House members' VIP loans from Countrywide excluded from subpoena, report says

House Oversight and Government Reform Committee Chairman Rep. Edolphus Towns speaks on Capitol Hill Oct. 14. (AP Photo)

WASHINGTON – A Democratic committee chairman overrode his own subpoena three years ago in an investigation of former subprime mortgage lender Countrywide to exclude records showing that he, other House members and congressional aides got VIP discounted loans from the company, documents show.

The procedure to keep the names secret was devised by Rep. Edolphus Towns, D-N.Y. In 2003, the 15-term congressman had two loans processed by Countrywide's VIP section, which was established to give discounts to favored borrowers.

The effort at secrecy was reversed when Towns' Republican successor as chairman of the House Oversight and Government Reform Committee, California Rep. Darrell Issa, issued a second subpoena. It yielded Countrywide records identifying four current House members, a former member and five staff aides whose loans went through the VIP unit. Towns was on the list.

Most of the names had dribbled out to the media by the time Issa issued the committee's final report last month on Countrywide's use of loan discounts to buy influence with government officials. But there was no official confirmation until Issa made his report public.

Towns' effort to keep the loans secret was at odds with statements by Republicans and Democrats alike that full disclosure of lawmakers' financial dealings was the best means for keeping the public aware of congressional perks, unethical conduct and fundraising.

Countrywide had been the nation's largest home loan originator before the housing market collapse. Many of its borrowers were left unable to repay mortgages that, in many cases, required no proof of income or a down payment. The company was purchased in 2008 by Bank of America, which now holds the VIP loan files.

The original Towns subpoena had asked for all files that went through the Countrywide VIP unit and specifically mentioned House members and aides. Bank of America sent a spreadsheet that identified 18,000 files that listed a borrower's employer, but without names to maintain privacy.

The spreadsheet identified several files listing the House or Congress as the employer. Since the vast majority of the employers in the spreadsheet were of no interest to the committee, committee Republicans -- then in the minority -- and majority Democrats each drew up a separate list of loan files to be turned over by the bank.

The Republican list totaled 3,000 files and included borrowers listing the House as an employer. Towns narrowed the files to about 300 and excluded references to the House. It was Towns' truncated list that went to Bank of America.

Bank of America confirmed in a statement to The Associated Press that the original subpoena terms were changed by Towns.

"The committee provided the bank with specific instructions and modifications regarding the scope of the subpoena, and the bank followed and fulfilled all instructions and fully complied with the subpoena as modified by the committee," the bank said.

The AP reviewed the original bank spreadsheet of 18,000 and confirmed there were references to the House or Congress. The AP also obtained a copy of the subsequent instructions from Towns to the bank that excluded the House or Congress as an employer.

Some borrowers on the VIP list became known as "Friends of Angelo" because they received discounts on orders from then-Countrywide chief executive Angelo Mozilo.

The foremost benefit of being a Countrywide VIP was access to discounted loans in which borrowers received a reduction in points and fees. Usually between $350 and $400 was waived.

For several months in 2009, Towns refused to issue a subpoena for VIP loan documents to Bank of America, a position that became politically untenable after it was revealed in the media in August that year that he himself had two Countrywide loans.

The Issa committee report confirmed that the VIP section processed a 30-year, $182,972 loan to Towns for a vacation home in Lutz, Fla., and a $194,540, 30-year mortgage for his Brooklyn residence.

Towns still defended his approach when the Oversight Committee met for the first time under Republican control in January 2011. "This is not a super ethics committee and I want to make that very clear," he said at the public meeting.

The Issa report named:

--Towns, who has consistently denied that he received any special treatment from Countrywide.

--Rep. Howard "Buck" McKeon, R-Calif., now chairman of the House Armed Services Committee. A spokeswoman said McKeon was never aware of any Friends of Angelo designation and shares an interest with Issa in determining whether there was any wrongdoing by Countrywide.

--Rep. Elton Gallegly, R-Calif. His spokesman said his Countrywide loan carried an interest rate of 5.75 percent, which was comparable to rates at that time. Gallegly never asked for preferential treatment, the spokesman said.

--Former Rep. Tom Campbell, a California Republican. He said he never received any preference from Countrywide and did not even recall getting a Countrywide loan.

The report also said Rep. Pete Sessions, R-Texas, the current House GOP campaign chairman, had a loan processed by the VIP section. Sessions' spokeswoman said he requested that he not be extended any special benefits or treatment from Countrywide, and Issa's report confirmed the request was granted.

Towns' spokesman said the report does not alter the congressman's assertion that he did not receive any preferential treatment.

As for Towns' actions in 2009, spokesman Charles Lewis said: "He's done talking about it. He said everything he's going to say about it."

Back in October 2009 the Democratic-controlled Oversight Committee's spokeswoman at the time, Jenny Rosenberg, said Towns was the victim of a smear campaign.

She said Towns resisted the subpoena initially because there were other government investigations of Countrywide already under way, and he wanted to focus on investigating companies that received federal bailout money.

Two Democrats publicly broke with Towns on the issue in 2009. One of them, Rep. Mike Quigley of Illinois, said in a recent interview: "A majority of members of the committee wanted disclosure. The committee chairman needed our encouragement to send a subpoena. It looks bad if we redact names."

The second lawmaker, former Rep. Paul Hodes of New Hampshire, said in a recent interview, "I thought we had a mandate to drain the swamp, and I took it seriously."

Two House members said Rep. Chris Van Hollen, D-Md., who is close to Democratic leader Nancy Pelosi, privately conveyed to Towns that it was a bad idea to resist an investigation of member and staff discount loans. The members would not be quoted by name because they said the matter was too politically sensitive.

Only one House member file -- that of McKeon -- was produced under the Towns subpoena and it was by accident. Instead of listing House of Representatives as his employer on his loan documents, McKeon listed "U.S. government" -- which was among the employer categories sought in the Towns request for loan files. That file, however, was sent under the subpoena's instructions to the secretive House Ethics Committee.

Towns' own loan files were not provided under his own subpoena because he listed U.S. Capital (sic) as his employer.

Towns normally would have become the committee's top-ranking Democrat in January 2011 when control of the House switched to Republicans and Issa became the panel's chairman. Instead, the leadership supported Rep. Elijah Cummings of Maryland, who took over the position.

Towns announced in April that he was retiring after 30 years of representing his Brooklyn district.