subsidized, unregulated player has over half the market and favors another large, unregulated lender over others. The Wall Street Journal has been screaming about this for years – as have a lot of Republicans in Congress and in the Bush Administration.

rockmom on June 16, 2008 at 10:22 AM

rockmom

Good analysis.

Anita

It may be too early for McCain to bring up BO’s most damaging issues. Be patient. October’s coming.

jgapinoy on June 16, 2008 at 10:26 AM

Countrywide made the first “exclusive” deal with Fannie Mae in 2002 and started sending 100% of its loans there. Countrywide until recently was a non-federally-regulated mortgage bank, meaning it did not have to undergo the rigorous examination or capital requirements that the big banks have to and that it could offer almost any kind of risky mortgage it wanted to. Fannie Mae’s price break to Countrywide allowed it to undercut the banks and gain massive market share with very little regulation.

As other lenders saw Countrywide gobbling up a bigger and bigger share of the market courtesy of Fannie Mae, they were effectively forced to start selling more and more subprime loans to make money. The banks were constrained in offering these products because of the federal banking laws. Countrywide then moved into the subprime market in a big way and started muscling the smaller “monoline” subprime lenders out of that market too. And it was all enabled by Fannie Mae.

What I am saying is that this entire subprime mortgage crisis can be traced directly back to that sweetheart deal between Countrywide and Fannie Mae, and their mutual use of the Countrywide PAC and Fannie Mae’s lobbying muscle to keep the federal government from regulating them. And this political machine was aimed almost 100% at Democrats.

rockmom on June 16, 2008 at 9:53 AM

Well, if the first exclusive deal was made in 2002, the pubbies had 4 years of Congressional majority to do some investigating or at least hold some hearings, if they didn’t like it. Why didn’t they?

a capella on June 16, 2008 at 10:37 AM

Rockmom: Grossly bent by Freddie and Fannie? Well, what other conduits should the market be investing in? When a large lender, who has a piece of the market share can negotiate commitments with Freddie or Fannie based on their loan production levels (retail, wholesale, correspondent), that partnership with one of these GSEs DOES receive better pricing. My company would commit, e.g., $300 million in fixed rate mortgages over a period of “x” amount of time. Yes, we would receive a better price for these loans delivered than a much smaller Fannie or Freddie lender.

IF there is “unfair competition” and IF there is fraud, yes, go get em. But let me assure you from 26 years in this business, there is more government regulation than is imagined or understood.

mimi1220 on June 16, 2008 at 10:43 AM

Here’s another hint: If you dig even more you’ll find that the entire setup was to then feed now collapsing investment banks and hedge funds, which many politicians were tied to for the purpose of laundering graft through the system.

Think cattle futures times 1000.

It’s not just the Middle East oil countries (where we’re off-shoring our nations wealth) who were serving as the politicians’ post-government piggy bank.

econavenger on June 16, 2008 at 10:52 AM

An article in the AZ Rep this weekend noting the ‘sweet heart’ loans given to 4 members of congress conveniently buried the party affiliation of said members in the 6th paragraph. I see they gave commercial loans to one member (CW does not do ANY commercial stuff) and a well below market rate to another. I’d love to get my hands on those files and do a little compliance audit.

DrW on June 16, 2008 at 10:59 AM

Congress should call a halt to legislating bailouts. Taxpayers deserve no less

A HALT???? Congress shouldn’t be contemplating bailouts in the first place!

Political fallout and questionable practices aside, nobody put a gun to those people’s heads and made them sign those mortgage agreements. It is not the place of the federal government to bail out stupid greedy people. That’s what taxpayers deserve.

highhopes on June 16, 2008 at 11:07 AM

Well, if the first exclusive deal was made in 2002, the pubbies had 4 years of Congressional majority to do some investigating or at least hold some hearings, if they didn’t like it. Why didn’t they?

a capella on June 16, 2008 at 10:37 AM

Nobody had the vision in 2002 to see what was coming from these exclusive deals. Other big lenders simply tried to make their own deals with Fannie or Freddie to compete and get similar pricing. But Fannie Mae is like the Kremlin with information – nobody really knows what kind of deal they made with Countrywide, and their regulation is so slim that they never had to disclose it even to a regulator. But it was at that moment that Countrywide’s business really started growing exponentially. And Countrywide became Fannie’s biggest cheerleader and surrogate lobbyist.

A few Republicans in Congress did try to go after Fannie -most notably Jim Leach when he chaired the House Banking Committee, and later Richard Baker, wh chair the GSE subcommittee. Fannie then organized the Realtors, Homebuilders, and mortgage bankers’ lobbying arms to fight them. Those groups are traditionally Republican and they fought all regulation of Fannie and Freddie as “a tax on homeownership.” They hired all the top GOP lobbyists as well. I once worked for a small industry group and we wanted to hire a lobbyist but could not find one that was not already conflicted by working for Fannie or Freddie.

They used the traditional levers to beat on Republicans. But they used money and outright bribes on the Democrats.

rockmom on June 16, 2008 at 11:21 AM

Let the investigation begin!

Travis1 on June 16, 2008 at 11:31 AM

Grossly bent by Freddie and Fannie? Well, what other conduits should the market be investing in? When a large lender, who has a piece of the market share can negotiate commitments with Freddie or Fannie based on their loan production levels (retail, wholesale, correspondent), that partnership with one of these GSEs DOES receive better pricing. My company would commit, e.g., $300 million in fixed rate mortgages over a period of “x” amount of time. Yes, we would receive a better price for these loans delivered than a much smaller Fannie or Freddie lender.

IF there is “unfair competition” and IF there is fraud, yes, go get em. But let me assure you from 26 years in this business, there is more government regulation than is imagined or understood.

mimi1220 on June 16, 2008 at 10:43 AM

Of course Fannie gave price breaks to big customers, and still does. But they took it to a new level with Countrywide, or at least that is what its competitors believe. It’s possible that this was all just the market at work. But when you layer on top of this the Friends of Angelo deals, you see a much more sinister operation at work. Mozilo figured out a way to play off of Fannie Mae’s political agenda to help his company gain market share and to get rich.

Bank of America stopped making subprime loans in 2001. Countrywide didn’t even start making them until after that, and eventually controlled about 35% of the market. They were able to do that because of their special relationship with Fannie Mae and their lack of federal regulation.

rockmom on June 16, 2008 at 11:33 AM

Rockmom,

How much SUBprime did Fannie actually purchase from lenders? Not alt doc programs – like stated income or those approved through their DU programs, actual SUBprime with low FICO scores, sketchy employment etc.

mimi1220 on June 16, 2008 at 12:00 PM

Hey I tried to contact Countrywide about a loan. They asked me if I was a Member of Congress. When I said no they put me on hold for three days.

GreenBlade on June 16, 2008 at 3:47 PM

$100 says that this Congress will not start a a serious full-blown investigation that begins before the Nov elections. Any takers?

and I don’t mean that they just go through a few half-hearted announcements and hold a brief meeting.

Ragnell on June 16, 2008 at 9:51 PM