With the housing crisis leading our economy into a swoon, it has been an ugly year for U.S. homeowners and an unfortunate introduction into the practices of mortgage lenders like Countrywide Financial, the poster child for pushing "subprime" loans that have ultimately put over a million homes at risk of foreclosure.
We documented how the mortgage lending industry appeared to buy off Congress with $210 million in lobbying and campaign contributions, leading to inaction on the subprime lending situation until it became a crisis too big to ignore.
Things appear even sleazier today after Portfolio.com investigated Countrywide and found that at least two U.S. Senators received favorable loan deals, worth several thousand dollars if not tens of thousands, as yet another example of how the industry curried favor with leaders in Congress.
Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide's "V.I.P." program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.
The V.I.P. loans to public officials in a position to advance Countrywide's interests raise legal and ethical questions. Countrywide's ethics code bars directors, officers and employees from "improperly influencing the decisions of government employees or contractors by offering or promising to give money, gifts, loans, rewards, favors, or anything else of value." Federal employees are prohibited from receiving gifts offered because of their official position, including loans on terms not generally available to the public. Senate rules prohibit members from knowingly receiving gifts worth $100 or more in a calendar year from private entities that, like Countrywide, employ a registered lobbyist.
Seems pretty obvious that Countrywide broke its own rules and that the Senators broke
their own rules.
The Senators, not surprisingly, claim that they didn't know how much they saved and even suggest they didn't know they were getting a deal. Maybe that's true; maybe the Senators didn't realize it, although Countrywide sure did:
Later that year, Conrad refinanced an eight-unit apartment building that he and his brothers owned in Bismarck, North Dakota. According to the former employee, the loan violated Countrywide's normal policy of providing loans for buildings of four units or fewer. In an April 23, 2004, email, Mozilo encouraged an employee to "make an exception due to the fact that the borrower is a senator."
Countrywide has already proven itself to be reckless in pursuit of a stronger bottom line. Whether Senators Dodd and Conrad knew who, and what, they were dealing with is important--and should be investigated. But there's a larger point here, too.
This swirling mess of subprime mortgages at painful rates for many households, campaign cash and lobbying and now direct discounts for elected officials, and the lack of action by Congress from 2000-2007 leaves nothing but the awful taste of politics-as-usual in the public mouth. Again, the public is shown not to trust our federal government.
The biggest failure, in the end, was the first one: that Congress didn't do its job to oversee and ensure proper regulation of the housing industry from 2000 until very recently, and that the industry itself didn't self regulate to eliminate such damaging investment vehicles like the packaged subprime mortgages. The federal government abdicated its role to regulate industry for the greater good of the American people. When that happens, corruption and political cronyism will almost always fill the void. Angelo Mozilo, CEO of Countrywide Financial, is only the latest to step into the role.
