Congress is now one step closer to uncovering the full scope of the collusion between reckless mortgage lenders and high-ranking government officials that ultimately inflated the U.S. housing bubble and brought the world economy to the brink of total collapse. One of the chief offenders in the mortgage meltdown was, doubtlessly, Countrywide Financial, a now-defunct corporate giant that exploited lax government policies to issue trillions of dollars in subprime mortgages on the guarantee that the burden of these toxic assets would ultimately fall on the shoulders of the American taxpayer.
For years, Countrywide’s successful strategy went undetected. Profits were good. The economy was booming. Everybody was happy.
And then, the bubble burst and the rains of economic hell began to fall on every American. At that point, Americans began wondering how Countrywide had managed to escape scrutiny. Then they began to learn about Countrywide’s VIP loan program that provided special deals and treatment for Members of Congress and other government officials who oversaw U.S. housing policy. Among the many who received the sweetheart deals were Sen. Kent Conrad (D-ND), Sen. Chris Dodd (D-CT), and former HUD Secretary Alphonso Jackson.
The mastermind behind Countrywide’s VIP loan program was its former CEO Angelo Mozilo, and the beneficiaries of Mozilo’s program became known as “Friends of Angelo.” The plan was simple: Countrywide would execute a strategic lobbying effort to purchase political favor with high-ranking government officials and other influential leaders who in turn could block attempts to reform the federal housing policies that hatched Countrywide’s trillion-dollar golden goose.
Until last week, it appeared that House Speaker Nancy Pelosi and Democrats in Congress were circling their wagons to block a full-scale investigation into the program, perhaps because some of Countrywide’s more notable VIPs were also Democratic Party VIPs. And then, in a commendable decision to break party ranks, two Democrats on the House Oversight Committee – Reps. Mike Quigley (D-IL) and Paul Hodes (D-NH) – joined Republicans and backed my call for a subpoena.
After months of mounting pressure, our committee finally prevailed upon my Democratic counterpart, Congressman Edolphus Towns (D-NY), to issue a wide-ranging subpoena to secure a majority of the records from Countrywide’s VIP Program. It was, to be sure, a complete reversal for Chairman Towns, who himself received a Countrywide VIP loan – albeit unwittingly, he has stated publicly.
The question of how Countrywide Financial sought to cultivate a network of political allies that could forestall congressional oversight and short-circuit needed reforms to government housing policies must be answered. The degree of collusion between Countrywide executives and CEOs at Fannie Mae and Freddie Mac must be determined. The scheme to grease the skids for Countrywide to unload their junk mortgages on Fannie Mae and Freddie Mac once they became unprofitable must be exposed.
Already, we have learned that Fannie Mae CEOs received their sweetheart loans from Mozilo’s VIP Program while they were simultaneously negotiating the terms of Fannie Mae’s financial relationship with Countrywide. This conflict of interest came at the ultimate expense of taxpayers, who are now on the hook for all of the mortgages that Fannie Mae purchased from Countrywide. Moreover, it is clear Fannie Mae’s and Freddie Mac’s record profits were made at the expense of the American people who provide the company’s implicit taxpayer guarantee. These profits were distributed to Fannie Mae and Freddie Mac executives in the form of exorbitant salaries and bonuses, but until now the full reach of the corrupt tentacles that extend between Countrywide, public officials and Fannie Mae and Freddie Mac has been elusive.
Clearly, growing public outrage and the threat of political embarrassment have provided an opportunity for a truly bipartisan investigation. As that investigation proceeds, it will be important for both Republicans and Democrats to remember one eternal truth about Washington politics: While the crime doesn’t get you, the cover-up will. Former political leaders had to learn this lesson the hard way, and while it appeared at first that some Congressional Democrats were content to repeat history, voices of reason prevailed. As Congressman Mike Quigley explained his decision to support the probe of Countrywide in an interview with the Wall Street Journal:
“The right thing to do is the smart thing to do.”
Congressman Darrell Issa represents California’s 49th Congressional District.
Angelo Mozilo has lots of friends. Or at least, he used to. The former chief executive of Countrywide Financial now faces a series of federal lawsuits, including one brought by the Securities and Exchange Commission for fraud and insider trading. Suddenly, some of the most powerful Washington politicians are eschewing the shameful appellation "Friend of Angelo."
Back in the early 1990s, when Countrywide was climbing to the top of the mortgage industry, Mr. Mozilo was looking to make friends on Capitol Hill. According to documents obtained by congressional oversight investigators, these key VIPs were afforded preferential and personalized treatment, including specially priced home mortgage loans at below-market rates. This generosity was not limited to elected officials but was extended as well to select congressional staff members, administration officials and Washington lobbyists.
In his aggressive pursuit of market dominance, Mr. Mozilo tried to make friends everywhere, especially among people who had a primary responsibility to craft legislation and oversee government enterprises with a stake in the U.S. housing market.
In March 2009, the minority staff of the House Committee on Oversight and Government Reform produced a detailed, 63-page report that analyzed Countrywide's VIP program and Mr. Mozilo's successful scheme to buy political influence and manipulate public policy decisions.
At that time, I renewed my call for congressional hearings into the Countrywide scandal, but my requests have been denied repeatedly and obstructed by the Democratic majority.
While some have attempted to characterize our efforts to uncover the true scope and depth of this pay-for-play program as a partisan attack targeting specific members of Congress, it should be noted that Republicans controlled both Congress and the White House at the height of the Countrywide VIP program's influence.
It stands to reason, therefore, that more Republicans than Democrats could have been the beneficiaries of Mr. Mozilo's special treatment. The undisputed fact remains: We know there was corruption. We know Countrywide's intent was to influence decision-makers to pursue policies that favored Countrywide's portfolio.
Yet congressional Democrats seem afraid to move forward with the investigation into a bribery scandal that contributed to the housing crisis and the financial collapse.
A variety of excuses have been offered for Congress' failure to launch a full-scale probe into the Friends of Angelo program. At first, it was argued that deference was needed for the Senate Ethics Committee to conclude an investigation into the conduct of two senators.
Then speculation concerning a Justice Department investigation was cited to trump congressional oversight. Never mind the fact that Democrats and Republicans in Congress had worked together to investigate the Jack Abramoff scandal, even though the Justice Department continues to prosecute actions connected to this wrongdoing to the present day.
Committee was released, however, the way was cleared for the House oversight committee to subpoena the records of the Friends of Angelo program to determine the full nature and scope of Countrywide's efforts to manipulate Congress and purchase political favor.
The limited focus of the Senate investigation was the actions of two elected officials, not the actions of an entire division of a billion-dollar corporation designed to curry favor with those officials.
Unfortunately, the chairman of the House Committee on Oversight and Government Reform, Edolphus Towns, New York Democrat, does not believe the Countrywide VIP program is worth the committee's time. In a letter sent to oversight committee members on Sept. 30, Mr. Towns characterized the VIP program as "... enhanced customer service, in a manner similar to airline frequent flier programs or supermarket discount cards."
Countrywide Financial and Angelo Mozilo clearly are at the nexus of the current economic crisis. It was Countrywide's packaging of subprime mortgages that helped inflate the housing bubble, and it was Mr. Mozilo's VIP program that sought to minimize congressional scrutiny and derail housing policy reforms that could have mitigated the crisis.
The documents that can lift the veil from Countrywide's VIP program are readily available, however, and their custodians are prepared to provide them to Congress upon receipt of a subpoena.
But somewhere in Washington, Mr. Mozilo's secrets are getting cover.
"Public investigating committees ... have always been opposed by groups that seek or have special privileges," wrote former Supreme Court Justice Hugo Black in 1936. "The spokesmen of these greedy groups never rest in their opposition to exposure and publicity. That is because special privileges thrive in secrecy and darkness and [are] destroyed by the rays of pitiless publicity."
As Congress continues to assess the causes of the current economic crisis, the protests of those most responsible doubtless will grow louder and efforts to block congressional inquiry will only intensify.
Ironically, it was the Democratic leadership in Washington that promised a new era of transparency and accountability, but so far those promises have proved empty. No subpoenas have been issued. No hearings have been scheduled, and the Justice Department appears to have shelved its criminal investigation.
The only reason the American people are not learning the whole truth about Countrywide, it seems, is that Angelo Mozilo still has a few friends left on Capitol Hill.
Rep. Darrell Issa of California is the ranking Republican of the House Committee on Oversight and Government Reform.
