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Campaign cash dries up with takeover of mortgage giants

By The Associated Press
09.22.08

WASHINGTON — This fall, many members of Congress will see a major source of campaign contributions disappear, possibly never to return.

Political action committees affiliated with mortgage giants Freddie Mac and Fannie Mae are now banned from engaging in lobbying activities, including making donations. They were ordered to cease when the Bush administration engineered a government takeover of the quasi-governmental companies and put them under a conservatorship in an effort to help reverse a housing and credit crisis.

PACs — formed by business, labor or other special-interest groups — raise money from their members or employees and make contributions to the campaigns of political candidates. Since 2003, Democrats and Republicans have collected $2.3 million from the Freddie and Fannie PACs.

Presidential candidates Barack Obama and John McCain agree on the need to monitor the federal takeover of the two mortgage concerns, but hold different views on the PACs' fate.

Democratic Sen. Obama would make it more difficult for Freddie and Fannie to have PACs, saying he wants to reduce the influence of money over the political process. Obama's presidential campaign has raised more private money than any in history, but he doesn't accept PAC contributions. He opposes allowing Fannie and Freddie to be returned as profit-making enterprises whose possible losses are guaranteed by the government.

Republican Sen. McCain favors taking both companies fully private and letting them determine whether they want PACs.

Ultimately, it may not matter what the next president thinks about the PACs. Neither McCain nor Obama is likely to veto a comprehensive bill dealing with the lenders just because it would allow for PACs.

Whether the PACs come back in some form likely will depend on the next Congress, says Rep. Barney Frank, D-Mass., who, as chairman of the House Financial Services Committee, says he will be open minded about it.

The PACs' substantial campaign contributions could sway some lawmakers to insist that Fannie Mae and Freddie Mac be reshaped as purely private businesses, which would allow them to revive their PACs.

The contributions are part of a lobbying arsenal that has invested $80 million over the past five years to win hearts and minds in the capital. Fannie and Freddie have spent big on hiring former White House officials and lawmakers. Some members of Congress have received tens of thousands of dollars from the PACs, especially those, including Frank, who are on committees with jurisdiction over the companies.

Two-term Illinois Rep. Melissa Bean, a Democrat from suburban Chicago, has received a total of $35,000 from Freddie and Fannie PACs, the most among the five Illinois representatives on the House Financial Services Committee. She also is a subcommittee chairman on the House Small Business Committee.

"They had huge armies of lobbyists that were tripping over each other, so they developed friends on both sides of the aisle over the years," said Peter Fitzgerald, a Virginia banker and former Republican senator from Illinois. "Republicans got very tight with them over the years and they got very powerful."

But Congress likely will face pressure from other parts of the finance industry to keep Freddie and Fannie from having PACs, says Jonathan Koppell, a professor of political science at Yale University's School of Management. He said Fannie and Freddie's competitors have long believed the two had an unfair advantage that stemmed from cozy relations with Capitol Hill.

A spokesman for the American Bankers Association declined comment.

Stephen Ellis, vice president of Taxpayers for Common Sense, a Washington-based watchdog group, said the PACs' campaign cash to Congress had helped insulate Fannie and Freddie from oversight.

"The fundamental lack of rigorous accounting and adult supervision is one of the major reasons that taxpayers have had to take over these companies that are drowning in red ink," Ellis said.

Rep. Donald Manzullo, D-Ill., a member of the House Financial Services Committee and former chairman of the House Small Business Committee, favors chopping Freddie and Fannie into "a thousand pieces," then letting them be government-sponsored enterprises as they have in the past — but with no PACs.

"Something has to be done because these guys are bandits and they have been for a long time," said Manzullo, citing high salaries of the companies' officials and board members.

"Because they get substantial benefits and cover from the government they should be banned from political activities."

The companies hold or guarantee some $5 trillion in outstanding mortgages, more than half the nation's total. It is unclear, experts say, what the taxpayers' responsibility will be. The future of the PACs may depend on how Fannie and Freddie are changed and whether they continue the affordable-housing component that Congress has required.

"If taxpayers continue to have any degree of involvement with these companies, they should not be allowed to lavish campaign cash on their elected representatives," Ellis said. "Fannie and Freddie benefited from their close association with the federal government. They can't have it both ways again."

Fully privatized, the companies could have PACs, because corporations have the right to have them as a matter of law. On the other hand, the creation of fully governmental replacements would eliminate the possibility of PACs, because government agencies cannot lobby.

"I hope next year we will have a long and serious set of very inclusive discussions" on the issue, said Frank. "I don't want to prejudge that."


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