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Takeover Halts All Lobbying

End of an Era for Fannie, Freddie

For years, Fannie Mae and Freddie Mac had two of the most storied lobby machines in Washington, wielding their political muscle to bring high-profile staffers downtown while successfully fending off government regulation.

That era came to an abrupt end on Sunday when the government took control of the two mortgage giants and mandated an immediate stop to all political and lobbying activities.

In an e-mail, Duane Duncan, Fannie Mae’s senior vice president for government and industry relations, sent that same message to the company’s current and former outside lobbyists.

“As an outside consultant … please do not contact anyone on Capitol Hill or the Administration on behalf of Fannie Mae,” Duncan wrote on Sunday afternoon.

Duncan’s directive included a Web site link to Office of Federal Housing Enterprise Oversight Director James Lockhart’s decree from a Sunday press conference: “All political activities — including all lobbying — will be halted immediately.”

Duncan followed up his initial e-mail with a conference call Monday afternoon reiterating the point to Fannie Mae’s huge cadre of outside consultants, which include, among others, Fierce, Isakowitz & Blalock; Elmendorf Strategies; Ricchetti Inc.; the Hohlt Group; C2 Group; and Ogilvy Government Relations.

“They said they don’t want anybody to do any lobbying,” said one lobbyist on the call who asked not to be named.

“Nobody is sitting on pins and needles,” he said. “The government is taking it over. It would be unprecedented for an entity of the government to employ outside lobbyists.”

Several lobbyists said the mortgage companies would have a much lower visibility in the coming weeks, just as the OFHEO sets its sights on writing the regulations of the housing bill that passed Congress in July.

“One of the most successful lobbying groups has basically been neutered,” said one Fannie Mae lobbyist who declined to be named.

Outside consultants received a similar message from Duncan’s counterpart at Freddie Mac, Tim McBride.

“We’ve been advised also to cease all activities pending their review,” said Andrew Lowenthal, a financial services lobbyist at Porterfield & Lowenthal, which lobbies for Freddie Mac.

Freddie has also retained firms such as the Smith-Free Group Inc., Tarplin Strategies and Clark & Weinstock.

The announcement comes after both ailing mortgage giants worked to rebuild political capital with lawmakers following a series of accounting irregularities and fundraising scandals starting in 2000.

Several lobbyists said that Fannie Mae in particular had regrouped to create an effective Congressional relations team.

“They used to be the 800-pound gorilla,” said one outside consultant who formerly worked for Fannie Mae, referring to the government-sponsored enterprise’s maneuvering on Capitol Hill. “They never really steamrolled anybody because of their size. It was just one of those things where you don’t even try because you aren’t going to win against Fannie.”

Fannie Mae’s strength peaked in the 1990s and early 2000s during and after former Chief Executive Officer Jim Johnson’s tenure. During that same period, Freddie Mac’s political capital was bolstered under Mitchell Delk’s tutelage as its head of government relations.

“In the 1990s, they got anything they wanted,” said Michael House of Hogan & Hartson, who headed GSE watchdog FM Policy Focus before it disbanded. “Just the sheer numbers alone were daunting.”

In 2004, Fannie Mae reported spending $8.8 million on federal lobbying, with 23 lobbying firms on retainer. The company’s lobbying spending peaked in 2006 when it reported $10.2 million. In 2007, Fannie Mae downsized its outside lobbying team to about a dozen and its spending to $5.6 million.

Freddie Mac’s lobbying spending peaked in 2004, when it reported spending $15.4 million. Last year the mortgage company spent $8.5 million on lobbying.

For Freddie Mac, the firm’s cutback on influence spending came after the lending giant paid a record $3.8 million to the Federal Election Commission in 2006 after an investigation into fundraising activities organized by Delk.

The latest news has critics of the GSEs keeping watch.

“The whole landscape has changed,” House said. “What it could mean is there is somewhat of a vacuum up there. One of the things that I think is going to have to be dealt with by Congress is to make sure that they get input from Fannie and Freddie as they move forward on the policy side.”

House declined to speculate whether FM Policy Focus may reconstitute under the new circumstances.

South Carolina Republican Sen. Jim DeMint, a longtime proponent of banning Fannie and Freddie from lobbying, continued to call on Monday for a stand-alone bill that would ban the GSEs from lobbying Congress. DeMint is expected to introduce such legislation in the coming weeks.

The future of Fannie Mae’s and Freddie Mac’s political action committees appears to be one issue that is still being hammered out. Lobbyists questioned whether they will be disbanded.

“Depending on how much money is in it dictates what you do,” said Kenneth Gross, an ethics lawyer at Skadden, Arps, Slate, Meagher & Flom. “You can give it to charity, donate it within limits through federal, state and local candidates or return the money to the donors. There’s very little restriction on how that money is spent.”

Fannie Mae’s PAC had $109,000 on hand at the end of July after doling out more than $650,000 in 2008, according to the Center for Responsive Politics. Freddie Mac’s PAC had more than $90,000 at the end of July after contributing more than $200,000 to federal candidates in 2008.

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