CHARLOTTE, N.C. – Soon after the Treasury Department proposed buying up distressed mortgage assets in September 2008, a Wachovia lobbyist was working to make sure the Charlotte bank’s troubled loans would be included, an email obtained by McClatchy Newspapers shows.

In a message to a staffer for then-Sen. Elizabeth Dole, lobbyist Walter Price asked for the N.C. Republican’s help in making sure “whole loans” were part of the plan. Wachovia likely wanted its struggling adjustable-rate mortgage portfolio to be eligible for the government bailout, a mortgage expert said.

The “issue is treasury is saying they are not going to prioritize whole loans,” Price wrote in a Sept. 20 email to Dole staffer Robbie Boone. “Want to make sure we are eligible to get these in the mix.”

The email exchange offers a window into the high-stakes lobbying that occurred at the peak of the financial crisis. It also offers insight about the loans causing the most concern for the bank’s executives, who would forge deals with Citigroup Inc., then Wells Fargo & Co. in coming days.

The email string, obtained by McClatchy Newspapers under a nearly three-year-old Freedom of Information Act request, came during a hectic period when Wachovia was talking to multiple merger partners in the aftermath of Lehman Brothers’ bankruptcy filing. The fate of the bailout plan, which became known as the Troubled Asset Relief Program, ran parallel to the bank’s effort to stabilize itself.

As the financial meltdown flared in the fall of 2008, then-Treasury Secretary Henry Paulson proposed a $700 billion plan to buy up distressed assets from banks to boost confidence in the financial system and free up their balance sheets to make more loans. Treasury provided a bare-bones, three-page proposal that Congress began mulling on Saturday, Sept. 20, 2008.

The legislation defined “mortgage-related assets” as “residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued before September 17, 2008.”

Wachovia’s proposal would have inserted the word “loans” to make the plan apply to “residential or commercial mortgage loans and any securities, obligations, or other instruments that are based on or related to such mortgage loans, provided that each mortgage loan was originated on or before September 17, 2008.”

Five months earlier, Wachovia had begun to report increasing losses in its $120 billion portfolio of option adjustable-rate mortgages, which allowed borrowers to choose from multiple payment options each month. The bank had inherited these loans in its 2006 acquisition of Golden West Financial and continued to make them on its own.

Many of the loans were made to borrowers in California housing markets that saw huge price declines in the housing bust, raising concerns about the total losses the bank would ultimately absorb. Analysts saw the bailout plan as a possible way for the bank to offload that exposure.

Wachovia was likely concerned that its option ARMs wouldn’t be considered for the program, said Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md.-based publication that closely tracks the industry.

“Originally, the focus (of the program) was on subprime mortgage-backed securities,” Cecala said. “The issue was whether or not to go beyond that and include whole loans and non-securitized loans. The biggest pool of non-securitized mortgages was option ARMs.”

Boone, Dole’s banking committee staffer, emailed Price at 8:35 p.m. on Sept. 20 to say that the bank’s proposal had been shared with Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee. “I assume you all are not convinced about eligibility of all assets,” he added. “FYI – Fairly overall negative sentiment at Shelby-staff led briefing at 4:30 this afternoon.”

The bill troubled members of both parties because it was immediately seen as a expensive bailout of the financial industry, with Shelby as one of the most vocal critics.

Boone forwarded Price’s message to Treasury at 8:46 p.m. Minutes later, a Treasury official sent a response to Matthew Scogin, chief of staff for Wachovia Chief Executive Bob Steel. “Tell the hounds to back down,” King Mueller wrote. “Call us if you need us.”

In an interview, Mueller, now with a Washington lobbying firm, said he didn’t recall the specific issue but said his message “probably referenced that we were getting all kinds of inbound requests,” adding: “We were a lot like a filter.”

Price, now with the Charlotte law firm of Moore and Van Allen, and Boone, now with the Farm Credit Council in Washington, declined to comment.

As the administration and Congress negotiated the bill, Wachovia worked on possible deals with Goldman Sachs, Citigroup and Wells Fargo. Wachovia’s condition took a turn for the worse on Sept. 25, when negotiations on Capitol Hill collapsed and the Federal Deposit Insurance Corp. allowed the failure of Washington Mutual, a Seattle-based savings and loan that was a big originator of option ARMs.

The next day, Wachovia’s stock plunged and a “silent run” on its deposits began, leading to intense merger talks with Wells and Citi. Three days later, on the morning of Sept. 29, the government agreed to provide assistance to Citi in a deal to buy most of Wachovia’s banking assets for $1 per share. On the same day, the House voted down the bailout bill.

Days later, Wells Fargo swooped in with a counteroffer to buy Wachovia for $7 per share without government assistance, a deal disclosed on Friday, Oct. 3. The same day Congress approved a revamped version of the bailout bill, and President George W. Bush signed it into law. Dole voted against the legislation.

The law, renamed the Emergency Economic Stabilization Act of 2008, did not add the term “loan” but included additional language that covered “any other financial instrument that the (Treasury) Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability.”

Wells Fargo applied to be one of the outside managers of the distressed assets Treasury was going to buy, according to documents provided under the request. But that effort never got off the ground. On Oct. 13, Paulson and other federal officials ordered nine large banks to accept $125 billion in direct capital injections from the program. Wells Fargo was one of the banks. Wachovia, with its acquisition by Wells approved by the Federal Reserve a day earlier, wasn’t.

The acquisition became official on Dec. 31, 2008. Wells took a write-down on the option ARM portfolio, initially projecting losses of about $36 billion on the loans. Lately, it has said the mortgages are performing better than expected.

In the last major step in the purchase, red-and-yellow Wells Fargo signs will go up in North Carolina in October, erasing the Wachovia name, which dates to 1879.

Newsletter