Countrywide Issued Hundreds of VIP Loans to Buy Influence, Report Says
‘Sweetheart’ loans went to Congress members, their staffs and other government employees
Les Christie CNN Money
July 05, 2012
The three-year investigation, which was led by House Oversight and Government Reform Committee Chairman Darrell Issa, revealed the extent to which Countrywide was offering discounted loans and other perks to Congress members and other officials in order to benefit its business interests.
Referred to as the "VIP program" or the "Friends of Angelo" program -- after former Countrywide founder and CEO Angelo Mozilo -- this preferential treatment varied with the importance and influence of the borrowers and included such perks as lower loan rates, expedited loan processing and less stringent underwriting standards, the report said.
Countrywide, which Bank of America purchased in 2008, specialized in subprime loans, the risky mortgage products that began to record exceptionally high default rates in 2007 ushering in a wave of foreclosures. Richard Simon, a Bank of America spokesman, said he wouldn't comment on the report's findings. However, he did note that Bank of America discontinued Countrywide's VIP program at the time of the acquisition.
The VIP program first made headlines in June 2008 when it was revealed that many influential policy makers received special terms on mortgages from Countrywide.
The House Oversight Committee started its investigation into the program in 2009, and has since discovered that these loans were extended to thousands of people, including almost a dozen lawmakers and former executive branch officials. In addition, thousands of Countrywide employees, employees of Congress, the White House, Fannie Mae, Freddie Mac and other government entities were also offered the special loans.
A log of the program shows a total of 17,979 loans were made between January 1996 and June 2008, although hundreds of those loans are likely duplicates, according to the report.
The loan recipients typically received a discount of 0.5 percentage points on origination points, a lower mortgage rate and waivers on fees amounting to several hundred dollars.
Underwriting standards were often relaxed for these borrowers as well, with Countrywide employees even filling in blanks on applications when borrowers did not want to reveal information on income or employment, according to the report.
The report said that Countrywide tried to use its influence on Capitol Hill to bolster support for Fannie Mae, with which it had established a special relationship.
Fannie gave volume discounts on fees to Countrywide in exchange for the right to buy most of the mortgage loans it originated. Many of the risky loans defaulted, however, which generated billions of dollars in losses for Fannie.
"Other than Countrywide, no other entity's employees received more VIP loans than Fannie Mae," Issa said in a release. "These relationships helped Mozilo increase his own company's profits while dumping the risk of bad loans on taxpayers."
The government had to take full control over Fannie in September 2008, when the mortgage giant was put into conservatorship under the auspices of a new organization, the Federal Housing Finance Agency (FHFA).
In October, 2010, FHFA estimated that the bailout of Fannie Mae, and its sister government sponsored enterprise, Freddie Mac, had already cost taxpayers about $150 billion and losses would likely range between $224 billion and 360 billion.
Fannie Mae's spokesman, Pete Bakel, said the company had no comment on the report.