Mortgage giants Fannie, Freddie top lobby efforts
When Treasury Secretary John Snow called on Congress in September to create a "world-class" regulator to crack down on Fannie Mae and Freddie Mac,
the two largest buyers of U.S. home mortgages were ready for him.
Fannie Mae and Freddie Mac between them had hired 46 lobbying firms in the first half of this year, including seven of the 20 largest, to reinforce
their permanent staffs of 20. They spent at least $9.7 million on lobbying during that time, more than any other company or association, according to
PoliticalMoneyLine.com, a nonpartisan group tracking such funds.
It wasn't just the numbers, it was the names. Among other recruits, Freddie Mac took on Patrick Cave after he resigned in January as a top official
in the Treasury office that's seeking authority over the companies. It hired Terry Haines after he quit that same month as staff director for the
House Financial Services Committee, which is considering the legislation.
The companies "are in a class by themselves," with the most potent lobbying force in Washington, said Sen. John Sununu, R-N.H. Sununu, 39,
co-sponsored a bill that would strengthen oversight, in response to accounting errors that led to a $5 billion profit restatement by Freddie Mac this
The lobbying effort paid off. A month after Snow's Sept. 10 testimony, the House Financial Services Committee indefinitely postponed a vote on a bill
that would have allowed Treasury to oversee new business, capital standards and other aspects of what Snow calls the companies' "safety and
For the Bush administration, that delay underlined its warning that without stricter supervision the companies may threaten U.S. financial stability
because of their vulnerability to interest-rate shifts and combined $1.75 trillion debt. They own or guarantee 42 percent of the $7 trillion U.S.
mortgage market. Advertisement
"It's important to have a regulator that is strong, capable and competent and able to deal with the risks they could present," Snow said in a Dec.
12 televised interview with Bloomberg News.
The shareholder-owned companies, chartered by Congress to increase financing for housing, buy mortgages from banks with proceeds from bond sales. They
profit from the difference between their debt costs and the return on their mortgage holdings.
They lobby so hard because they "owe their very life to Congress," said Jonathan Koppell, a professor at the Yale School of Management.
Congress has exempted them from state and local taxes and authorized the Treasury to buy $2.25 billion of their securities in the event of possible
default. That "implied guarantee" allows the mortgage buyers to hold down annual funding costs by more than $15 billion, Congressional Budget Office
Director Douglas Holtz-Eakin told the Senate Banking Committee on Oct. 23.
The crackdown gained momentum in Congress in January when Freddie Mac, the smaller of the two companies, disclosed that it needed to restate earnings.
The company said last month it underreported income for 2000-2002 to hide earnings volatility. That prompted a $125 million fine by the Office of
Federal Housing Enterprise Oversight, the companies' regulator.
In October, Fannie Mae disclosed a $1.1 billion accounting error in its third-quarter earnings statement.
Fannie Mae and Freddie Mac sought to fend off a congressional backlash by "moving into full-bore opposition" to regulatory changes, said
Representative Richard Baker, 55, of Louisiana, a senior Republican on the Financial Services Committee.
Through a campaign of letter-writing and meetings with lawmakers, they rallied the National Association of Homebuilders, the National Association of
Realtors and other groups that profit from expanded mortgage finance, Baker said in an interview.
The Fannie Mae Foundation in 2002 gave $38 million to more than 1,000 affordable housing associations, including $700,000 to the Local Initiatives
Support Corp., a nonprofit group that seeks to revive low-income neighborhoods.
The companies "manipulated" the Financial Services Committee, said Rep. Christopher Shays, 58, another Republican committee member, in an interview.
They use such tactics as paying firms not to lobby against them, Shays said.
Cave, 32, Haines, 46, and other lobbyists declined to comment. Freddie Mac spokeswoman Sharon McHale said she has never heard of the company hiring
lobbyists not to work against them.
McHale said Freddie Mac is "very well outgunned" and must vie for lawmakers' attention against more powerful rivals. These include Wells Fargo &
Co., the largest U.S. mortgage lender, GE Capital Corp. and other companies that support FM Policy Focus, a group that seeks to prevent Fannie Mae and
Freddie Mac from expanding into new areas of mortgage finance.
Fannie Mae Chief Executive Officer Franklin Raines said that while the company supports "having a strong, credible, well-funded regulator," the
authority must "also preserve our mission, which supports the housing finance system."
"Congress needs to be extraordinarily careful to avoid changes that would undermine our mission and stifle the flow of low-cost mortgage capital and
mortgage innovations," Raines, 54, said in a speech this month in Washington. "No one wants to harm homeowners."
To protect its interests, Fannie Mae and Freddie Mac enlist as lobbyists former senior staff at the White House, Treasury and congressional
David Horne, a former counsel with the House Financial Services Committee, registered this year as a Freddie Mac lobbyist. So did Recording Industry
of America Chairman Mitch Bainwol, a former chief of staff for Senate Majority Leader Bill Frist. Among other hires, they were joined by Richard
Roberts, a former commissioner at the Securities and Exchange Commission and aide to Senate Banking Committee Chairman Richard Shelby, who guides
company-related bills in the Senate.
Fannie Mae took on two other former Shelby aides, Lendell Porterfield and Raymond Cole. It hired Ken Duberstein, a Fannie Mae director and former
chief of staff for President Ronald Reagan, and Steve Ricchetti, a deputy chief of staff in the Clinton administration.
Fannie Mae and Freddie Mac lobbyists this year have also focused on other banking and finance issues unrelated to the oversight legislation, including
a tax credit promoting homeownership among low-income Americans.
Two weeks before the Financial Services Committee postponed a planned Oct. 8 vote on tightening regulation, Fannie Mae gave $1 million to the
Congressional Hispanic Caucus Institute.
The donation was the seed money for a program to increase homeownership among Latinos in 63 congressional districts. Five members of the Congressional
Hispanic Caucus serve on the House Financial Services Committee.
"It's the kind of largesse that gets noticed, that people remember," Sununu said.
Fannie Mae and Freddie Mac "work more comprehensively to insure against political risk than any other companies in America," said Rep. James Leach,
a 61-year-old Iowa Republican on the House Financial Services Committee. "They are the most effective on the Hill today."