Freddie: Under Fire, Under Construction

Posted February 11, 2005 at 5:40pm

It’s one thing for a company to grapple with legislation that affects virtually every aspect of its business. It’s even tougher to do that when the company in question has a lobbying team undergoing a major transition.

But that’s exactly the situation that mortgage giant Freddie Mac finds itself in.

Having experienced a load of negative fallout from a multibillion-dollar restatement of earnings in 2003, Freddie is now trying to burnish its image on the public relations front and shape legislation that could affect how it — and its federally chartered cousin, Fannie Mae — is regulated.

Yet even as Members of Congress hold hearings on how to regulate government- sponsored enterprises such as Freddie more aggressively, the company — which spent $6.7 million on its lobbying efforts during the first half of 2004 — is engaged in a major housecleaning that includes cutting ties with some of its roughly 30 outside lobbying firms.

The changes are being carried out by Freddie’s new top lobbyist, Timothy McBride, a former public policy vice president at the DaimlerChrysler Corp. McBride succeeded Mitchell Delk, who last year was ousted over a fundraising scandal.

Several lobbyists said McBride comes to the job with impeccable corporate experience and contacts within the GOP Congressional leadership and the Bush administration. Previously, McBride served in the administration of George H.W. Bush as an assistant to the president and director of White House management and administration.

Lobbyists said McBride represents a change in strategy and style from Delk. While Delk operated with more of a flair, sources said that McBride is down to earth, with an unassuming, almost aw-shucks attitude.

When Freddie showed Delk the door, the job of handling the company’s lobbying crisis initially fell to an in-house shop that includes Robert Zimmer, now the company’s vice president for government relations.

But with McBride now aboard, one of his main jobs has been to streamline the company’s lobbying operation.

“My goal,” McBride said in an e-mail statement, “is to engage as fully and constructively as possible in the public-policy debate affecting the GSEs. We share the view that what is needed is a strong regulatory regime, and we look forward to working closely with Members of Congress and the Administration.”

McBride added, “I plan to engage Freddie Mac’s senior management team, our very talented staff of government relations professionals, outside consultants, as well as industry and consumer groups who share our interest in expanding homeownership opportunities and strengthening the nation’s housing finance system. I’m currently conducting a review of our resources to determine the most effective way to leverage them.”

Some of the chips have already begun to fall. While company spokeswoman Sharon McHale declined to say which outside lobbyists have been let go and which are on retainer, she said that Freddie has downsized its stable of contract workers, including lobbyists, “across the board.”

Already, she said, Freddie has slimmed down from more than 2,800 consultants last fall to 2,100 today.

Most lobbyists who are registered to lobby for Freddie Mac did not respond to inquiries from Roll Call. Many who did declined to comment.

But Jay Velasquez, an aide to then-Sen. Phil Gramm (R-Texas), confirmed that he is no longer working for Freddie, and Catherine Nolan of Jenner & Block said she was no longer on the Freddie Mac payroll. However, Nolan said she had “a very specific contract for the last Congress.”

Charlie Black, the chief executive of BKSH & Associates, which last year was paid $60,000, said, “We were laid off. My understanding is that a lot of firms were laid off, and we’ve been invited to make a presentation to represent them again.”

A spokeswoman for Texas-based lobbyist Ben Barnes said that he still works for Freddie Mac in Washington. Last year, Barnes reported earning $360,000 from Freddie.

Of course, wrenching transitions like this are not unique to Freddie. The Pharmaceutical Research and Manufacturers of America trade group, which recently got a new head in former Rep. Billy Tauzin (R-La.), is also reviewing its outside lobbying team.

PhRMA has already let go of some of its outside lobbyists, including Richard Murphy of R.B. Murphy & Associates. “My understanding is that I was part of the first wave of the reorganization last year,” Murphy said.

The changes at Freddie come at a crucial time: The issue of how government-sponsored enterprises like Freddie are regulated appears to be gaining attention in the new Congress.

In the Senate, Chuck Hagel (R-Neb.) has reintroduced a bill that would change the GSE regulatory system. And last week, the House Financial Services subcommittee on capital markets, insurance and government sponsored enterprises, chaired by Rep. Richard Baker (R-La.), and the Senate Banking, Housing and Urban Affairs Committee held hearings on the matter of GSE reform.

The renewed interest by Congress, combined with the upheaval at Freddie, has its opponents smelling blood.

“Historically they talked a great game, and behind the scenes they tried to kill whatever was proposed,” said W. Michael House, a partner at Hogan & Hartson, who represents FM Watch, a longtime opponent of Freddie and Fannie. “Now they can no longer get away with that.”

The accounting irregularities fueled the notion that the GSE regulatory system is ripe for revamping, House added.

“I think for the first time, because of the events with Freddie and their restatement and Fannie and their restatement, now everyone is in agreement that there needs to be an effective regulatory” system, House said. “I think this time they finally realized that they can no longer fight it.”

Freddie, like Fannie, wants some kind of regulatory reform, McHale said. “We’ve long said we’re for achieving strong regulatory oversight,” she said.

Lobbyists close to Freddie and Fannie say the GSEs want to be sure a new regulatory system would not lead to the government micromanaging how they do business. They also do not want the government to have the authority to liquidate or restructure the companies, if either were to fail.

And for Freddie, making that case is intimately entwined with finding the right personnel mix, both inside the company and with outside consultants.

“We had such significant problems with our restatement that it required us to spend a lot of time and effort keeping Members and staff up to date,” McHale said. “We’re getting back on track.”