By GRETCHEN MORGENSON

New York Times

Seven years after their dubious lending practices helped push the U.S. economy to the brink of disaster, the nation’s largest banks are closing in on a long-sought goal: to unseat Fannie Mae and Freddie Mac, the mortgage finance giants, and capture their share of the profits in the country’s $5.7 trillion home loan market.

Taking place largely behind the scenes, the movement to take over the mortgage market has been propelled in part by a revolving door between Washington and Wall Street, an investigation by The New York Times has found.

While the big banks’ effort to enshrine their vision into law has failed so far, plans to replace Fannie and Freddie — which have long supported the housing market by playing a unique role backing mortgages as so-called government-sponsored enterprises, or GSEs — are still very much alive. The Obama administration has largely embraced the idea, and government regulators are being pushed to put crucial elements into effect.

A review of lobbying records, legal filings, and internal emails and memorandums, as well as housing officials’ calendars and White House and Treasury visitor logs, illuminates the banks’ effort. Assisting in this work, the documents show, is a group of high-level housing finance specialists who have moved between public service and private practice in recent years.

The charge began under Michael D. Berman, who has served as both chairman of the Mortgage Bankers Association, one of the industry’s most influential lobbying groups, and as a senior adviser to Shaun Donovan, secretary of Housing and Urban Development from 2009 to 2014.

Conversely, Berman recruited David H. Stevens — who was one of the lead architects of the Obama administration’s proposal to phase out Fannie and Freddie — to the mortgage bankers group, where Stevens is now president and chief executive.

Many in Congress believe Fannie and Freddie contributed to the collapse of the housing bubble, and they still rest on a shaky financial foundation, largely because of actions taken by the Treasury and the companies’ regulator.

For all the problems associated with Fannie and Freddie, some housing experts say, allowing the nation’s largest banks to assume greater control of the mortgage market would most likely increase costs for borrowers. It would also reduce participation and competition from smaller lenders, they say, and could imperil taxpayers with the potential for even greater bailouts for financial institutions that Washington considers too important to fail.

Behind the Bailout

Decades ago, Fannie Mae and Freddie Mac were created by the government to provide home buyers with financing in both good times and bad.

The unusual hybrid of shareholder-owned companies carrying the government’s imprimatur worked well for a long time. But the combination turned sour in the 1990s when Fannie executives began using the company’s lush profits to finance lobbying efforts that enhanced their stature and independence in Washington.

Fannie’s enfeebled overseer, the Office of Federal Housing Enterprise Oversight, allowed its enormous operations to rest on the tiniest sliver of capital, increasing profits during the fat years. But when the financial crisis hit, expected loan losses at both Fannie and Freddie overwhelmed the small amount of capital the companies had on hand.

About a week before Lehman Bros. collapsed in September 2008, the government stepped in. It put Fannie and Freddie into conservatorship under the Federal Housing Finance Agency, a new and stronger regulator created that summer in the Housing and Economic Recovery Act. The companies ultimately drew about $187.5 billion from taxpayers in the bailout. They were put on a tight leash by their government minders and were viewed as political poison by Democrats and Republicans alike.

Devising Alternatives

The ink was barely dry on the Fannie and Freddie bailout when the Mortgage Bankers Association got busy. Berman, then vice chairman of the lobbying group and founder of CWCapital, a commercial real estate lender and management firm specializing in multifamily housing projects, was tapped to organize a campaign to privatize the nation’s broken home mortgage system.

With the housing market in collapse and Fannie and Freddie weakened and reviled, it was the perfect time to push the mortgage bankers’ plan to take over the companies’ business and divide their prized assets.

But with banks’ popularity plummeting after the financial crisis, their proposal had to be framed as a way to protect taxpayers from future bailouts.

When President Barack Obama entered office in 2009, taking Fannie Mae and Freddie Mac off government life support was far down his administration’s to-do list. But when officials began turning to the matter in 2010, the industry-sponsored coalition was ready.

Its answer was to create new mortgage guarantors, backed by private capital, to take the place of Fannie and Freddie. These entities would issue mortgage securities with government guarantees, a report issued by the 22-member Council on Ensuring Mortgage Liquidity in late summer 2009.

The council, overseen by Berman, was made up of mostly large banks and mortgage insurers. It also recommended that assets belonging to Fannie and Freddie “be used as a foundation” by the new entities. Chief among these assets were the mortgage underwriting systems the government-sponsored enterprises had built to bundle loans into securities to be sold to investors.

Throughout 2009 and 2010, Berman and his colleagues pitched the mortgage bankers’ ideas, saying they would bar the need for future bailouts and keep the home loan spigot on.

Working on the future of Fannie and Freddie at HUD, Stevens attended large meetings of “GSE principals,” according to his calendars, which were obtained by The Times under the Freedom of Information Act.

At the same time, Stevens often interacted with high-level executives in the mortgage industry, his calendars show.

‘A Bank-Centric Model’

Just before Christmas that year, the Treasury’s staff finished fashioning a framework for resolving Fannie and Freddie, an internal document shows. The recommendations became public in a 31-page report to Congress, titled “Reforming America’s Housing Finance Market,” issued jointly by Treasury and HUD on Feb. 11, 2011.

After all the meetings and discussions, the administration laid out three options for housing finance reform. But the message was clear: Fannie and Freddie’s days were numbered. Working with the Federal Housing Finance Agency, the administration would reduce their role in the mortgage market and wind them down.

The policy to eliminate Fannie and Freddie was a page out of the mortgage bankers’ playbook. And like the authors of that plan, the administration said that taxpayers would be protected and that a new, level playing field would benefit all participants in the housing market.

In private, however, officials cited another group of beneficiaries: big banks.

Playing for Both Sides

Roughly a month after the administration published its long-awaited recommendations, Stevens agreed to become chief executive of the Mortgage Bankers Association. He had been hired away by Berman, who was promoted to chairman in 2010.

It wasn’t until March 15 that Mortgage Bankers announced the appointment. Stevens continued as commissioner of the Federal Housing Administration through March 31, 2011, his termination documents show.

At the lobbying organization, Stevens continued to argue for a smaller role in housing finance for Fannie and Freddie and a bigger role for companies backed by private capital. Although the mortgage bankers group represents both large and small lenders, under Stevens it has advocated more for big institutions, smaller members say.

In an interview, Stevens said he joined the government from the industry “to try to help at a time where I thought I had some value.”

In February 2014, Berman returned to the private sector, where he now advises real estate lenders. He said he has also informally consulted for the FHFA.

A Rotating Cast at HUD

A revolving door between business and government is nothing new. But Obama criticized the practice and in his first month in office issued an executive order intended to inhibit it. Many of the abuses of the past had ostensibly been outlawed by legislation.

Another former HUD official who worked on housing finance policy also consults for organizations that stand to profit from ousting the mortgage giants.

He is Jim Parrott, a research fellow at the Urban Institute and an adviser to financial entities. A confidant and colleague of Stevens at HUD, Parrott counseled Donovan from July 2009 to December 2010. He then moved to the National Economic Council at the White House, where he led housing finance policy until January 2013.

After leaving the White House, Parrott set up Falling Creek Advisors, a consulting firm whose clients have included Bank of America and a mortgage insurer.

The Code of Ethics

After leaving their government posts, Berman, Parrott and Stevens all continued to work on housing finance. Meeting logs and calendars received under the Freedom of Information Act indicate that the three men have met with government officials in charge of matters involving Fannie and Freddie.

Stevens met or talked with housing policy officials most frequently: 19 times between February 2012 and April 2015. Since leaving the government, Parrott has had six meetings with housing officials at the White House; Berman has had two since starting his own firm, including one this past June.

Meeting logs show that Stevens convened 16 times with officials at the White House working on Fannie and Freddie policy. He also met five times during the period with DeMarco, the former acting director of FHFA, and had one phone call with him, DeMarco’s calendars show.

Under federal law governing conflicts of interest, former federal officials must take care that their actions in the private sector do not violate the rules. For example, a violation could occur if a former official who worked on a particular matter circled back to the government on behalf of another person or organization to try to influence officials’ thinking on that issue.

The U.S. Office of Government Ethics holds executive branch agencies accountable for carrying out effective ethics programs. Asked whether Stevens, Parrott or Berman had consulted ethics officials at HUD for legal guidance on their meetings, a spokesman for the agency, Cameron R. French, said he could not comment. “However, political appointees and career senior executives are required to meet with the ethics office before departing the department,” he said.

The Case for Recapitalization

The argument against Fannie and Freddie rests on a powerful point: Radically reducing the government’s footprint in the mortgage market could help protect taxpayers. With Fannie and Freddie backing 80 percent of the nation’s mortgages, those risks sit squarely on the government’s shoulders.

But bringing private capital into the mortgage securities market poses perils of its own, other housing experts say: Allowing too-big-to-fail banks to dominate the nation’s mortgage market would crowd out smaller lenders and expand the federal safety net, putting taxpayers at risk of funding bailouts in a downturn. Relying on mortgage insurers to provide that capital also seems dubious given how badly these companies performed in the 2008 crisis.

Moreover, private capital would probably flee the mortgage market at the first sign of trouble, as it did during the recent credit debacle. This raises questions about the availability of home lending when such a system goes through a rough patch.

Proponents of eliminating Fannie and Freddie say that allowing them to survive would also mean letting them go back to their abusive ways.

But those who favor recapitalizing the companies say that the past need not be prologue.

© 2015 The New York Times Company