On Friday, Reps. Howard McKeon (R-CA) and Elton Gallegly (R-CA) were named as recipients of discounted mortgage loans from the now-defunct Countrywide Financial Corp., previously the nation’s largest mortgage lender before being bought out by Bank of America.

Reps. McKeon and Gallegly both claim they did not know their loans were processed through the so-called “Friends of Angelo’s” VIP division, a reference to Angelo Mozilo, the former head of Countrywide whom TIME magazine named as one of its “25 People to Blame for the Financial Crisis” report.

The two California Republicans join Democratic Congressman Rep. Edolphus Towns (D-NY) as the three of four House members identified by the House Oversight and Government Reform Committee as having had loans processed through Countrywide’s VIP loan program.  Rep. Towns also says he was unaware that his loan had been routed through Countrywide’s VIP loan division.   The fourth House member the Committee has identified as having received a discounted loan has yet to be publicly identified.

Rep. McKeon’s spokesperson, Alissa McCurley, says Rep. McKeon was “shocked and angry” when he learned his $315,000 mortgage loan had been processed through Countrywide’s VIP loan division.  Ms. McCurley stated that Rep. McKeon, who serves as the chairman of the House Armed Services Committee, “had no knowledge of the Friends of Angelo designation” and “has never met or spoken to Angelo Mozilo.  Mr. McKeon is going back trying to figure out what Countrywide did to this loan 13 years ago.”

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The untold story of the Obama Administration’s widely reported, $335 million discrimination settlement with Countrywide Financial Corporation is that, under a secret Justice Department program, a chunk of the money won’t go to the “victims” but rather leftist groups not connected to the lawsuit.

The Department of Justice (DOJ) will determine which “qualified organizations” get leftover settlement cash and Democrat-tied groups like the scandal-plagued Association of Community Organizations for Reform Now (ACORN) and the open-borders National Council of La Raza (NCLR) stand to get large sums based on the hastily arranged deal which got court approval in just a few days.

Judicial Watch has investigated this controversial arrangement and in 2010 sued the DOJ to obtain information about the policy directing big portions of cash settlements from its civil rights lawsuits to organizations not officially connected to the cases. In response to JW’s lawsuit, the DOJ was forced to acknowledge that it has no official guidelines regarding “qualified organizations” that get leftover settlement funds and that it doesn’t monitor how the money is used.

In the Countrywide case, details of the unscrupulous arrangement are buried deep (page 10 of the 17-page settlement) in the court document where Bank of America’s Countrywide Financial Corporation agrees to pay to resolve allegations that it discriminated against qualified black and Hispanic borrowers. The lender denies all of the charges, but wanted to end the case and caved into the government’s terms.

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From today’s New York Times:

With midterm elections near, though, there will be talk aplenty about dealing with the companies precisely because Dodd-Frank didn’t address them. Unfortunately, if past is prologue, this talk is likely to be more political than practical.

Fannie and Freddie amplified the housing boom by buying mortgages from lenders, allowing them to originate even more loans. They grew into behemoths because they lobbied aggressively and played the Washington political game to a T. But after both companies bought boatloads of risky mortgages, they required a federal rescue.

The Treasury’s study on Fannie, Freddie and housing finance must be delivered to Congress by the end of January 2011. In a speech last week, Timothy F. Geithner, the Treasury secretary, told a New York audience that resolving the companies isn’t “rocket science.”

But attaining genuine remedies for our housing finance system could actually be harder than rocket science. That’s because it would require an honest dialogue about the role the federal government should play in housing. It also requires a candid conversation about whether promoting homeownership through tax policy and other federal efforts remains a good idea, given the economic disaster we’ve just lived through.

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Despite the few voices of caution, risk and leverage had become a national fixation, embraced both on Wall Street and in government. The SEC and the Fed, the main regulators in charge of monitoring the buildup of risky assets on the banks’ books, together with the rating agencies, were the modern-day equivalents of Nero fiddling as Rome burned.The fire in this case was the massive and rapid buildup of mortgage debt on the balance sheets of the banks; by 2006 it was approaching $1 trillion and heading higher without so much as a peep from the traditional watchdogs.

Still, the risk taking and leverage went beyond the brokerage houses and the banks. The GSEs, Fannie Mae and Freddie Mac, were in the game as well. By now, Fannie and Freddie had fully and completely conceded their original mandates to the whims of the Washington political class, which demanded “affordable” housing for all, even those who couldn’t afford it. The politicians were giddy with Fannie and Freddie’s conversion from staid mortgage banks to subprime lenders that would make Angelo Mozilo, the CEO of the largest subprime lender in the markets, Countrywide Financial, envious.

It was an evolution that took years in the making. As HUD secretary, Andrew Cuomo boasted in one report in the late 1990s that the new mandates he was imposing on Fannie and Freddie to ramp up subprime lending “could be of significant benefit to lower-income families, minorities, and families living in underserved areas.”

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