One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month to a firm owned by Senator John McCain’s campaign manager from the end of 2005 through last month, according to two people with direct knowledge of the arrangement. The disclosure contradicts a statement Sunday night by Mr. McCain that the campaign manager, Rick Davis, had no involvement with the company for the last several years. Mr. Davis’s firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the people said.
They said they did not recall Mr. Davis doing much substantive work for the company in return for the money, other than speak to a political action committee composed of high-ranking employees in October 2006 on the coming midterm congressional elections. They said Mr. Davis’s his firm, Davis & Manafort, was kept on the payroll because of Mr. Davis’s close ties to Mr. McCain, the Republican presidential nominee, who was widely expected by 2006 to run again for the White House.
Mr. Davis took a leave from Davis & Manafort for the duration of the campaign, but as a partner and equity-holder continues to share in its profits. No one at Davis & Manafort other than Mr. Davis was involved in efforts on Freddie Mac’s behalf, the people familiar with the arrangement said.
A Freddie Mac spokeswoman said the company would not comment. Jill Hazelbaker, a spokeswoman for the McCain campaign, did not dispute the payments to Mr. Davis’s firm. But she said that Mr. Davis had stopped taking a salary from his firm by the end of 2006 and that his work did not affect Mr. McCain.
“Senator McCain’s positions on policy matters are based upon what he believes to be in the public interest,” Ms. Hazelbaker said in a written statement.
The revelations come at a time when Mr. McCain and Mr. Obama are sparring over ties to lobbyists and special interests and seeking political advantage in a campaign being reshaped by the financial crisis and the plan to bail out investment firms.
Long history of cultivating allies
Mr. McCain’s campaign has been attacking Senator Barack Obama, his Democratic rival, for his ties to former officials of the mortgage lenders, both of which have long histories of cultivating allies in the two parties to fend off efforts to restrict their activities. Mr. McCain has been running a television commercial suggesting that Mr. Obama takes advice on housing issues from Franklin D. Raines, a former chief executive of Fannie Mae, a contention flatly denied by Mr. Raines and the Obama campaign. Freddie Mac’s roughly $500,000 in payments to Davis & Manafort began immediately after Freddie Mac and Fannie Mae in late 2005 disbanded an advocacy coalition that they had set up and hired Mr. Davis to run, the people familiar with the arrangement said.
Between 2000 and the end of 2005, Mr. Davis had received nearly $2 million as president of the coalition, the Homeownership Alliance, which the companies created to help them oppose new regulations and protect their status as federally chartered companies with implicit government backing. That status let them borrow cheaply, helping to fuel rapid growth but also their increased purchases of the risky mortgage securities that were their downfall.
On Sunday, in an interview with CNBC and the New York Times, Mr. McCain responded to a question about Mr. Davis’s role in the advocacy group by saying that his campaign manager “has had nothing to do with it since, and I’ll be glad to have his record examined by anybody who wants to look at it.”
Such assertions, along with McCain campaign television ads tying Mr. Obama to former Fannie Mae chiefs, have riled current and former officials of the two companies and provoked them to volunteer rebuttals of what they see as the McCain campaign’s inaccuracy and hypocrisy. The two officials with direct knowledge of Freddie Mac’s post-2005 contract with Mr. Davis spoke on condition of anonymity. One is a Democrat and the other a registered independent. Four other outside consultants, three Democrats and a Republican also speaking on condition of anonymity, confirmed that it was widely known that Mr. Davis was being paid though his firm.
As president of the Homeownership Alliance, Mr. Davis got $30,000 to $35,000 a month. Mr. Davis, along with Fannie Mae and Freddie Mac, have characterized the alliance as a coalition of many housing industry and consumer groups to promote homeownership, but numerous current and former officials at both companies say the two mortgage companies created and bankrolled the operation to combat efforts by competitors to rein in their business. They dissolved the group at the end of 2005 as part of cost-cutting in the wake of accounting scandals and, at Freddie Mac, a lobbying scandal that forced out its former top Republican lobbyist.
Bias accusations against New York Times
On Monday, the McCain campaign accused The New York Times of bias for reporting the payments to Mr. Davis from the mortgage giants. Mr. Davis said that had worked not for the two companies but for the advocacy group, which included other nonprofit organization as well.
After the Homeownership Alliance was dissolved, Mr. Davis asked to stay on a retainer, the people familiar with the deal said. Hollis McLoughlin, who was chief of staff to Richard F. Syron, Freddie Mac’s chief executive, arranged for a new contract with Davis & Manafort, at the reduced rate of $15,000 a month, they said. Mr. Syron lost his job in the government takeover this month. Mr. McLoughlin, who through a spokeswoman declined to comment, was a former chief of staff to Treasury Secretary Nicholas Brady in the first President Bush’s administration, and has longstanding Republican ties.
Mr. Davis was hired as a consultant, not a lobbyist, the officials said. Davis & Manafort in recent years has filed federal lobbying reports for a number of companies, including SBC Telecommunications, Fruit of the Loom, Comsat, Gtech, Airborne Express, BellSouth and Verizon—all businesses with legislative interests before the Senate Commerce Committee, where Mr. McCain has been chairman or senior Republican. It has filed no reports registering to lobby for Freddie Mac or Fannie Mae.
Later in 2006, Mr. Davis was working on Mr. McCain’s emerging presidential campaign, as chief financial officer. The only thing that Freddie Mac officials could recall Mr. Davis doing for the company was the October 2006 pre-election forum with mid-level and senior executives who contribute to Freddie PAC, the company’s political action committee.
An electronic invitation to the employees, read by an official to the New York Times, said “Please join us for political food for thought” with Paul Begala, a longtime Democratic consultant, “and Rick Davis, former 2000 presidential campaign manager and current advisor to Senator John McCain.” Mr. Begala, who also was a paid consultant to Freddie Mac until this month, confirmed that the event took place.
Not unusual to have people on payrolls
A Freddie Mac executive said that as the event was being planned, and organizers were looking for a speaker from each party, “People at the office were saying, ‘Well, we have Rick Davis on contract and we never use him for anything. Why don’t we at least get him up here to talk like he knows what’s going on in the campaigns?”
It was not unusual for Freddie Mac and Fannie Mae to have well-connected people from both parties on their payrolls, but doing little work, in the high-flying days. The purpose, people who worked at the companies said, was bipartisan insurance against new regulations or loss of the implicit government guarantee, which seemed at risk during both the Clinton and current Bush administrations.
At least two other people associated with Mr. McCain have ties to either Freddie Mac. The lobbying firm of the Republican that Mr. McCain has enlisted to plan his transition to the White House should he be elected, William Timmons Sr., earned nearly $3 million from Freddie Mac between 2000 and its seizure, federal lobbying records show. Mr. Timmons is founder of Timmons & Co., one of Washington’s best-known lobbying shops. The payments were first reported by Bloomberg News.
Mark Buse, Mr. McCain’s chief of staff for his Senate office, also is a Freddie Mac alumnus. He and his former lobbying employer, ML Strategies, registered to lobby for the company in July 2003, and received $460,000 before the association ended after 2004.
Ties to mortgage giants
Mr. McCain and his advisers have argued that whatever connections Mr. Davis and other McCain campaign officials have had to the mortgage giants, Mr. McCain in the Senate has been an advocate for reforming them. And they have suggested that Mr. Obama is linked to the companies through donations from their employees ties to former officials there, including James Johnson, another former chief executive of Fannie Mae who was the head of Mr. Obama’s vice presidential search team until stepping aside after coming under criticism for getting a mortgage on favorable terms.
In an interview Tuesday with conservative talk-radio host Neal Boortz, Mr. McCain said, “I remember warning at that time that Fannie and Freddie were out of control and that they needed to be reined in. And, frankly, I warned that this kind of thing could lead to serious problems. Now, in full disclosure, I didn’t foresee something this huge, but certainly I saw the fundamentals there for serious problems when you have a quasi government agency acting the way they did.”
When Mr. Boortz noted approvingly that Mr. McCain had co-sponsored a Senate bill to mandate new regulations, Mr. McCain said, “I remember it very well.”
But a Freddie Mac official said Mr. McCain “never took on the role that some other Republicans did” to try to limit the companies. He named instead Senators Chuck Hagel of Nebraska, John Sununu of New Hampshire and Elizabeth Dole of North Carolina, all of whom were on the banking committee during recent years. “I remember working against a number of amendments and they were always introduced by Hagel and Sununu. John McCain was never anywhere to be found.”
A check of the records for the legislation that Mr. Boortz mentioned shows that Senator Hagel was the original sponsor on Jan. 26, 2005, and Senators Sununu and Dole were co-sponsors then. Mr. McCain did not sign on as a co-sponsor for more than a year, on May 25, 2006.
This article, "McCain Aide’s Firm Was Paid by Freddie Mac," first appeared in the New York Times.