Countrywide Issued hundreds of VIP loans to buy influence, report says

Countrywide Financial, once the nation's largest mortgage lender, bought influence on Capitol Hill by issuing hundreds of sweetheart loans for members of Congress, their staffs and other government employees, according to a report issued by the House of Representatives Thursday.

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. Read more >>

Banks Spend Millions to buy off Congress

IMF Report: Lobbying and the Financial Crisis

Introduction:
On December 31, 2007, the Wall Street Journal reported that Ameriquest Mortgage and Countrywide Financial, two of the largest mortgage lenders in the nation, spent respectively $20.5 million and $8.7 million in political donations, campaign contributions, and lobbying activities from 2002 through 2006. The sought outcome, according to the article, was the defeat of anti-predatory lending legislation. In other words, timely regulatory response that could have mitigated reckless lending practices and the consequent rise in delinquencies and foreclosures was shut down by some mortgage lenders.

Such anecdotal evidence suggests that the political influence of the financial industry contributed to the 2007 mortgage crisis,which, in the fall of 2008, generalized in the worst bout of financial instability since the Great Depression. However, formal analysis of these assertions has so far remained scant. To the best of our knowledge, this is the first study to examine empirically the relationship between lobbying by financial institutions and mortgage lending in the run-up to the financial crisis.

We construct a unique dataset combining information on mortgage lending activities and lobbying at the federal level by the financial industry. By going through individual lobbying reports, we identify lobbying activities on issues specifically related to rules and regulations of consumer protection in mortgage lending, underwriting standards, and securities laws (henceforth, the “specific issues”).

The paper focuses on the mortgage lending behavior and performance of financial institutions. First, we analyze the relationship between lobbying and ex-ante characteristics of loans originated. We focus on three measures of mortgage lending: loan-to-income ratio(which we consider as a proxy for lending standards), proportion of loans sold (measuring recourse to securitization), and mortgage loan growth rates (positively correlated with risktaking).

Next, we analyze measures of ex-post performance of lobbying lenders. In particular, we explore whether, at the Metropolitan Statistical Area (MSA) level, delinquency rates – an indicator of loan quality - are associated with the expansion of lobbying lenders’ mortgage lending. More...