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Fannie and Freddie Break Up Their Powerhouse Lobbying Operations

By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, October 1, 2008

Mortgage finance giants Fannie Mae and Freddie Mac have dismantled their powerful lobbying corps, removing two dozen people who made up one of Washington's most formidable advocacy teams.

The departures came after the government announced that all lobbying by the companies would end while they are under federal control.

The companies had previously announced the departures of chief lobbyists Duane Duncan of Fannie Mae and Timothy J. McBride of Freddie Mac. Most of the other members of their operations have since been let go as well, according to several sources familiar with the matter who spoke on condition of anonymity because they were not authorized to speak publicly about the departures.

Before they were taken over by the government, Fannie Mae and Freddie Mac spent millions of dollars a year on internal and outside lobbyists to keep politicians at bay, countering legislative efforts to regulate them more closely.

Now, their chief emissary before Congress is the government agency that runs them -- the Federal Housing Finance Agency. The agency's director, James B. Lockhart III, is serving as the primary conduit between the companies and Capitol Hill, the sources said.

The people who were let go include registered federal lobbyists and others who support the lobbying team, such as state lobbyists or teams that work on advocacy with other companies. A handful of members of the lobbying groups remain at the companies.

The new chief executives are still deciding what the remaining members of the government and industry relations teams, as they were called, will do.

"We're in the process of restructuring our government and industry relations department in light of the company discontinuing its lobbying activities. We're working closely with FHFA on this as we move forward," Fannie Mae spokesman Brian Faith said.

Douglas Duvall, a Freddie Mac spokesman, said the structure of its group was still being determined. "Our government and industry relations division has ceased all lobbying activities -- and it is being fundamentally refocused and reduced in size," he said.

Fannie Mae and Freddie Mac's lobbying operations were at the pinnacle of their power in the 1980s and 1990s, battling a variety of opponents. In one camp were those who thought the companies had gotten too big and posed a risk to the financial system. Another included mortgage finance competitors who thought the government-sponsored status gave Fannie Mae and Freddie Mac an unfair advantage in the marketplace. Still others said the companies used their affordable-housing programs to cultivate political allies.

The companies were largely successful in fending off the critics. When lawmakers pursued measures that the companies found unfriendly, lobbyists would respond vociferously. For instance, they'd routinely visit lawmakers and show them how many constituents became homeowners because of Fannie Mae or Freddie Mac, according to one former lobbyist.

Eventually, though, the companies began to lose their clout after they found themselves mired in a pair of unrelated accounting scandals a few years ago. Then the firms got caught in the downdraft of the housing meltdown that led to the government takeover.

"What it likely means is that someone -- an outsider -- will have to make the case on why the residential real estate market needs a dedicated investor. That was Fannie and Freddie's key role," said William Maloni, formerly Fannie Mae's chief lobbyist. "The opponents will have a much louder voice because Fannie and Freddie won't be there to fight back."

Other interest groups are already pressing their views. John A. Curson, chief operating officer of the Mortgage Bankers Association, has written a letter to Lockhart and Treasury Secretary Henry M. Paulson Jr. making suggestions for Fannie Mae and Freddie Mac while they are under government control, such as reducing the fees charged for the companies to guarantee mortgage loans.

W. Michael House, who used to run a lobbying group formed by financial firms that wanted Fannie Mae and Freddie Mac to play a more limited role, said the disappearance of lobbying by the firms means that the debate over their future will include more perspectives.

"Now that the government in essence runs Fannie and Freddie, I think the people both in the government and Congress and the people running Fannie and Freddie will come to the table to try to figure out the best structure," said House, director of the legislative group at Hogan & Hartson. "It's not like the old system where everything was adversarial."

The dynamics already are changing. After the announcement of the government takeover last month, for instance, the Senate Republican capital markets task force, an informal group of lawmakers interested in financial issues, reached out through Fannie Mae and Freddie Mac's lobbying offices to meet with the new chief executives, Fannie Mae's Herbert M. Allison Jr. and Freddie Mac's David M. Moffett.

In the past, the lobbying offices would have discussed the issue and made a recommendation to the chief executives. This time, they simply passed on the request to their regulator, FHFA.

The agency "asked the meeting be postponed until the new CEOS had an opportunity to become more knowledgeable about everything that was going on," said a spokesman for Sen. Michael D. Crapo (R-Idaho), chairman of the task force.

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