AP IMPACT

How Freddie Mac halted regulatory drive

[December 08, 2008]  WASHINGTON (AP) -- When the Washington Nationals played their first-ever baseball game in the nation's capital in April 2005, two congressmen who oversaw mortgage giant Freddie Mac had choice seats -- courtesy of the very company they were supposed to be keeping an eye on.

Efforts to tighten government regulation were gaining support on Capitol Hill, and Freddie Mac was fighting back. The baseball tickets for home opener were means of influence.

According to confidential company documents obtained by The Associated Press, Reps. Bob Ney, R-Ohio, and Paul Kanjorski, D-Pa., spent the evening in hard-to-obtain seats near the Nationals dugout with Freddie Mac executive Hollis McLoughlin and four of Freddie Mac's in-house lobbyists.

Kanjorski declined comment through a spokeswoman. Ney ultimately served a federal prison term after pleading guilty to trading political favors for a golf trip to Scotland, other gifts and campaign donations in the Jack Abramoff lobbying scandal.

The Nationals tickets were bargains for Freddie Mac, part of a well-orchestrated, multimillion-dollar campaign to preserve its largely regulatory-free environment, with particular pressure exerted on Republicans who controlled Congress at the time.

Internal Freddie Mac budget records show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich were recruited with six-figure contracts. Freddie Mac paid the following amounts to the firms of former Republican lawmakers or ex-GOP staffers in 2006:

-Sen. Alfonse D'Amato of New York, at Park Strategies, $240,000.

-Rep. Vin Weber of Minnesota, at Clark & Weinstock, $360,297.

-Rep. Susan Molinari of New York, at Washington Group, $300,062.

-Susan Hirschmann at Williams & Jensen, former chief of staff to House Majority Leader Tom DeLay, R-Texas, $240,790.

Freddie Mac's chairman and chief executive, Dick Syron, and McLoughlin, senior vice president for external relations, used Clark and Weinstock extensively, Weber said in an e-mail Friday.

"I personally met with the CEO several times and with Hollis and his team regularly," Weber said in the e-mail. "Clark and Weinstock worked effectively and intensely for Freddie Mac under Dick Syron and Hollis McLoughlin."

The tactics worked -- for a time. Freddie Mac was able to operate with a relatively free hand until the housing bubble ultimately burst in 2007.

Now Freddie Mac and its sister company, Fannie Mae, are in financial collapse and under government control. Congress is investigating how it all happened. Lawmakers have planned a hearing Tuesday.

The records obtained by the AP reflect growing concern within Freddie Mac over a chorus of criticism from Republicans worried that Freddie Mac and Fannie Mae had grown too big. The two companies owned or guaranteed over $5 trillion in mortgages.

The Bush administration and Federal Reserve Chairman Alan Greenspan were sounding the alarm about the potential threat to the nation's financial health if the fortunes of the two mammoth companies turned sour. They did eventually, when they took on $1 trillion worth of subprime mortgages and when their traditional guarantee business deteriorated. Commercial banks regarded Freddie Mac and Fannie Mae as competitors and were anxious to pick up business that would result from scaling back the two companies.

Pushing back, Freddie Mac enlisted prominent conservatives, including Gingrich and former Justice Department official Viet Dinh, paying each $300,000 in 2006, according to internal records.

Gingrich talked and wrote about what he saw as the benefits of the Freddie Mac business model.

Dinh wrote a legal analysis of private property rights that viewed a hypothetical government-enforced sale of Freddie Mac assets as constitutionally suspect.

In 2005, Freddie Mac hired political consultant Frank Luntz, a Washington fixture whose specialty is choosing the right buzz words to achieve a particular goal. The records AP obtained do not cover 2005 and Freddie Mac refuses to confirm that it brought Luntz on board. But four people familiar with events at Freddie Mac at the time confirmed the Luntz hire. All four spoke on condition of anonymity, saying they fear reprisals if their names were revealed. Luntz did not respond to efforts to contact him through his office.

The AP previously described, in October, how Freddie Mac thwarted efforts to bring a tough regulatory bill sponsored by Republican Sens. Chuck Hagel of Nebraska, John Sununu of New Hampshire, Elizabeth Dole of North Carolina and John McCain of Arizona to a full Senate vote.

At a meeting days after Hagel's bill went to the full Senate, Syron and McLoughlin berated the company's in-house lobbyists for failing to keep Hagel's bill corralled in committee, said the four people familiar with events at Freddie Mac at the time.

Freddie Mac shifted into high gear, secretly paying a Republican consulting firm, Washington-based DCI Group, $2 million to kill Hagel's legislation. The covert lobbying campaign targeted Republican senators in 2005-06.

According to the newly obtained records, DCI's deployment was part of a broader campaign that targeted mainly Republicans on Capitol Hill.

The internal Freddie Mac documents show that 17 of the lobbying firms and consultants paid in 2006 were specifically directed to focus on Republicans and four on Democrats, with varying targets for the rest.

McLoughlin hired his own personal political strategist, Republican consultant Harry Clark, paying Clark's firm $440,494 in 2006 out of McLoughlin's executive office budget, according to the records obtained by AP.

Even the office that served as the sole source of federal regulation over Freddie Mac was targeted.

Lobbyist Geoffrey P. Gray was paid $240,000 in 2006 to focus in part on the Office of Federal Housing Enterprise Oversight, according to the records.

Last week, Gray did not return calls to his office. On Friday, Freddie Mac declined to comment. A lawyer for Syron, one of the scheduled witnesses at Tuesday's congressional hearing on the collapse of Freddie Mac and Fannie Mae, did not return a phone call seeking comment.

Syron has left the company. McLoughlin remains in his post at Freddie Mac.

[Associated Press; By PETE YOST]

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