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Freddie Mac debate deepens
By Elliot Blair Smith, USA TODAY
On June 8, Rep. Richard Baker received a call at home from Freddie Mac lobbyist
Mitch Delk. For years, the two men had sparred over whether
"government-sponsored enterprises" such as Freddie Mac and cross-town rival
Fannie Mae, which dominate the USA's $7 trillion mortgage market, should be
more closely regulated.
It was an argument Delk had been winning handily. Drawing on Freddie Mac's vast
financial resources and political connections, the lobbyist all but had ensured
that the congressionally chartered mortgage funders would continue to operate
independently as profitable private corporations that nevertheless enjoyed
financial and regulatory privileges usually reserved for government entities.
But that day Delk told Baker that Freddie Mac had a problem. Its chief
executive, Leland Brendsel, and chief financial officer, Vaughn Clarke, had
just been ousted. And Brendsel's heir apparent, company President David Glenn,
allegedly had obstructed an internal inquiry into accounting for the mortgage
giant's $1 trillion derivatives portfolio. (Questions about Freddie Mac's
derivatives center on whether managers misallocated profit from 2000 to 2002.
Glenn also was fired.)
Baker, R-La., says he'd long expected such a call, although he had no
forewarning of the management shakeup underway. He'd feared that only a
cataclysmic financial event would confirm his doubts about Freddie Mac and
Fannie Mae. "I have been the only person in Congress who, over any stretch of
time, raised questions about their activities," says Baker.
Stronger regulation
Tuesday, Baker introduced legislation to strengthen Freddie Mac and Fannie Mae
regulation under a new overseer at the Treasury Department. And he scheduled
related hearings today before the House Financial Services oversight panel that
he chairs.
Delk, 50, declined to be interviewed. But Freddie Mac's senior vice president
of government relations is well known in Washington, where he moonlights as a
fundraiser for several congressional favorites. He joined the company in 1991,
when its political profile was almost non-existent.
Freddie Mac spokesman David Palombi says, "Our philosophy always has been if we
can get out and tell our story, we enjoy strong bipartisan support throughout
Congress." Critics take a more sanguine view. They credit Freddie Mac and
Fannie Mae with all the political influence money can buy.
Since the late 1990s, Freddie Mac's spending on lobbyists has roughly doubled
each two-year election cycle, according to the Center for Responsive Politics.
Its spending has spiraled past even that of its much larger peer, Fannie Mae,
to top $9.7 million last year.
"Clearly what they're buying is political protection," says John Berthoud,
president of the non-partisan National Taxpayers Union.
The Freddie Mac Foundation also spends millions of dollars a year, $13.7
million in 2001, its latest disclosure states, on such charities as the
Congressional Coalition on Adoption Institute, where it briefs "congressional
members, their staff and the community" on "good adoption policy."
Political contributions by Freddie Mac employees have mirrored the lobbying
expenses, roughly doubling each congressional election cycle, to $4.2 million
last year, up from $67,000 a decade ago, public records show.
Common Cause legislative director Matt Keller asks, "Why does Freddie Mac feel
compelled to spend so much money on trying to influence legislators? If not for
their enormous campaign contributions and expenditures on lobbying, would
lawmakers have acted differently?"
In fact, an opposing lobby known as FM Policy Watch, whose members include
General Electric, J.P. Morgan and Wells Fargo, spent $10.4 million on "soft
money" political contributions last year — compared with $5.9 million by
Freddie Mac and Fannie Mae — in an effort to grab a larger share of the
secondary mortgage market.
Freddie Mac spokesman Palombi says, "For us to walk away from that debate would
be in effect an abdication of our responsibility to advocate for the home
buyer."
Rather, the contest is intensifying. For now, Baker's panel will concentrate on
the relatively narrow question of how to impose tougher regulation on Freddie
Mac and Fannie Mae. But going forward, he says, Congress has the opportunity to
overhaul the ruling precepts of government-sponsored enterprises, which provide
the mortgage funders with multibillion-dollar borrowing lines at the Treasury
and the implicit backing of the federal government on their private debt. The
benefits also include exemptions from federal income taxes and the requirement
that they register their securities with the Securities and Exchange
Commission.
"We know they provide a very valuable service in the housing market. Nobody
wants that to be screwed up in any way," says Rep. Paul Gillmor, R-Ohio. "But
with the passage of time, the question becomes if the structure now is the
structure for the future."
Adds Rep. Spencer Bachus, R-Ala., "You do begin to ask the question: Is a
government-backed enterprise as necessary as it once was?"
Freddie Mac debate deepens
By Elliot Blair Smith, USA TODAY
On June 8, Rep. Richard Baker received a call at home from Freddie Mac lobbyist
Mitch Delk. For years, the two men had sparred over whether
"government-sponsored enterprises" such as Freddie Mac and cross-town rival
Fannie Mae, which dominate the USA's $7 trillion mortgage market, should be
more closely regulated.
It was an argument Delk had been winning handily. Drawing on Freddie Mac's vast
financial resources and political connections, the lobbyist all but had ensured
that the congressionally chartered mortgage funders would continue to operate
independently as profitable private corporations that nevertheless enjoyed
financial and regulatory privileges usually reserved for government entities.
But that day Delk told Baker that Freddie Mac had a problem. Its chief
executive, Leland Brendsel, and chief financial officer, Vaughn Clarke, had
just been ousted. And Brendsel's heir apparent, company President David Glenn,
allegedly had obstructed an internal inquiry into accounting for the mortgage
giant's $1 trillion derivatives portfolio. (Questions about Freddie Mac's
derivatives center on whether managers misallocated profit from 2000 to 2002.
Glenn also was fired.)
Baker, R-La., says he'd long expected such a call, although he had no
forewarning of the management shakeup underway. He'd feared that only a
cataclysmic financial event would confirm his doubts about Freddie Mac and
Fannie Mae. "I have been the only person in Congress who, over any stretch of
time, raised questions about their activities," says Baker.
Stronger regulation
Tuesday, Baker introduced legislation to strengthen Freddie Mac and Fannie Mae
regulation under a new overseer at the Treasury Department. And he scheduled
related hearings today before the House Financial Services oversight panel that
he chairs.
Delk, 50, declined to be interviewed. But Freddie Mac's senior vice president
of government relations is well known in Washington, where he moonlights as a
fundraiser for several congressional favorites. He joined the company in 1991,
when its political profile was almost non-existent.
Freddie Mac spokesman David Palombi says, "Our philosophy always has been if we
can get out and tell our story, we enjoy strong bipartisan support throughout
Congress." Critics take a more sanguine view. They credit Freddie Mac and
Fannie Mae with all the political influence money can buy.
Since the late 1990s, Freddie Mac's spending on lobbyists has roughly doubled
each two-year election cycle, according to the Center for Responsive Politics.
Its spending has spiraled past even that of its much larger peer, Fannie Mae,
to top $9.7 million last year.
"Clearly what they're buying is political protection," says John Berthoud,
president of the non-partisan National Taxpayers Union.
The Freddie Mac Foundation also spends millions of dollars a year, $13.7
million in 2001, its latest disclosure states, on such charities as the
Congressional Coalition on Adoption Institute, where it briefs "congressional
members, their staff and the community" on "good adoption policy."
Political contributions by Freddie Mac employees have mirrored the lobbying
expenses, roughly doubling each congressional election cycle, to $4.2 million
last year, up from $67,000 a decade ago, public records show.
Common Cause legislative director Matt Keller asks, "Why does Freddie Mac feel
compelled to spend so much money on trying to influence legislators? If not for
their enormous campaign contributions and expenditures on lobbying, would
lawmakers have acted differently?"
In fact, an opposing lobby known as FM Policy Watch, whose members include
General Electric, J.P. Morgan and Wells Fargo, spent $10.4 million on "soft
money" political contributions last year — compared with $5.9 million by
Freddie Mac and Fannie Mae — in an effort to grab a larger share of the
secondary mortgage market.
Freddie Mac spokesman Palombi says, "For us to walk away from that debate would
be in effect an abdication of our responsibility to advocate for the home
buyer."
Rather, the contest is intensifying. For now, Baker's panel will concentrate on
the relatively narrow question of how to impose tougher regulation on Freddie
Mac and Fannie Mae. But going forward, he says, Congress has the opportunity to
overhaul the ruling precepts of government-sponsored enterprises, which provide
the mortgage funders with multibillion-dollar borrowing lines at the Treasury
and the implicit backing of the federal government on their private debt. The
benefits also include exemptions from federal income taxes and the requirement
that they register their securities with the Securities and Exchange
Commission.
"We know they provide a very valuable service in the housing market. Nobody
wants that to be screwed up in any way," says Rep. Paul Gillmor, R-Ohio. "But
with the passage of time, the question becomes if the structure now is the
structure for the future."
Adds Rep. Spencer Bachus, R-Ala., "You do begin to ask the question: Is a
government-backed enterprise as necessary as it once was?"
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