Newly released emails appear to show that Wachovia, at the peak of the financial crisis, was lobbying for some of its most troubled loans to be included in a government bailout.

Hours after the Treasury Department proposed buying up distressed mortgage assets in September 2008, a Wachovia lobbyist sent an email to a congressional staffer asking for help making sure "whole loans" were part of the plan. The lobbyist likely made the request because the Charlotte bank wanted its struggling adjustable-rate mortgage portfolio to be eligible for the bailout, a mortgage expert said.

At the time, this $120 billion loan book was a major worry for analysts and investors, who fretted about Wachovia's ability to absorb rising losses and survive on its own. Offloading the loans to the government would have reduced the risk to the bank. "Whole loans" refers to mortgages that haven't been packaged into securities, which was the case with Wachovia's adjustable-rate mortgages.

The "issue is treasury is saying they are not going to prioritize whole loans," then-Wachovia lobbyist Walter Price wrote in a Sept. 20, 2008, email to Robbie Boone, who was a staffer at the time for then-Sen. Elizabeth Dole, R-N.C. "Want to make sure we are eligible to get these in the mix."

The email exchange, obtained by the Observer under a nearly 3-year-old Freedom of Information Act request, offers insight about the loans causing the most concern for the bank's executives at a critical period during the financial crisis. It also sheds new light on the high-stakes lobbying that occurred around the controversial bailout plan.

The email string came during a hectic period when Wachovia was talking to multiple merger partners in a bid to stabilize the tottering bank. The fate of the bailout plan, which became known as the Troubled Asset Relief Program, ran parallel to the bank's merger discussions, which ultimately resulted in a sale to Wells Fargo.

Starting in April 2008, Wachovia had begun to report burgeoning losses in its portfolio of option adjustable-rate mortgages, which allowed borrowers to choose from multiple payment options each month. The bank had inherited these loans in its 2006 acquisition of Golden West Financial and continued to make them on its own.

Many of the loans were made to borrowers in California housing markets that saw huge price declines in the housing bust. The rising losses, along with other miscues, had led to the hiring of a new chief executive, Bob Steel, and raised questions about the bank's ability to survive as an independent company.

As the nation's financial meltdown flared in the fall of 2008, then-Treasury Secretary Henry Paulson proposed a $700 billion plan to buy distressed assets from banks to boost confidence in the financial system and free their balance sheets to make more loans. Treasury provided a bare-bones, three-page proposal that Congress began mulling on Saturday, Sept. 20.

Paulson's proposal defined "mortgage-related assets" as "residential or commercial mortgages" or securities based on mortgages. Price's email proposed an amendment that would have inserted "mortgage loans" wherever the legislation said "mortgages."

Wachovia was likely concerned about the eligibility of its option ARMs, said Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md.-based publication that closely tracks the industry.

"Originally, the focus (of the bailout program) was on subprime mortgage-backed securities," Cecala said. "The issue was whether or not to go beyond that and include whole loans and non-securitized loans. The biggest pool of non-securitized mortgages was option ARMs."

Timeline of bank's demise

Boone, Dole's banking committee staffer, sent an email reply soon after receiving the Sept. 20 message from Price, the Wachovia lobbyist. In the 8:35 p.m. email, the staffer said he had shared the bank's proposal with Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee.

"I assume you all are not convinced about eligibility of all assets," Boone added. "FYI - Fairly overall negative sentiment at Shelby-staff led briefing at 4:30 this afternoon."

The bill troubled members of both parties because it was immediately seen as an expensive bailout of the financial industry, with Shelby as one of the most vocal critics.

The staffer also forwarded Price's message to Treasury at 8:46 p.m. Minutes later, a Treasury official sent a response to Matthew Scogin, senior adviser to Wachovia CEO Steel. The bank's proposal wasn't well received.

"Tell the hounds to back down," King Mueller wrote. "Call us if you need us."

In an interview, Mueller, now with a Washington lobbying firm, said he didn't recall the specific issue but said his message "probably referenced that we were getting all kinds of inbound requests," adding: "We were a lot like a filter."

Price, now with the Charlotte law firm of Moore and Van Allen, and Boone, now with the Farm Credit Council in Washington, declined to comment.

As the administration and Congress negotiated the bill, Wachovia worked on possible deals with Goldman Sachs, Citigroup and Wells Fargo. Wachovia's condition took a turn for the worse on Thursday, Sept. 25, when negotiations on Capitol Hill collapsed and the Federal Deposit Insurance Corp. failed Washington Mutual, a Seattle-based savings and loan that was a big originator of option ARMs.

On Friday, Sept. 26, Wachovia's stock plunged and a "silent run" on its deposits began, leading to intense merger talks with Wells and Citi.

On the morning of Monday, Sept. 29, the government agreed to provide assistance to Citi in a deal to buy Wachovia's banking assets for $1 per share. On the same day, the House voted down the bailout bill.

Days later, Wells Fargo swooped in with a counteroffer to buy Wachovia for $7 per share without government assistance, a deal disclosed on Friday, Oct. 3. The same day Congress approved a revamped version of the bailout bill, and President George W. Bush signed it into law. Dole voted against the legislation.

The law, renamed the Emergency Economic Stabilization Act of 2008, did not add the term "loan" but included additional language that covered "any other financial instrument" that the Treasury secretary, in consultation with the Federal Reserve chairman, deemed necessary to purchase to "promote financial market stability."

Wachovia bought out

In the end, the program to buy distressed assets never got off the ground. On Oct. 13, Paulson and other federal officials ordered nine large banks to accept $125 billion in direct capital injections from the program. Wells Fargo was one of the banks. Wachovia, with its acquisition by Wells approved by the Federal Reserve a day earlier, wasn't.

The merger became official on Dec. 31, 2008. Wells took a writedown on the option ARM portfolio, initially projecting losses of about $36 billion on the loans. Lately, it has said the mortgages are performing better than expected.

In the last major step in the purchase, red-and-yellow Wells Fargo signs will go up in North Carolina in October, erasing the Wachovia name that dates to 1879.