Freddie Mac secretly paid Republican firm to kill regulation

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Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel (R-Neb.).

DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.

Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.

In the midst of DCI's yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist to allow a vote.

''If effective regulatory reform legislation . . . is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole,'' the senators wrote.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents.

In the end, there was not enough Republican support for Hagel's bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died.

McCain was not a target of the DCI campaign. He signed Hagel's letter.

The Republican senators targeted by DCI began hearing from prominent constituents and financial contributors, all urging the defeat of Hagel's bill because it might harm the housing boom. The effort generated newspaper articles and radio and TV appearances by participants who spoke out against the measure.

Inside Freddie Mac headquarters, the few dozen people who knew what DCI was doing referred to the initiative as ''the stealth lobbying campaign,'' according to three people familiar with the drive.

Freddie Mac executive Hollis McLoughlin oversaw DCI's drive, according to the three people.

''Hollis's goal was not to have any Freddie Mac fingerprints on this project and DCI became the hidden hand behind the effort,'' one of the three said.

Freddie Mac acknowledged that the company ''did retain DCI to provide public affairs support at the state and local level.'' DCI said it complied with federal and state laws and regulations in representing Freddie Mac.