* Freddie and Fannie had deep political connections
* Rahm Emanuel, Tom Donilon were on payroll
By Tim Reid, Margaret Chadbourn and Mark Hosenball
WASHINGTON, Nov 17 While presidential hopeful
Newt Gingrich was forced to defend his lucrative former role
with Freddie Mac this week, the mortgage giant and its larger
cousin Fannie Mae had a roster of Washington heavyweights on
their payroll for years, many of them Democrats.
The two entities spent over $170 million on political and
lobbying operations in a 10-year period leading up to the
financial crisis of 2008 when both were seized by the
government as they teetered on the brink of failure, according
to the Center for Responsive Politics.
Fannie and Freddie hired figures such as Tom Donilon, now
President Barack Obama's national security adviser, and Rahm
Emanuel, Obama's former White House chief of staff, as part of
a campaign aimed at protecting government ties that allowed
them to borrow money cheaply from financial markets.
"It was a mob-like operation," said a senior congressional
official who over the years dealt with the political and
lobbying operations at the firms, the two biggest sources of
U.S. mortgage finance. "They had tentacles everywhere."
Fannie Mae and Freddie Mac are congressionally chartered
firms that buy loans from lenders and repackage them as
guaranteed securities for sale to investors.
In turn, the debt they issue was seen as having implicit
government backing. Since nearly going bust, they have received
about $169 billion in taxpayer aid and the government has
relied on them to help revive the housing market.
Gingrich was just one of a lengthy list of political power
brokers with close ties to Congress and Republican and
Democratic administrations hired by Fannie and Freddie as
either board members, senior executives, lobbyists or
"They used to be the near-exclusive domain for Democrats,"
said John Taylor, president and CEO of the National Community
Reinvestment Coalition. "But both Fannie and Freddie realized
the perilous way of that strategy and eventually they began
dealing with either party."
Emanuel and Donilon were hired when they were working in
the private sector. Donilon was a top executive at Fannie Mae
for five years, essentially running its lobbying operation. He
departed in 2005.
Emanuel was named to the board of Freddie Mac by former
Democratic President Bill Clinton in 2000, where he served for
13 months, earning more than $320,000.
Fannie also hired other Washington power brokers during
this time, including Bill Daley, who is now Obama's current
White House chief of staff; Jamie Gorelick, a deputy
attorney-general under Clinton; and Robert Zoellick, the
current head of the World Bank.
From 1993 until 1997 Zoellick served as Fannie Mae's
executive vice-president. Gorelick was vice chairman of Fannie
Mae from 1997 to 2003, after she left the Clinton
Kenneth Duberstein, former White House Chief of Staff for
Republican President Ronald Reagan, served on the board of
Fannie Mae from 1998 until 2007.
Another recognizable Washington name tied to the mortgage
giants is a former director at the Office of Management and
Budget during the Clinton White House. Franklin Raines, former
CEO of Fannie Mae, was implicated in an accounting scandal for
massaging earnings at the firm.
Congress and federal regulators played a role in their
expansion as the housing market moved toward a peak by relaxing
restrictions on the size of loans they could back and the speed
at which their mortgage holdings could grow.
Conservative critics in particular accuse them of fueling
the housing bubble at the heart of the 2008 financial collapse
by securitizing loans made to people who could not afford
Gingrich, a Republican former House Speaker, came under
fire this week for being paid about $1.6 million to $1.8
million as a consultant to Freddie Mac from 1999 until 2008. A
person with an understanding of the arrangement confirmed the
figure, which was first reported by Bloomberg on Wednesday.
The two government-controlled firms have been a favorite
target of this year's Republican presidential contenders,
Gingrich even said the top Democrat on the House Financial
Services Committee, Barney Frank, should be thrown in jail
because Gingrich claimed he had close ties to lobbyists at
While both Republicans and Democrats eventually want to see
the firms wound down, an overhaul of the mortgage system is
expected to take years. The companies, which back about half of
the U.S. residential mortgage market, currently benefit from an
unlimited line of credit with the Treasury.