Freddie Mac reportedly paid McCain aide's firm

WASHINGTON — One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Sen. John McCain's campaign manager, according to two people with direct knowledge of the arrangement.

The disclosure undercuts a statement by McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the past several years.

Davis' firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the two people said.

They said they did not recall Davis doing much substantive work for the company in return for the money, other than speak to a political-action committee of high-ranking employees in October 2006 on the approaching midterm congressional elections. They said Davis' firm, Davis Manafort, had been kept on the payroll because of Davis' close ties to McCain, the Republican presidential nominee, who by 2006 was widely expected to run again for the White House.

Davis took a leave from Davis Manafort for the presidential campaign, but as a partner and equity holder continues to benefit from its income. No one at Davis Manafort other than Davis was involved in efforts on Freddie Mac's behalf, the people familiar with the arrangement said.

A Freddie Mac spokeswoman said the company would not comment.

Jill Hazelbaker, a spokeswoman for the McCain campaign, did not dispute the payments to Davis' firm. But she said Davis had stopped taking a salary from his firm by the end of 2006 and that his work did not affect McCain.

"Sen. McCain's positions on policy matters are based upon what he believes to be in the public interest," Hazelbaker said in a written statement.

The disclosure comes at a time when McCain and Sen. Barack Obama, the Democratic nominee, are sparring over ties to lobbyists and special interests and seeking political advantage in a campaign being reshaped by the financial crisis and the plan to bail out investment firms.

Freddie Mac's roughly $500,000 in payments to Davis Manafort began immediately after Freddie Mac and Fannie Mae in late 2005 disbanded an advocacy coalition that they had set up and hired Davis to run, the people familiar with the arrangement said.

From 2000 to the end of 2005, Davis had received nearly $2 million as president of the coalition, the Homeownership Alliance, which the companies created to help them oppose new regulations and protect their status as federally chartered companies with implicit government backing. That status let them borrow cheaply, helping to fuel rapid growth but also enabled their increased purchases of the risky mortgage securities that proved to be their downfall.

The payments that Davis received for leading the Homeownership Alliance were reported in Monday's issue of The New York Times. On Sunday, in an interview with CNBC and The Times, McCain responded to a question about that tie between Davis and the two mortgage companies by saying that he "has had nothing to do with it since, and I'll be glad to have his record examined by anybody who wants to look at it."

Such assertions, along with McCain campaign television advertisements tying Obama to former Fannie Mae chiefs, have riled current and former officials of the two companies and prompted them to volunteer rebuttals.

The two people with direct knowledge of Freddie Mac's post-2005 contract with Davis spoke on condition of anonymity. Four other outside consultants — three Democrats and a Republican, also speaking on condition of anonymity — said the arrangement was widely known among people involved in Freddie Mac's lobbying efforts.