Freddie Mac Kept Paying McCain Aide's Firm

Since 2006, the federally sponsored mortgage giant Freddie Mac has paid at least $345,000 to the lobbying and consulting firm of John McCain's campaign manager, Rick Davis, according to two sources familiar with the arrangement.

Freddie Mac had previously paid an advocacy group run by Davis, called the Homeownership Alliance, $30,000 a month until the end of 2005, when that group was dissolved. That relationship was the subject of a New York Times story Monday, which drew angry denunciations from the McCain campaign. McCain and his aides have vehemently objected to suggestions that Davis has ties to Freddie Mac—an especially sensitive issue given that the Republican presidential candidate has blamed "the lobbyists, politicians and bureaucrats" for the mortgage crisis that recently prompted the Bush administration to take over both Freddie Mac and its companion, Fannie Mae, and put them under federal conservatorship.

But neither the Times story—nor the McCain campaign—revealed that Davis's lobbying firm, Davis Manafort, based in Washington, D.C., continued to receive $15,000 a month from Freddie Mac until last month—long after the Homeownership Alliance had been terminated. The two sources, who requested anonymity discussing sensitive information, told NEWSWEEK that Davis himself approached Freddie Mac in 2006 and asked for a new consulting arrangement that would allow his firm to continue to be paid. The arrangement was approved by Hollis McLoughlin, Freddie Mac's senior vice president for external relations, because "he [Davis] was John McCain's campaign manager and it was felt you couldn't say no," said one of the sources. [McLoughlin did not return phone calls].

When asked about his own campaign manager's associations with the mortgage giants, McCain, in an interview with CNBC on Sunday night, said that Davis "has had nothing to do" with the Homeownship Alliance since it disbanded and "I'll be glad to have his record examined by anybody who wants to look at it." (The Homeownership Alliance was set up and funded by both Freddie Mac and Fannie Mae to promote the goal of home ownership and counter efforts to impose tighter regulations on the two federally sponsored entities.)

Davis, in a conference call arranged by the McCain campaign Monday, said, "It's been over three years since there's been any activity in this area and since I had any contact with those folks." Davis also said he "had a severed leave of absence" from his lobbying and consulting firm, and "I've taken no compensation from my firm for 18 months." (A campaign spokesman said that Davis receives no partnership distribution under his arrangement).

It is not unusual for major corporations to enter into consulting retainers so that individuals could be available if needed. And the two sources stressed that Davis at no time made any threats or demands on Freddie Mac. But the sources indicated that Freddie Mac seldom called on Davis or the firm. On one occasion, Davis was asked to attend a meeting of the firm's political-action committee during the 2006 campaign in order to give the Republican Party's perspective on the upcoming elections. In addition, Davis did meet with McLoughlin for breakfast on "one or two" occasions. Other than that, one source said, Davis "doesn't do anything" for Freddie Mac. The firm "doesn't even talk to him." In addition, Freddie Mac has had no contact with Davis Manafort other than receiving monthly invoices from the firm and paying them. But the money could be perceived as helping Freddie Mac ensure a good relationship with one of McCain's top aides in the event that he became president. The payments, along with other lobbying and consulting contracts, are expected to be terminated by the new federal overseers, the sources said.

Sharon McHale, the vice president for Freddie Mac, declined any comment on the firm's arrangement with Davis. Other Freddie Mac officials did not return phone calls. Davis did not respond to e-mails and a phone call seeking comment. Asked for comment, Jill Hazelbaker, the McCain campaign communications director, said: "Rick left Davis Manafort and stopped taking salary from the firm in 2006 and, as Davis Manafort is an entity wholly unrelated to the campaign and any of its employees, all questions about Davis Manafort's practice should be directed to Davis Manafort."

"Who Davis Manafort represents during a period when no employee of the campaign is associated with the firm, is a matter that has nothing to do with this campaign," she added. "Finally, the relationship that Davis Manafort had with Freddie was not a lobbying relationship during Rick's tenure. Rick was never a lobbyist for Freddie."

Davis Manafort also did not return a phone call seeking comment.

McCain has made an issue of the relationship between some of Obama's supporters and Fannie and Freddie. Jim Johnson, the former Fannie Mae chief executive, was initially tapped to help vet potential running mates for the Democratic nominee, until controversy over his appointment forced him to step aside. And McCain's campaign has questioned Obama's ties to Franklin Raines, another former Fannie Mae chief executive. Both Johnson and Raines received generous payouts from the mortgage buyer.