During their interaction, Calabria, who had a mortgage with Countrywide, told the lobbyists that he wasn't happy with the service he was receiving from the bank, he said.
That's when the lobbyists offered him a special service.
"You know, you should call me," Calabria recalled one of the lobbyists saying to him. "We can set you up."
That was Countrywide's attempt at offering Calabria a "VIP loan," which the lender ended up giving to hundreds of congressional members, their staffs and others who had influence, an investigation by the House of Representatives revealed. The loans offered discounted rates, less stringent underwriting terms and other perks. Countrywide hoped that in return for giving these breaks to those with power on Capitol Hill, Congress would relax its push for a crackdown on subprime mortgages, the House probe found.
Reforms that some members of Congress were eyeing at the time would have hampered Countrywide's ability to churn out toxic mortgages and funnel them to investors through Fannie Mae. The government-sponsored lender, whose employees and executives also took advantage of VIP loans, bought billions of dollars worth of mortgages from Countrywide during the housing market's go-go days.
Calabria, who is now director of Financial Regulation Studies at the Cato Institute, said he turned down the lobbyists' offer. That may make him one of only a handful of people with power in Washington, D.C., who were offered the special loan to resist its allure.
Acceptance in the Halls of Congress
The revelations of Countrywide's strategic effort first surfaced in 2008, but the new report from the House Committee on Oversight and Government Reform, released on July 5, has brought the program back into focus, shedding additional light on its mechanics as well as its stunning penetration through the halls of Congress.
The report found that from January 1996 to June 2008, Countrywide's "VIP loan unit" processed 17,979 of the preferred mortgages, many of which went to Capitol Hill bigwigs. Among the policymakers lured into the program were some who sat on the Senate Committee on Banking and the House Committee on Financial Services, "the committees of the primary jurisdiction for consideration of legislation related to the mortgage industry and the GSEs [government sponsored enterprises Fannie Mae and Freddie Mac]," the report stated.
Bank of America, which acquired Countrywide Financial in 2008 when the mortgage company teetered on the brink of failure, did not return a request for comment. Previously the company has noted that it discontinued the VIP program after acquiring Countrywide.
Insiders' acceptance of VIP loans appears to have been so pervasive, according to the report, that one lawmaker, Rep. Pete Sessions (R-Texas), specifically asked not to receive a discount from Countrywide.
The report found that borrowers who benefited from the program not only enjoyed pampered treatment, but also sometimes received substantial discounts on their loans.
"The foremost benefit of being a Countrywide VIP was access to discounted loans in the form of waived points. The standard reduction was 0.5 points. Countrywide routinely waived junk fees typically ranging from $350 to $400 for VIP borrowers," the report noted.
'It's a Gift'
Calabria said those who received the loans were probably aware that they were getting special deals, given their broad knowledge of the housing market.
"It's very crystal clear. If you get a below-market rate loan, it's a gift," he said. He added, though, that he wouldn't characterize the loan as a bribe, since there was not a "direct quid pro quo" involved.
Calabria turned down the offer because, he said, "as the primary staffer covering mortgage issues for the banking committee, it was important for me to experience the mortgage market as everyone else did. It was obvious I'd get special service -- whether that included a discount wasn't made clear at the time."
These VIP loans, the report highlights, were Countrywide and Fannie Mae's attempt at shielding the subprime mortgage system from government scrutiny. Of course, when subprime loans eventually blew up, the housing market came crashing down with the world economy in tow. At the nascent stages of the financial crisis, Countrywide serviced 9 million mortgages worth $1.5 trillion.
"Previous reports really made this look like a stand-alone ... one-off assistance to congressmen and representatives and such," Calabria said. But given the Oversight Committee' findings -- not to mention his own experience -- it's clear to him that the practice of offering special loans was a "far more coordinated effort."
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