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Pity poor Ed McMahon. Remember Johnny Carson’s sidekick on The Tonight Show, host of Star Search, the guy who used to deliver flabbergasted citizens those multi-million dollar checks from Publishers’ Clearinghouse? With his own big paydays largely in the past, he’s nearly $644,000 behind in his payments on a $4.8 million mortgage. Countrywide Financial Corporation, the country’s biggest home mortgage lender, may soon foreclose on his Beverly Hills mansion.
Ed might fare better with Countrywide if he had a government job. Last week, Jim Johnson, former chief of staff for Vice President Walter Mondale and CEO of the federally-chartered banker Fannie Mae, which buys and resells mortgages, had to resign from his position as head of the task force looking for Barack Obama’s running mate. The Wall Street Journal reported that Countrywide – Fannie Mae’s largest mortgage provider – gave him preferential treatment for millions of dollars in personal loans.
Johnson, a prominent and prosperous Democratic wheeler-dealer, wasn’t the only officeholder to benefit from the generosity of Countrywide, although so far he seems to have been the most favored target of its corporate largesse. In fact, it was Johnson, according to last Saturday’s Washington Post, who handed United States Senator Kent Conrad, chairman of the Senate Budget Committee, the name and number of his private banker pal at Countrywide, Angelo Mozilo, the company’s CEO.
Thus did Senator Conrad become an FOA – Friend of Angelo’s – part of an elite who received the occasional favor from Countrywide. For the North Dakota senator, it was help with a million-dollar loan for improvements to his vacation home on the Delaware shore. In a March 2007 e-mail, Mozilo told one of his loan officers to, quote, “Take off one point,” for Conrad.
In addition, Conrad was given a mortgage for an eight-unit apartment building back in Bismarck, even though Countrywide had a policy against loans for anything larger than four units. In another e-mail, Angelo Mozilo wrote, “Make an exception due to the fact that the borrower is a senator.” Waiving the rules was SOP for an FOA.
According to the magazine Conde Nast Portfolio, other members of Angelo Mozilo’s VIP club included Democratic Senator Chris Dodd, chairman of the Senate Banking Committee, who allegedly received savings of as much as $75,000 on two Countrywide loans; former United Nations Ambassador Richard Holbrooke; former Housing and Urban Development Secretary Alphonso Jackson, who recently resigned in the wake of charges of cronyism; and former Health and Human Services Secretary Donna Shalala. When Shalala applied for a mortgage on a Florida timeshare, an in-house e-mail at Countrywide, announced, “Angelo asked me to ensure that ‘we knock her socks off’ with our great service.”
Both Senators Dodd and Conrad have denied that there was any wrongdoing and Senator Conrad announced last weekend that he would donate the money he saved on the Delaware loan – $10,500 – to charity.
Ten and a half grand. We’re not talking graft on the level of the Whiskey Ring or Teapot Dome or Halliburton. But consider this: Countrywide was one of America’s primary purveyors of subprime mortgages, the dubious, lucrative loans that got the country into our current housing crisis. Almost no one paid attention.
Such loans seemed like a good idea at the time – the mid 1990’s – a way for low-income and minority families that had long been discriminated against to buy property with little or no money down. But then look what happened, as succinctly described by the Center for Responsible Lending’s Kathleen Day: ”Lenders, fat with money made cheap by the federal government, aggressively coaxed millions of borrowers to take out unaffordable mortgages,” she wrote in Sunday’s Wilmington (DE) News-Journal. “They lent money without assessing whether borrowers could repay it. They assumed that most wouldn’t be able to do so, and would have to refinance into new, equally unaffordable loans. This would produce an endless cycle of fees for the lenders – but only if home prices rose forever.”
Which, in 2005, they did not. By that point, in just ten years, the private-label, subprime bond market had grown from $18 billion to almost $500 billion.
Deregulation led to insufficient or non-existent oversight. Documents were altered, signatures were forged, credit ratings ignored – anything to get a subprime loan approved. In his book, Confessions of a Subprime Lender, former mortgage banker Richard Bitner estimates that 70% of the subprime loans that came from his mortgage broker customers were “somehow fraudulent.” (On Thursday, the Associated Press reported that since March, in the first significant FBI crackdown, more than 400 “real estate industry players” have been indicted for mortgage fraud.)
Mortgage brokers failed to inform their customers of hidden costs, balloon payments or ways that they could finance their mortgages more cheaply. Until recently, the government looked the other way and now we have a mess that makes the S & L crisis of 20 years ago look like a tiptoe through the T-bills. Over the next five years, financial services giant Credit Suisse predicts an astronomical 6.5 million foreclosures. Already, the average rate is 65,000 a week.
In the face of such calamity, where was Congress? Counting its financial blessings. The mortgage perks handed out by loan shark Mozilo to his DC pals were a mere bagatelle, part of a much larger campaign of lobbying and political contributions. From 1990, Mozilo and his family donated $110,000 to federal candidates, including $1,000 to Senator Conrad in 1999. According to the Center for Responsive Politics, Countrywide’s political action committee gave Conrad $6,000 in 2005 and 2006 and over the last decade has donated $21,000 to Senator Dodd.
In turn, Countrywide’s handouts to pols were just part of a bigger DC jackpot. As per Kathleen Day, “The financial services and real estate industries are far and away the largest federal campaign donors, giving more than $247 million in the 2007-08 cycle alone. Between 1999 and the end of 2006, the mortgage industry and its trade groups spent $187 million lobbying Congress, blocking efforts to ban abusive practices at the national level.” No wonder so little has been done so far to help those whose savings have been lost. Campaign cash registers and the politicians who love them rule.
Facing bankruptcy, Countrywide is being taken over by Bank of America for $4.1 billion, but a Federal judge has approved a shareholders lawsuit against the company and Justice Department and congressional investigations have begun. Cold comfort for those who once honestly thought they had a mortgage they could afford and a home to call their own.
MICHAEL WINSHIP is senior writer of the weekly public affairs program
Bill Moyers Journal, which airs Friday night on PBS.