Oversight Committee Issues Second Report on Countrywide "VIP" Program

The House Oversight and Government Reform Committee issued a report today on Countrywide Mortgage and its so-called VIP loan program which the committee said was "a tool used by Countrywide to build goodwill with lawmakers and other individuals positioned to benefit the company.  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 [Freddie Mac and Fannie Mae]." This is the second report the committee has issued on the VIP program.

Bank of America, which acquired the bankrupt Countrywide Mortgage in 2009, produced more than 120,000 pages of documents for the committee to enable it to enlarge on an earlier investigation conducted by Darrell Issa (R-CA) who was at the time the ranking member of the committee.

The VIP program, referred to internally as Branch 850, was established in 1991 to process loans for senior Countrywide officials and their friends.  According to bank operating procedure information it had 13 full-time employees and the benefits available to its borrowers included program/underwriting and pricing exceptions. 

Countrywide used the VIP unit to widely dispense discounted loans during the period of January 1996 and June 2008 when it processed a total of 17,979 loans.  Hundreds of these loans went to members of Congress, congressional staffers, staff of the executive branch, three top executives of Fannie Mae and Freddie Mac and many lower level employees of the two government sponsored enterprises, especially Fannie Mae which bought most of the loans originated by Countrywide.  Many of the loans and discounts were personally approved by Countrywide CEO Angelo Mozilo and the recipients were known as "Friends of Angelo."

These loans were not only aimed at gaining influence for the company, the report states, but to help Fannie Mae at a time it was under attack by legislators who were seeking to reform its mission and operation.

The names of prominent persons who received discounted loans have all been published earlier.  They included six current and former members of Congress, former Senate Banking Committee Chairman Christopher Dodd (D-CT); Senate Budget Committee Chairman Kent Conrad (D-ND); Rep. Howard "Buck" McKeon (R-CA); Rep. Elton Gallegly (R-CA); Former Rep. Tom Campbell (R-CA) and Rep. Edolphus Towns (D-NY) former chairman of the Oversight Committee.  Towns began the investigation into Countrywide but the report says that when he subpoenaed Bank of America for Countrywide documents the bank left out those related to Towns' loan.

Other government recipients of Countrywide discounts were Former Housing and Urban Development Secretaries Alphonso Jackson and Henry Cisneros and former Health and Human Services Secretary Donna Shalala.  Both Cisneros and Shalala had left government service before the loans were made.

The House committee's report said documents and testimony show that Countrywide "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."

Countrywide was among the first of the major mortgage companies to fail at the start of the housing bust.  Bank of America has been hit with countless penalties and lawsuits arising out of Countrywide's operations since it acquitted the company.

None of Countrywide's executives have been charged with criminal activities. Mozilo was hit with a $22.5 million penalty in 2010 to settle charges that he and two other company executives misled investors as the subprime mortgage crisis began and he has been banned from ever again serving as an officer or director of a publicly traded company.  He has also agreed to pay an additional $45 million to settle other violations.

The report said that Countrywide 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.

"If Countrywide's lobbyists, and Mozilo himself, were more strictly prohibited from arranging preferential treatment for members of Congress and congressional staff, it is possible that efforts to reform (Fannie and Freddie) would have been met with less resistance," the report said.  Countrywide had as many as 70 lobbyists assigned to the Financial Services Committee during the period it was considering legislation to reform Fannie Mae.  Four such bills were introduced between 2000 and 2005 but none were voted out of the committee.

The report said those who received the discounts knew their loans were handled by a special VIP unit which was identified on their mortgage documents as the point of contact.  The standard discount was 0.5 waived points and the elimination of junk fees that usually ranged from $350 to $400.  Account executives in the VIP units often had to fill in blanks on loan applications because "Friends of Angelo" were reluctant or unwilling to provide basic information on salaries and employment.  The report states that since their loans were already "approved" by Mozilo, the requests for additional information were merely "courtesy calls". 

Among other findings in the report:

• A strategic alliance between Countrywide and Fannie Mae which began in 1999 linked the growth of the two companies to a unique extent including a volume discount given to Countrywide for producing billions of dollars in loans. In 2005 the two agreed to work together to expand lending to low-income borrowers.

• Countrywide and Fannie Mae lobbied against 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. Several members of Congress and their staff who were positioned to affect the legislation received VIP loans.
• Fannie Mae employees received expedited processing and exceptions to Countrywide guidelines to a greater extent than other VIPs. Account Executives flagged these loan applications to ensure they received special attention. Other than Countrywide, no employees were mentioned in the loan documents more often than those of Fannie Mae.

The report released this morning follows one issued in March 2009 and appears to substantially duplicate the earlier report which was published by Issa who at that time was the ranking member of the committee which he now chairs.