Subprime lobbyists in $370m battle

By Edward Luce in Washington

Published: May 6 2009 05:02 | Last updated: May 6 2009 05:02

The top 25 US originators of subprime mortgages – the risky assets that sparked the global financial crisis – spent almost $370m in Washington over the past decade on lobbying and campaign donations as they tried to ward off tighter regulation of their industry, an investigation has shown.

The study, which will be released today by the Center for Public Integrity, a non-profit investigative journalism organisation, is likely to strengthen public calls for much tougher financial regulation in the US.

It shows that most of the top 25 originators, most of which are now bankrupt, were either owned or heavily financed by the nation’s largest banks, including Citigroup, Goldman Sachs, Wells Fargo, JPMorgan and Bank of America. Together, they originated $1,000bn in subprime mortgages in 2005-07 – almost three-quarters of the total.

The banks, which have received the vast bulk of the $700bn in troubled asset relief funds issued since last October, also supported the lobbying effort to prevent tighter regulation of the subprime market.

Nine of the top 10 lenders were in California, one of the states badly affected by the housing crisis that emerged after a surge in lending to riskier, or subprime, borrowers, many of whom were forced to foreclose.

Federal campaign contributions

Interactive feature: See who took money from the top subprime loan origniators

At least eight of the top 10 were backed at least in part by banks that have received bank bail-out money.

Eleven of the lenders on the CPI list have made payments to settle claims of widespread lending abuses, including four recipients of Tarp funds.

“Their unbridled political contributions and massive lobbying created the lack of regulation and oversight that led to this ­crisis,” said Bill Buzenberg, who headed the CPI investigation. “Despite the signs, Congress, the White House and the Federal Reserve all dithered while the subprime disaster spread.”

Top of the list was Countrywide Financial, which made $97bn in subprime loans between 2005 and 2007, and which is now owned by BofA, which has received $45bn in troubled asset relief funds from the federal government. Countrywide spent about $11m in campaign donations and lobbying in Washington between 1999 and 2008.

Among the other leading originators, which then bundled the loans to be securitised in the secondary markets, were First Franklin, now owned by Merrill Lynch, which made $68bn of subprime loans in that period and spent over $3m in Washington.

The financial industry was also one of the largest donors to election campaigns in the past decade, giving $2.2bn in contributions, according to the Centre for Responsive Politics, an independent watchdog. Among the top recipients was Barack Obama, who took $14m and whose presidential campaign broke all records by raising more than $700m in contributions.

No one has alleged any connection between Mr Obama’s campaign, which raised most of its cash from small donors, and his administration’s handling of the crisis. However, some liberal critics say the administration is too close to Wall Street and have criticised it for its policy continuity on the financial bail-out with Bush administration. George W. Bush was also a large recipient of campaign funds from the financial and real estate sectors.

The US Treasury will tomorrow release the results of its stress tests of 19 leading banks.