So‐called influence peddling on Capitol Hill is neither new nor surprising. Although housing is essential for all Americans, home ownership is not. The industry, from builders to realtors to financers, has sought government support to inflate housing demand. And, not incidentally, their profits.
There were a lot of influential players with a role in the subprime lending debacle. Government simultaneously strong‐armed and subsidized financial institutions into providing mortgages to people with ever poorer credit ratings. One of the largest was Countrywide Financial Corp., which developed a special relationship with Fannie Mae. The latter, along with its companion government‐sponsored enterprise Freddie Mac, did so much to trigger both the financial crisis and succeeding bail‐outs.
Countrywide was swept away by the resulting deluge. The firm’s portfolio of bad loans destroyed its finances, causing the company to crash and burn in 2008. The wreckage was taken over by Bank of America.
According to a multi‐year investigation by the House Oversight and Government Reform Committee, Countrywide used preferential loans to win political influence. The oversight committee is chaired by Rep. Darrell Issa (R-MI), who explained that “Countrywide lobbyists and CEO Angelo Mozilo used discounted loans as a tool to ingratiate itself with policymakers in an effort to benefit company’s business interest.”
The company maintained a “VIP Program” which offered mortgages at special terms. “This preferential treatment — that varied depending on the influence of the borrower — was not routinely offered to the public,” explained the committee’s new report, “How Countrywide Used its VIP Loan Program To Influence Washington Policymakers.”
Mozilo was the most important of the many top company employees who recommended inclusion of particular borrowers. In one case he emailed his administrative assistant instructing her to make certain that the firm “approves this loan right away and that we give the borrower an employee discount. Please let me know if the buyer is satisfied and if they are ready to close their loan. Stay close to this deal because this is a very important person.”
No one alleges formal bribery. As Michael Kinsley observed long ago, the real scandal in Washington almost invariably is what is legal. Like handing out cheap loans to lawmakers, regulators, and partners. Mark Tapscott of the Washington Examiner noted that with Countrywide “winks and nudges, and everything is OK.”
The VIP Program was established in 1991 for company executives and friends. The program gave out 17,979 loans, though the log listed duplicate loans and may not have included every borrower. VIP borrowers won fee exemptions and discounted interest rates.
The privileged also didn’t have to fill out applications. Committee investigators discovered that “Account Executives in the VIP unit had to fill in blanks on loan applications because ‘Friends of Angelo’ were reluctant or unwilling to provide basic information such as salary and employment information.” Internal procedures insisted that lack of documentation was not to block loan approval.
Nor did borrowers need good credit ratings. Explained the committee: “the suite of benefits available to VIP borrowers also included various exceptions to Countrywide company policies regarding minimum credit scores, income and employment documentation, and access to interest rate ‘float downs.’ For some VIP borrowers, Countrywide financed commercial and multi‐unit properties.” In the latter case, anyone else would have been told to apply elsewhere.
Countrywide spread its largesse widely. Explained the committee: