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Freddie paid lobbyists to scuttle bill

Freddie Mac secretly paid a 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 cross hairs of the campaign carried out by DCI of Washington were GOP 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 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 supported it; all Democrats opposed it.

In the midst of DCI's yearlong effort, Hagel and 25 other GOP 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 in a campaign targeting 17 GOP senators in 13 states, according to documents obtained by The Associated Press.

In the end, there was not enough support for Hagel's bill to warrant bringing it up for a vote. 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 then, DCI's effort had gone on for nine months.

The GOP senators targeted by DCI began hearing from prominent constituents and financial contributors, all opposing Hagel's bill because it might harm the housing boom.

Inside Freddie Mac headquarters in 2005, the few dozen people who knew what DCI was doing referred to it as “the stealth lobbying campaign,” according to three people familiar with the drive.

They spoke on condition of anonymity, saying they fear retaliation if identified

Freddie Mac executive Hollis McLoughlin oversaw DCI's drive, according to the three.

“Hollis' goal was not to have any Freddie Mac fingerprints on this project, and DCI became the hidden hand behind the effort,” one told the AP.

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 GOP candidates over the years, including $2,800 to McCain, and none to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.

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.”

“It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress's bill that would strengthen the regulation and oversight of that institution,” Buttry said in a statement. “America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie.”

On Thursday, Freddie Mac acknowledged that the company “did retain DCI to provide public affairs support at the state and local level.” On Friday, DCI issued a four-sentence statement saying it complied with all applicable federal and state laws and regulations in representing Freddie Mac.

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