Loan Titans Paid McCain Adviser Nearly $2 Million - NYTimes.com

Hands up - -  who's surprised by this?

Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say.

ABOVE: A 2004 photograph from a report by the Homeownership Alliance, an advocacy group for Fannie Mae and Freddie Mac, shows John McCain with Ken Guenther, a former chairman of the group, left, and David Lereah of the National Association of Realtors.

Read the rest here: Loan Titans Paid McCain Adviser Nearly $2 Million - NYTimes.com

Mr. McCain, the Republican candidate for president, has recently begun campaigning as a critic of the two companies and the lobbying army that helped them evade greater regulation as they began buying riskier mortgages with implicit federal backing. He and his Democratic rival, Senator Barack Obama, have donors and advisers who are tied to the companies.

But last week the McCain campaign stepped up a running battle of guilt by association when it began broadcasting commercials trying to link Mr. Obama directly to the government bailout of the mortgage giants this month by charging that he takes advice from Fannie Mae’s former chief executive, Franklin Raines, an assertion both Mr. Raines and the Obama campaign dispute.

Incensed by the advertisements, several current and former executives of the companies came forward to discuss the role that Rick Davis, Mr. McCain’s campaign manager and longtime adviser, played in helping Fannie Mae and Freddie Mac beat back regulatory challenges when he served as president of their advocacy group, the Homeownership Alliance, formed in the summer of 2000. Some who came forward were Democrats, but Republicans, speaking on the condition of anonymity, confirmed their descriptions.

“The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again,” said Robert McCarson, a former spokesman for Fannie Mae, who said that while he worked there from 2000 to 2002, Fannie Mae and Freddie Mac together paid Mr. Davis’s firm $35,000 a month. Mr. Davis “didn’t really do anything,” Mr. McCarson, a Democrat, said.

Mr. Davis’s role with the group has bubbled up as an issue in the campaign, but the extent of his compensation and the details of his role have not been reported previously.

Mr. McCain was never a leading critic or defender of the mortgage giants, although several former executives of the companies said Mr. Davis did draw Mr. McCain to a 2004 awards banquet that the companies’ Homeownership Alliance held in a Senate office building. The organization printed a photograph of Mr. McCain at the event in its 2004 annual report, bolstering its clout and credibility. The event honored several other elected officials, including at least two Democrats, Gov. Edward G. Rendell of Pennsylvania and Representative Artur Davis of Alabama.

In an interview Sunday night with CNBC and The New York Times, Mr. McCain noted that Mr. Davis was no longer working on behalf of the mortgage giants. He said Mr. Davis “has had nothing to do with it since, and I’ll be glad to have his record examined by anybody who wants to look at it.”

Asked about the reports of Mr. Davis’s role, a spokesman for Mr. McCain said that during the time when Mr. Davis ran the Homeownership Alliance, the senator had backed legislation to increase oversight of the mortgage companies’ accounting and executive compensation. The legislation, however, did not seek to change their anomalous structure as private companies with federal support.

The spokesman, Tucker Bounds, also noted that the Homeownership Alliance included nonprofit organizations like Habitat for Humanity and the Urban League. “It’s not controversial to promote homeownership and minority homeownership,” Mr. Bounds said. More than a half-dozen current and former executives, however, said the Homeownership Alliance was set up mainly to defend Fannie Mae and Freddie Mac by promoting their role in the housing market, and the two companies paid almost the entire cost of the group’s operations.

“They were financed largely, possibly exclusively, by Fannie and Freddie,” said William R. Maloni, a Democrat who is a former head of industry relations for Fannie Mae. “We thought it would be helpful to have someone who was a broadly recognized Republican to be the face of the organization, and that person became Rick Davis.” Mr. Maloni added, “Rick, for that purpose, turned out to be quite good.” (Several executives said Mr. Davis’s compensation was not unusual for the companies’ well-connected consultants.)

The federal bailout of the two mortgage giants has become an emblem of what critics say is the outdated or inadequate regulatory system that allowed the financial system to slide into crisis this summer.

At the time that Fannie Mae and Freddie Mac recruited Mr. Davis to run the Homeownership Alliance in 2000, they were under new pressure from private industry rivals and deregulation-minded Republicans who argued that the two companies’ federal sponsorship gave them an unfair advantage and put taxpayers at risk. Critics of the companies had formed their own Washington-based advocacy group, FM Watch. They were pushing for regulations that would deter the companies from expanding into new areas, including riskier and more profitable mortgages.

Mr. Davis had recently returned to his lobbying firm from running Mr. McCain’s unexpectedly strong 2000 Republican primary campaign, which elevated Mr. McCain’s profile as a legislator and Mr. Davis’s as a lobbyist.

“You can say what you want about free-market distortions, but people like the system because it gets them into houses cheap,” Mr. Davis said to Institutional Investor magazine in 2000, adding that he would run the advocacy group out of his Alexandria, Va., lobbying firm.

The organization also hired Public Strategies, a communications firm that included former Bush adviser Mark McKinnon. Mr. Davis wrote letters and gave speeches for the group. In April 2001, he sent out a press release headlined, “It’s Tax Day — Do You Know Where Your Deductions Are? For Most Americans, They’re in Your Home.”

But by the end of 2005, Fannie Mae and Freddie Mac were recovering from accounting problems and re-examining costs, former executives said. The companies decided the Homeownership Alliance had outlived its usefulness, and it disappeared.

John Harwood contributed reporting.

Comments

[J. Strupp]

Fannie and Freddie lobbyists have been greasing the palms of Washington leadership for years. Doesn't matter which side of the aisle you look. The fact is that the Fannie/Freddie moral hazard dilemma has been the elephant in the room in Washington since their "privatization" and no one did anything to stop this train wreck. I wouldn't start pointing fingers at McCain as if he is solely to blame for this nightmare. Obama wasn't interested in addressing the problem either, especially when everything was on the up and up. Now the blame game starts?

I will say this though: If you would like to examine which side of the aisle was more interested in using these two institutions to push risky loans to debtors that shouldn't obtain them then I'd be interested in your response John.

[john]

The main impetus for calling out McCain on these sorts of relationships is the fact that he has opened that door with specious swipes at Obama's connections (and yes, both sides of the aisle are entangled in that web to varying extents).

(From the article: "But last week the McCain campaign stepped up a running battle of guilt by association when it began broadcasting commercials trying to link Mr. Obama directly to the government bailout of the mortgage giants this month by charging that he takes advice from Fannie Mae’s former chief executive, Franklin Raines, an assertion both Mr. Raines and the Obama campaign dispute.")

As far as assigning blame for the current collapse, I certainly recognize that certain Democratic policies/inaction have contributed to the mess; I'm aware of Clinton's strengthening of the Community Reinvestment Act and how Bush apologists attempt to draw a line waaaay back to the 90s; etc. HOWEVER, as will be bandied about in days and weeks to come, it was a series of Bush administration policies and reversals of previous regulatory powers at state and federal levels that created the ideal predatory lending environment.

For instance: In 2003, during the height of the predatory lending crisis, the Bush administration directed the Office of the Comptroller of the Currency (OCC) to invoke a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also engaged NEW rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that ALL 50 state attorneys general, and ALL 50 state banking superintendents, actively fought the new rules. (a large chuck of the preceding is quoted from an article by then-Governor of New York, Eliot "Paragon of Virtue" Spitzer. Sigh.)

Another important fact: When you read about the huge number of mortgages that are defaulted on (and walked away from), the vast majority of them are loans written within 6 months to a year before default! The timeline supports the contention that the Bush administration's bank- and loaner-friendly policies (and inaction) brought us to where we are.

But, no, I don't consider the Democrat's response to or anticipation of this state of affairs above reproach; they were meek in their preemptory objections. We are all benefiting from hindsight.

[J. Strupp]

Point taken on all fronts.

A bit off topic but something to keep your eye on in the near future:

Now that Uncle Sam is on the hook for the balance of illiquid mortgage-backed securites in this country, you can bet that our lending institutions (whatever they want to call themselves now) are in the process of sifting through and identifying every security that poses any sort of market risk. Keep in mind that many (or most) of these illiquid assets have already been written down or have been completely wiped off the balance sheet.

Keep your eye on Q4 and Q1 of 2009 earnings for these companies. I'll bet you ANYTHING they show a HUGE jump in earnings as they pawn off all of their illiquid assets to the taxpayer. Can you imagine the political fallout something like this would create when the American taxpayer realizes that they have just cleaned up the balance sheets of these companies that are now posting HUGE profits just 6 months later? Keep this in the back of your mind until next spring. I have a feeling that this is going to occur.