Oversight Committee Issues Second Report on Countrywide "VIP" Program

by devteam July 7th, 2012 | Share

The House Oversight and GovernmentrnReform Committee issued a report today on Countrywide Mortgage and its so-calledrnVIP loan program which the committee said was “a tool used by Countrywide tornbuild goodwill with lawmakers and other individuals positioned to benefit therncompany.  In the years that led up to thern2007 housing market decline, Countrywide VIPs were positioned to affect dozensrnof pieces of legislation that would have reformed [Freddie Mac and Fannie Mae].”rnThis is the second report the committee has issued on the VIP program.</p

Bank of America, which acquired thernbankrupt Countrywide Mortgage in 2009, produced more than 120,000 pages ofrndocuments for the committee to enable it to enlarge on an earlier investigationrnconducted by Darrell Issa (R-CA) who was at the time the ranking member of therncommittee.</p

The VIP program, referred to internallyrnas Branch 850, was established in 1991 to process loans for senior Countrywidernofficials and their friends.  Accordingrnto bank operating procedure information it had 13 full-time employees and thernbenefits available to its borrowers included program/underwriting and pricingrnexceptions.  </p

Countrywide used the VIP unit to widelyrndispense discounted loans during the period of January 1996 and June 2008 whenrnit processed a total of 17,979 loans.  Hundredsrnof these loans went to members of Congress, congressional staffers, staff ofrnthe executive branch, three top executives of Fannie Mae and Freddie Mac andrnmany lower level employees of the two government sponsored enterprises,rnespecially Fannie Mae which bought most of the loans originated by Countrywide.  Many of the loans and discounts werernpersonally approved by Countrywide CEO AngelornMozilo and the recipients were known as “Friends of Angelo.”</p

These loans were not only aimed atrngaining influence for the company, the report states, but to help Fannie Mae atrna time it was under attack by legislators who were seeking to reform itsrnmission and operation. </p

Thernnames of prominent persons who received discounted loans have all beenrnpublished earlier.  They included six current and former members of Congress, formerrnSenate Banking Committee Chairman Christopher Dodd (D-CT); Senate Budget CommitteernChairman Kent Conrad (D-ND); Rep. Howard “Buck” McKeon (R-CA); Rep.rnElton Gallegly (R-CA); Former Rep. Tom Campbell (R-CA) and Rep. Edolphus Townsrn(D-NY) former chairman of the Oversight Committee.  Towns began the investigation into Countrywidernbut the report says that when he subpoenaed Bank of America for Countrywiderndocuments the bank left out those related to Towns’ loan.</p

Other government recipients ofrnCountrywide discounts were Former Housing and Urban Development SecretariesrnAlphonso Jackson and Henry Cisneros and former Health and Human Services SecretaryrnDonna Shalala.  Both Cisneros and Shalalarnhad left government service before the loans were made. </p

The House committee’s report saidrndocuments and testimony show that Countrywide “may have skirted thernfederal bribery statute by keeping conversations about discounts and otherrnforms of preferential treatment internal. Rather than making quid pro quo arrangementsrnwith lawmakers and staff, Countrywide used the VIP loan program to cast a widernnet of influence.”</p

Countrywidernwas among the first of the major mortgage companies to fail at the start of thernhousing bust.  Bank of America has beenrnhit with countless penalties and lawsuits arising out of Countrywide’srnoperations since it acquitted the company. </p

Nonernof Countrywide’s executives have been charged with criminal activities. Mozilornwas hit with a $22.5 million penalty in 2010 to settle charges that he and twornother company executives misled investors as the subprime mortgage crisis beganrnand he has been banned from ever again serving as an officer or director of arnpublicly traded company.  He has alsornagreed to pay an additional $45 million to settle other violations. </p

The report said that Countrywide becamerna trusted adviser in Congress and was consulted when the House FinancialrnServices Committee and Senate Banking Committee considered reform of Fannie andrnFreddie and unfair lending practices.</p

“If Countrywide’s lobbyists,rnand Mozilo himself, were more strictly prohibited from arranging preferentialrntreatment for members of Congress and congressional staff, it is possible thatrnefforts to reform (Fannie and Freddie) would have been met with lessrnresistance,” the report said. rnCountrywide had as many as 70 lobbyists assigned to the FinancialrnServices Committee during the period it was considering legislation to reformrnFannie Mae.  Four such bills werernintroduced between 2000 and 2005 but none were voted out of the committee.</p

The report said those who receivedrnthe discounts knew their loans were handled by a special VIP unit which wasrnidentified on their mortgage documents as the point of contact.  The standard discount was 0.5 waived pointsrnand the elimination of junk fees that usually ranged from $350 to $400.  Account executives in the VIP units often hadrnto fill in blanks on loan applications because “Friends of Angelo” werernreluctant or unwilling to provide basic information on salaries and employment.  The report states that since their loans werernalready “approved” by Mozilo, the requests for additional information werernmerely “courtesy calls”.  </p

Among other findings in the report:</p<ul class="unIndentedList"<liA strategic alliance betweenrnCountrywide and Fannie Mae which began in 1999 linked the growth of the tworncompanies to a unique extent including a volume discount given to Countrywidernfor producing billions of dollars in loans.rnIn 2005 the two agreed to work together to expand lending to low-incomernborrowers.</li</ul<ul class="unIndentedList"<liCountrywide and Fannie Mae lobbiedrnagainst GSE reform legislation that would have diminished Fannie Mae's abilityrnto acquire and hold subprime mortgages originated by Countrywide. Countrywide also lobbied against predatoryrnlending bills. Several members ofrnCongress and their staff who were positioned to affect the legislation receivedrnVIP loans.</li<liFannie Mae employees receivedrnexpedited processing and exceptions to Countrywide guidelines to a greaterrnextent than other VIPs. AccountrnExecutives flagged these loan applications to ensure they received special attention. Other than Countrywide, no employees werernmentioned in the loan documents more often than those of Fannie Mae.</li</ul

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

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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