Sept. 9 (Bloomberg) -- The government's takeover of Fannie Mae and Freddie Mac stops one of Washington's most powerful lobbying juggernauts in its tracks after the mortgage giants had spent tens of millions of dollars thwarting efforts to increase government oversight.

``There's no doubt that the legislation was delayed for many years because of the strength of their lobbying power,'' said James Lockhart, director of the Federal Housing Finance Agency, after issuing an order halting all of their political and lobbying activities. The companies employ 20 in-house lobbyists and 48 outside firms, U.S. House records show.

``Effectively they report to me and government agencies can't have lobbyists,'' he added in an interview yesterday. ``So they notified all of their outside lobbyists that they are no longer allowed to do any lobbying.''

The government's decision to end the mortgage companies' political and lobbying activities is reminiscent of the 1998 agreement between state attorneys general and tobacco companies. As part of the deal, the industry shut down its trade group, the Tobacco Institute, which issued studies and fought efforts to restrict smoking.

Fannie Mae and Freddie Mac spent $7.4 million on lobbying in the first six months this year -- $2.9 million by Fannie Mae and $4.5 million by Freddie Mac. Their $174 million in combined lobbying expenses since 1998 put the two companies just behind the U.S. Chamber of Commerce and the American Medical Association and ahead of General Electric Co., according to the Center for Responsive Politics, a nonpartisan Washington-based group that tracks money in politics.

On Retainer

Among those making the case for either Freddie or Fannie were former Senator Alfonse D'Amato, a New York Republican, as well as former Representatives Thomas Downey, a New York Democrat, and Vin Weber, a Minnesota Republican.

Others hired to lobby for one of the companies included Steve Ricchetti, deputy White House chief of staff under President Bill Clinton; and Gregg Hartley, former chief of staff to current House Minority Whip Roy Blunt, a Missouri Republican.

``This lobbying and insider revolving door created a very comfortable environment where there wasn't rigorous oversight by Congress,'' said James Thurber, director of the Center for Congressional and Presidential Studies at American University in Washington. He called the lack of strong oversight of the companies ``one of the biggest failures of Congress.''

`Look Elsewhere'

Their ``outside lobbyists,'' most from top congressional leadership positions, ``will now have to look elsewhere for their retainers to cover their schmoozing with their former bosses,'' said Kent Cooper, former Federal Election Commission assistant staff director. Freddie Mac spokesman Douglas Duvall declined comment; Fannie Mae spokesman Brian Faith didn't return a call.

Thurber said the loss of lobbying expenditures and campaign donations means Fannie and Freddie will have to make their case to lawmakers on the facts, not on relationships or contributions.

``It's in the public interest to force them to play the game based on knowledge and expertise rather than money,'' Thurber said.

The lobbying effort staved off years of efforts by lawmakers, spearheaded by Republicans including former Representative Richard Baker of Louisiana, to strengthen oversight of the companies. A bill passed this year only after concerns about the companies' capital emerged. Driving those concerns was a decline in U.S. home prices following last year's collapse of the subprime-mortgage market.

Campaign Cash

The two companies' lobbying efforts have also been buttressed by millions in campaign cash, doled out in a bipartisan fashion.

Since 1989, Freddie Mac and Fannie Mae employees have given $19.5 million to federal candidates and committees, 53 percent to Republicans, according to the center. Combined, they would be the 25th largest giver during that period, according to the Center for Responsive Politics. About 57 percent of Freddie Mac's money went to Republicans, while about 52 percent of Fannie Mae's went to Democrats.

Fannie Mae so far in this two-year election cycle has given $1.3 million, twice as much as Freddie Mac, the center said. Both are giving more to Democrats in this election cycle.

Democratic presidential nominee Barack Obama, an Illinois senator, has raised $103,899 from both companies' employees for his presidential run, compared with $15,650 for his Republican opponent, Arizona Senator John McCain, according to the center's figures.

The companies' largesse also included donations of $100,000 each last year to the Congressional Black Caucus Foundation Inc., chaired by Representative Kendrick Meek, a Florida Democrat.

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net.

Last Updated: September 9, 2008 00:01 EDT