WASHINGTON -- Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.
In the crosshairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb. DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.
Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.
In the midst of DCI's yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.
"If effective regulatory reform legislation . . . is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole," the senators wrote in a letter that proved prescient.
Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by the Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.
Not enough support
In the end, there was not enough Republican support for Hagel's bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.
McCain, R-Ariz., was not a target of the DCI campaign. He signed Hagel's letter and three weeks later signed on as a co-sponsor of the bill.
By the time McCain did so, however, DCI's effort had gone on for nine months and was on its way toward killing the bill.
In recent days, McCain has said Freddie Mac and Fannie Mae were "one of the real catalysts, really the match that lit this fire" of the global credit crisis.
McCain's campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000. In December, Freddie Mac contributed $250,000 to last month's GOP convention.
Obama has received $120,349 in political donations from employees of Freddie Mac and Fannie Mae; McCain $21,550.
Inside Freddie Mac headquarters in 2005, the few dozen people who knew what DCI was doing referred to the initiative as "the stealth lobbying campaign," according to three people familiar with the drive.
They spoke only on condition of anonymity, saying they fear retaliation if their names are disclosed.
Freddie Mac executive Hollis McLoughlin oversaw DCI's drive, according to the three people.
"Hollis's goal was not to have any Freddie Mac fingerprints on this project, and DCI became the hidden hand behind the effort," one of the three people said.
Before 2004, Fannie Mae and Freddie Mac were Democratic strongholds. After 2004, Republicans ran their political operations. McLoughlin, who joined Freddie Mac in 2004 as chief of staff, has given $32,250 to Republican candidates over the years, including $2,800 to McCain, and has given nothing to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.
On Friday night, Hagel's chief of staff, Mike Buttry, said Hagel's legislation "was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Sen. Hagel's legislation every step of the way."
"America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie," Buttry said in a statement.
Nine of the 17 targeted Republican senators did not sign Hagel's letter: Sens. Mitch McConnell of Kentucky, Christopher "Kit" Bond and Jim Talent of Missouri, Conrad Burns of Montana, Mike DeWine of Ohio, Lamar Alexander of Tennessee, Olympia Snowe of Maine, Lincoln Chafee of Rhode Island and George Allen of Virginia. Aside from the nine, 20 other Republican senators did not sign Hagel's letter.
McConnell's office said members of leadership do not sign letters to the leader. McConnell was majority whip at the time.
Eight of the targeted senators did sign it: Sens. Rick Santorum of Pennsylvania, Mike Crapo of Idaho, Jim Bunning of Kentucky, Larry Craig of Idaho, John Ensign of Nevada, Lindsey Graham of South Carolina, George Voinovich of Ohio and David Vitter of Louisiana. Santorum, Crapo and Bunning were on the Senate Banking, Housing and Urban Affairs Committee and had voted in favor of sending the bill to the full Senate.