House Oversight and Government Reform Committee chairman Darrell Issa (R-CA) released a report today on failed mortgage company Countrywide’s use of a VIP loan program to curry favor with Beltway decision-makers. Members of Congress, congressional staffers, and cabinet officials received preferential treatment – including rate discounts and fee waivers – from Countrywide.
Countrywide was a major beneficiary of the federal government’s overzealous subsidization of housing, which contributed to the housing bubble and bust that fueled the recent economic downturn. As I explained in a Cato essay on HUD scandals, Countrywide had a close relationship with Fannie Mae, the government-sponsored mortgage giant that eventually collapsed and, along with Freddie Mac, has cost taxpayers over $180 billion and counting:
In 1999, Countrywide, which had become the nation’s largest residential housing lender, reached an exclusive agreement to sell Fannie Mae billions of dollars in mortgages in exchange for lower “guarantee” fees that Fannie charged originators when it bought their loans. The success, and then failure, of both entities became intertwined as Fannie purchased large amounts of subprime loans and securities, which allowed subprime lenders like Countrywide to grow their businesses. When the subprime market collapsed in 2007, Countrywide collapsed as well. It was bought at a fire sale price by the Bank of America, while a broken Fannie Mae was taken over by the federal government.
Fannie Mae executives received numerous VIP loans from Countrywide. According to Issa’s report, Countrywide “buttressed” Fannie’s massive lobbying efforts to stop Congress from passing legislation that would rein in the GSEs: