The Federal National Mortgage Association (FNMA; OTCQB: FNMA), commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise (GSE), though it has been a publicly traded company since 1968.[2] The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts.[4]
The Federal National Mortgage Association (FNMA), colloquially known as Fannie Mae, was established in 1938 by amendments to the National Housing Act[5] after the Great Depression as part of Franklin Delano Roosevelt's New Deal. Fannie Mae was established to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.[6] Fannie Mae created a liquid secondary mortgage market and thereby made it possible for banks and other loan originators to issue more housing loans, primarily by buying Federal Housing Administration (FHA) insured mortgages.[7] For the first thirty years following its inception, Fannie Mae held a monopoly over the secondary mortgage market.[8]
It was acquired by the Housing and Home Finance Agency from the Federal Loan Agency as a constituent unit in 1950.[9] In 1954, an amendment known as the Federal National Mortgage Association Charter Act[10] made Fannie Mae into "mixed-ownership corporation" meaning that federal government held the preferred stock while private investors held the common stock;[5] in 1968 it converted to a privately held corporation, to remove its activity and debt from the federal budget.[11] In the 1968 change, arising from the Housing and Urban Development Act of 1968, Fannie Mae's predecessor (also called Fannie Mae) was split into the current Fannie Mae and the Government National Mortgage Association ("Ginnie Mae").
Ginnie Mae, which remained a government organization, supports FHA-insured mortgages as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages. As such Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government.[12]
In 1970, the federal government authorized Fannie Mae to purchase private mortgages, i.e. those not insured by the FHA, VA, or FmHA, and created the Federal Home Loan Mortgage Corporation (FHLMC), colloquially known as Freddie Mac, to compete with Fannie Mae and thus facilitate a more robust and efficient secondary mortgage market.[12]
In 1981, Fannie Mae issued its first mortgage passthrough and called it a mortgage-backed security. The Fannie Mae laws did not require the Banks to hand out subprime loans in any way.[13] Ginnie Mae had guaranteed the first mortgage passthrough security of an approved lender in 1968[14] and in 1971 Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgages.[14]
In 1992, President George H.W. Bush signed the Housing and Community Development Act of 1992.[15] The Act amended the charter of Fannie Mae and Freddie Mac to reflect Congress' view that the GSEs "... have an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return;"[16] For the first time, the GSEs were required to meet "affordable housing goals" set annually by the Department of Housing and Urban Development (HUD) and approved by Congress. The initial annual goal for low-income and moderate-income mortgage purchases for each GSE was 30% of the total number of dwelling units financed by mortgage purchases[17] and increased to 55% by 2007.
In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977.[18] Additionally, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers at interest rates higher than conventional loans.[18]
In 1999, The New York Times reported that with the corporation's move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."[19] Alex Berenson of The New York Times reported in 2003 that Fannie Mae's risk is much larger than is commonly held.[20] Nassim Taleb wrote in The Black Swan: "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'".[21] In his 2006 book, America's Financial Apocalypse, Mike Stathis also warned about the risk of Fannie Mae helping to trigger the financial crisis: “With close to $2 trillion in debt between Freddie Mac and Fannie Mae alone, as well as several trillion held by commercial banks, failure of just one GSE or related entity could create a huge disaster that would easily eclipse the Savings & Loan Crisis of the late 1980s. This would certainly devastate the stock, bond and real estate markets. Most likely, there would also be an even bigger mess in the derivatives market, leading to a global sell-off in the capital markets. Not only would investors get crushed, but taxpayers would have to bail them out since the GSEs are backed by the government. Everyone would feel the effects. At its bottom, I would estimate a 30 to 35 percent correction for the average home. And in ‘hot spots’ such as Las Vegas, selected areas of Northern and Southern California and Florida, home prices could plummet by 55 to 60 percent from peak values.” [22][23][24]
In 2000, because of a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.[25]
The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.
"Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors."[26]
On January 26, 2005, the Federal Housing Enterprise Regulatory Reform Act of 2005 (S.190) was first introduced in the Senate by Sen. Chuck Hagel.[27] The Senate legislation was an effort to reform the existing GSE regulatory structure in light of the recent accounting problems and questionable management actions leading to considerable income restatements by the GSE's. After being reported favorably by the Senate's Committee on Banking, Housing, and Urban Affairs in July 2005, the bill was never considered by the full Senate for a vote.[28] Sen. John McCain's decision to become a cosponsor of S.190 almost a year later in 2006 was the last action taken regarding Sen. Hagel's bill in spite of developments since clearing the Senate Committee. Sen. McCain pointed out that Fannie Mae's regulator reported that profits were "illusions deliberately and systematically created by the company's senior management" in his floor statement giving support to S.190.[29][30]
At the same time, the House also introduced similar legislation, the Federal Housing Finance Reform Act of 2005 (H.R. 1461), in the Spring of 2005. The House Financial Services Committee had crafted changes and produced a Committee Report by July 2005 to the legislation. It was passed by the House in October in spite of President Bush's statement of policy opposed to the House version.[31] The legislation met with opposition from both Democrats and Republicans at that point and the Senate never took up the House passed version for consideration after that.[32]
Following their mission to meet federal Housing and Urban Development (HUD) housing goals, GSEs such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) have striven to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a 30-year fixed-rate mortgage with a low down payment... and the continuous availability of mortgage credit under a wide range of economic conditions." (HUD 2002 Annual Housing Activities Report) Then in 2003-2004, the subprime mortgage crisis began.[33] The market shifted away from regulated GSE's and radically toward Mortgage Backed Securities (MBS) issued by unregulated private-label securitization conduits, typically operated by investment banks.
As mortgage originators began to distribute more and more of their loans through private label MBS's, GSE's lost the ability to monitor and control mortgage originators. Competition between the GSEs and private securitizers for loans further undermined GSEs power and strengthened mortgage originators. This contributed to a decline in underwriting standards and was a major cause of the financial crisis.[34]
Investment bank securitizers were more willing to securitize risky loans because they generally retained minimal risk. Whereas the GSE's guaranteed the performance of their MBS's, private securitizers generally did not, and might only retain a thin slice of risk.[34] Often, banks would offload this risk to insurance companies or other counterparties through credit default swaps, making their actual risk exposures extremely difficult for investors and creditors to discern.[35]
The shift toward riskier mortgages and private label MBS distribution occurred as financial institutions sought to maintain earnings levels that had been elevated during 2001-2003 by an unprecedented refinancing boom due to historically low interest rates. Earnings depended on volume, so maintaining elevated earnings levels necessitated expanding the borrower pool using lower underwriting standards and new products that the GSE's would not (initially) securitize. Thus, the shift away from GSE securitization to private-label securitization (PLS) also corresponded with a shift in mortgage product type, from traditional, amortizing, fixed-rate mortgages (FRM's) to nontraditional, structurally riskier, nonamortizing, adjustable-rate mortgages (ARM's), and in the start of a sharp deterioration in mortgage underwriting standards.[33] The growth of PLS, however, forced the GSEs to lower their underwriting standards in an attempt to reclaim lost market share to please their private shareholders. Shareholder pressure pushed the GSEs into competition with PLS for market share, and the GSEs loosened their guarantee business underwriting standards in order to compete. In contrast, the wholly public FHA/Ginnie Mae maintained their underwriting standards and instead ceded market share.[33]
The growth of private-label securitization and lack of regulation in this part of the market resulted in the oversupply of underpriced housing finance[33] that led, in 2006, to an increasing number of borrowers, often with poor credit, who were unable to pay their mortgages - particularly with adjustable rate mortgages (ARM), caused a precipitous increase in home foreclosures. As a result, home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more and more difficult for borrowers to get mortgages. This depreciation in home prices led to growing losses for the GSEs, which back the majority of US mortgages. In July 2008, the government attempted to ease market fears by reiterating their view that "Fannie Mae and Freddie Mac play a central role in the US housing finance system". The US Treasury Department and the Federal Reserve took steps to bolster confidence in the corporations, including granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks) and removing the prohibition on the Treasury Department to purchase the GSEs' stock. Despite these efforts, by August 2008, shares of both Fannie Mae and Freddie Mac had tumbled more than 90% from their one-year prior levels.
On Oct 21, 2010 FHFA estimates revealed that the bailout of Freddie Mac and Fannie Mae will likely cost taxpayers $224–360 billion in total, with over $150 billion already provided.[36]
On July 11, 2008, the New York Times reported that U.S. government officials were considering a plan for the U.S. government to take over Fannie Mae and/or Freddie Mac should their financial situations worsen due to the U.S. housing crisis.[37] Fannie Mae and smaller Freddie Mac own or guarantee a massive proportion of all home loans in the United States and so were especially hard hit by the slump. The government officials also stated that the government had also considered calling for explicit government guarantee through legislation of $5 trillion on debt owned or guaranteed by the two companies.
Fannie stock plunged.[38] Some worried that Fannie lacked capital and might go bankrupt. Others worried about a government seizure. U.S. Treasury Secretary Henry M. Paulson as well as the White House went on the air to defend the financial soundness of Fannie Mae, in a last-ditch effort to prevent a total financial panic.[39][40] Fannie and Freddie underpinned the whole U.S. mortgage market. As recently as 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) had owned or guaranteed about half of the U.S.'s $12 trillion mortgage market.[37] If they were to collapse, mortgages would be harder to obtain and much more expensive. Fannie and Freddie bonds were owned by everyone from the Chinese Government, to Money Market funds, to the retirement funds of hundreds of millions of people. If they went bankrupt, all those investments would go to 0, and there would be mass upheaval on a global scale.[41]
The Administration PR effort was not enough, by itself, to save the GSEs. Their investments were simply too rotten, their managements had been too incompetent, and the market was tanking too quickly. Paulson knew that Lehman Brothers and other banks were in trouble and would soon require his attention; this meant that he would not have the staff or the time to deal with a long, drawn out Fannie and Freddie conflict. Paulson's plan was to go in swiftly and seize the two GSEs; he told president Bush that "the first sound they hear will be their heads hitting the floor".[41]
On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA. The action was "one of the most sweeping government interventions in private financial markets in decades".[42][43][44] Lockhart also dismissed the firms' chief executive officers and boards of directors, and caused the issuance to the Treasury new senior preferred stock and common stock warrants amounting to 79.9% of each GSE. The value of the common stock and preferred stock to pre-conservatorship holders was greatly diminished by the suspension of future dividends on previously outstanding stock, in the effort to maintain the value of company debt and of mortgage-backed securities. FHFA stated that there are no plans to liquidate the company.[42][43][44][45][46][47][48]
The authority of the U.S. Treasury to advance funds for the purpose of stabilizing Fannie Mae, or Freddie Mac is limited only by the amount of debt that the entire federal government is permitted by law to commit to. The July 30, 2008 law enabling expanded regulatory authority over Fannie Mae and Freddie Mac increased the national debt ceiling US$ 800 billion, to a total of US$ 10.7 Trillion in anticipation of the potential need for the Treasury to have the flexibility to support the federal home loan banks.[49][50][51]
On June 16, 2010, Fannie Mae and Freddie Mac announced their stocks would be delisted from the NYSE. The Federal Housing Finance Agency directed the delisting after Fannie's stock traded below $1 a share for over 30 days.[citation needed] Their stocks will continue to trade on the Over-the-Counter Bulletin Board as long as there is trader interest. Reports from the finance agency specified that the delisting had nothing to do with current or future company performance.[citation needed]
Fannie Mae made money partly by borrowing for low rates, and lending at higher rates. It borrowed by selling bonds, and lent by creating mortgages and mortgage backed securities which it held on its own books. Since its implied government guarantee meant it could borrow at very low rates, it earned a higher profit than did the non-government companies doing the same work. This was called "The big, fat gap" by Alan Greenspan.[52] By August, 2008, Fannie Mae's mortgage portfolio was in excess of $700 billion.
Fannie Mae also earned a significant portion of its income from guaranty fees it received as compensation for assuming the credit risk on the mortgage loans underlying its single-family Fannie Mae MBS and on the single-family mortgage loans held in its retained portfolio. Investors, or purchasers of Fannie Mae MBSs, are willing to let Fannie Mae keep this fee in exchange for assuming the credit risk; that is, Fannie Mae's guarantee that the scheduled principal and interest on the underlying loan will be paid even if the borrower defaults.
Fannie Mae's charter has historically prevented it from guaranteeing mortgages with a loan-to-values over 80% without mortgage insurance or a repurchase agreement with the lender;[5] however, in 2006 and 2007 Fannie Mae did purchase subprime and Alt-A loans as investments.[53]
Fannie Mae buys loans from approved mortgage sellers, either for cash or in exchange for a mortgage-backed security that comprises those loans and that, for a fee, carries Fannie Mae's guarantee of timely payment of interest and principal. The mortgage seller may hold that security or sell it. Fannie Mae may also securitize mortgages from its own loan portfolio and sell the resultant mortgage-backed security to investors in the secondary mortgage market, again with a guarantee that the stated principal and interest payments will be timely passed through to the investor. By purchasing the mortgages, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. This gives the United States housing and credit markets flexibility and liquidity.[54][verification needed]
In order for Fannie Mae to provide its guarantee to mortgage-backed securities it issues, it sets the guidelines for the loans that it will accept for purchase, called "conforming" loans. Mortgages that don't meet the guidelines are called "nonconforming". Fannie Mae produced an automated underwriting system (AUS) tool called Desktop Underwriter (DU) which lenders can use to automatically determine if a loan is conforming; Fannie Mae followed this program up in 2004 with Custom DU, which allows lenders to set custom underwriting rules to handle nonconforming loans as well.[55] The secondary market for nonconforming loans includes jumbo loans, which are mortgages larger than the maximum mortgage that Fannie Mae and Freddie Mac will purchase. In early 2008, the decision was made to allow TBA (To-be-announced)-eligible mortgage-backed securities to include up to 10% "jumbo" mortgages.[citation needed]
Fannie Mae and Freddie Mac have a limit on the maximum sized loan they will guarantee. This is known as the "conforming loan limit." The conforming loan limit for Fannie Mae, along with Freddie Mac, is set by Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of both GSEs. OFHEO annually sets the limit of the size of a conforming loan based on the October to October changes in mean home price, above which a mortgage is considered a non-conforming jumbo loan. The conforming loan limit is 50 percent higher in Alaska and Hawaii. The GSEs only buy loans that are conforming to repackage into the secondary market, lowering the demand for non-conforming loans. By virtue of the law of supply and demand, then, it is harder for lenders to sell these loans in the secondary market; thus these types of loans tend to cost more to borrowers (typically 1/4 to 1/2 of a percent). Indeed, in 2008, since the demand for bonds not guaranteed by GSEs was almost non-existent, non-conforming loans were priced nearly 1% to 1.5% higher than conforming loans.
Originally, Fannie had an 'explicit guarantee' from the government; if it got in trouble, the government promised to bail it out. This changed in 1968. Ginnie Mae was split off from Fannie. Ginnie retained the explicit guarantee. Fannie, however, became a private corporation, chartered by Congress and with a direct line of credit to the US Treasury. It was its nature as a Government Sponsored Enterprise (GSE) that provided the 'implied guarantee' for their borrowing. The charter also limited their business activity to the mortgage market. In this regard, although they were a private company, they could not operate like a regular private company.
Fannie Mae received no direct government funding or backing; Fannie Mae securities carried no actual explicit government guarantee of being repaid. This was clearly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae.[citation needed] Neither the certificates nor payments of principal and interest on the certificates were explicitly guaranteed by the United States government. The certificates did not legally constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae. During the sub-prime era, every Fannie Mae prospectus read in bold, all-caps letters: "The certificates and payments of principal and interest on the certificates are not guaranteed by the United States, and do not constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae." (Verbiage changed from all-caps to standard case for readability).[citation needed]
However, the implied guarantee, as well as various special treatments given to Fannie by the government, greatly enhanced its success.
For example, the implied guarantee allowed Fannie Mae and Freddie Mac to save billions in borrowing costs, as their credit rating was very good. Estimates by the Congressional Budget Office and the Treasury Department put the figure at about $2 billion per year.[56] Vernon L. Smith, 2002 Nobel Laureate in economics, has called FHLMC and FNMA "implicitly taxpayer-backed agencies".[57] The Economist has referred to "the implicit government guarantee"[58] of FHLMC and FNMA. In testimony before the House and Senate Banking Committee in 2004, Alan Greenspan expressed the belief that Fannie Mae's (weak) financial position was the result of markets believing that the U.S. Government would never allow Fannie Mae (or Freddie Mac) to fail.[59]
Fannie Mae and Freddie Mac were allowed to hold less capital than normal financial institutions: e.g., they were allowed to sell mortgage-backed securities with only half as much capital backing them up as would be required of other financial institutions. Regulations exist through the FDIC Bank Holding Company Act that govern the solvency of financial institutions. The regulations require normal financial institutions to maintain a capital/asset ratio greater than or equal to 3%.[60] The GSEs, Fannie Mae and Freddie Mac, are exempt from this capital/asset ratio requirement and can, and often do, maintain a capital/asset ratio less than 3%. The additional leverage allows for greater returns in good times, but put the companies at greater risk in bad times, such as during the current subprime mortgage crisis. FNMA is not exempt from state and local taxes. In addition, FNMA and FHLMC are exempt from SEC filing requirements; they file SEC 10-K and 10-Q reports, but many other reports, such as certain reports regarding their REMIC mortgage securities, are not filed.
Lastly, money market funds have diversification requirements, so that not more than 5% of assets may be from the same issuer. That is, a worst-case default would drop a fund not more than five cents. However, these rules do not apply to Fannie and Freddie. It would not be unusual to find a fund that had the vast majority of its assets in Fannie and Freddie debt.[citation needed]
In 1996, the Congressional Budget Office wrote "there have been no federal appropriations for cash payments or guarantee subsidies. But in the place of federal funds the government provides considerable unpriced benefits to the enterprises... Government-sponsored enterprises are costly to the government and taxpayers... the benefit is currently worth $6.5 billion annually.".[61]
FNMA is a financial corporation which uses derivatives to "hedge" its cash flow. Derivative products it uses include interest rate swaps and options to enter interest rate swaps ("pay-fixed swaps", "receive-fixed swaps", "basis swaps", "interest rate caps and swaptions", "forward starting swaps").
Duration gap is a financial and accounting term for the difference between the duration of assets and liabilities, and is typically used by banks, pension funds, or other financial institutions to measure their risk due to changes in the interest rate
"The company said that in April its average duration gap widened to plus 3 months in April from zero in March." "The Washington-based company aims to keep its duration gap between minus 6 months to plus 6 months. From September 2003 to March, the gap has run between plus to minus one month."
In All the Devils Are Here, Bethany McLean and Joe Nocera paint a detailed portrait of the GSEs, including Fannie. Fannie had been aggressive in its political fights with Wall Street and Congress in the 1980s. In the 1990s Fannie ramped up the 'cut them off at the knees' strategy against political enemies. Tactics included a massive lobbying effort, neutering the OFHEO (its 1992-created regulator), creating a "partnership office" network to court the politically powerful with pork, giving high level employment to the well connected, giving out campaign contributions, creating a charity foundation, and threatening critics like FM Watch with retaliation. One of McLean & Nocera's sources even compared Fannie's activities to Tammany Hall.[62]
McLean and Nocera also claim that Fannie 'gamed' its affordable housing numbers, with a process that was referred to internally as "stupid pet tricks". The National Community Reinvestment Coalition, National Association of Affordable Housing Lenders, and studies by the Department of Housing and Urban Development all found the GSEs lacking in their actual, real support of affordable housing.[63]
In late 2004, Fannie Mae was under investigation for its accounting practices. The Office of Federal Housing Enterprise Oversight released a report[64] on September 20, 2004, alleging widespread accounting errors.
Fannie Mae was expected to spend more than $1 billion in 2006 alone to complete its internal audit and bring it closer to compliance. The necessary restatement was expected to cost $10.8 billion, but was completed at a total cost of $6.3 billion in restated earnings as listed in Fannie Mae's Annual Report on Form 10-K.
Concerns with business and accounting practices at Fannie Mae predate the scandal itself. On June 15, 2000, the House Banking Subcommittee On Capital Markets, Securities And Government-Sponsored Enterprises held hearings on Fannie Mae.[65]
On December 18, 2006, U.S. regulators filed 101 civil charges against chief executive Franklin Raines; chief financial officer J. Timothy Howard; and the former controller Leanne G. Spencer. The three are accused of manipulating Fannie Mae earnings to maximize their bonuses. The lawsuit sought to recoup more than $115 million in bonus payments, collectively accrued by the trio from 1998–2004, and about $100 million in penalties for their involvement in the accounting scandal.
In June 2008, the Wall Street Journal reported that two former CEOs of Fannie Mae, James A. Johnson and Franklin Raines had received loans below market rate from Countrywide Financial. Fannie Mae was the biggest buyer of Countrywide's mortgages.[66] The "Friends of Angelo" VIP Countrywide loan program included many people from Fannie Mae; lawyers, executives, etc.[67]
Fannie Mae and Freddie Mac have given contributions to lawmakers currently sitting on committees that primarily regulate their industry: The House Financial Services Committee; the Senate Banking, Housing & Urban Affairs Committee; or the Senate Finance Committee.[citation needed] The others have seats on the powerful Appropriations or Ways & Means committees, are members of the congressional leadership or have run for president.
In December, 2011, six Fannie Mae and Freddie Mac executives including Daniel Mudd were charged by the U.S. Securities and Exchange Commission with securities fraud. "The SEC alleges they 'knew and approved of' misleading statements claiming the companies had minimal exposure to subprime loans at the height of home mortgage bubble."[68] Former Freddie chief financial officer Anthony “Buddy” Piszel, who in February, 2011, was CFO of CoreLogic, "had received a notice from the SEC that the agency was considering taking action against him". He then resigned from CoreLogic. Piszel was not among the executives charged in December, 2011.[69] Piszel had been succeeded at Freddie by David Kellermann. Kellermann committed suicide during his tenure at Freddie.
A contemporaneous report on the SEC charges continued:
The SEC said Mudd’s misconduct included knowingly giving false testimony to Congress. Mudd said last week that the government approved Fannie Mae’s disclosures during his tenure. “Now it appears that the government has negotiated a deal to hold the government, and government-appointed executives who have signed the same disclosures since my departure, blameless — so that it can sue individuals it fired years ago,” he said in a statement last week.[69]
- ^ a b c d "Federal National Mortgage Association Form 10-K (Annual Report) for fiscal year ended December 31, 2011". United States Securities and Exchange Commission. http://sec.gov/Archives/edgar/data/310522/000119312512087297/d282546d10k.htm#toc282546_24http://sec.gov/Archives/edgar/data/310522/000119312512087297/d282546d10k.htm#toc282546_24. Retrieved 8 May 2012.
- ^ Pickert, Kate (2008-07-14). "A Brief History of Fannie Mae and Freddie Mac". Time. http://www.time.com/time/business/article/0,8599,1822766,00.html.
- ^ "About Fannie Mae". Fendral National Mortgage Association. 2008-10-07. http://www.fanniemae.com/aboutfm/index.jhtml?p=About+Fannie+Mae. Retrieved 2008-10-28.
- ^ Fabozzi, Frank J.; Modigliani, Franco (1992), Mortgage and Mortgage-backed Securities Markets, Harvard Business School Press, p. 2, ISBN 0-87584-322-0
- ^ a b c 2006 Annual Report, Fannie Mae
- ^ [1] Alford, Rob. "What Are the Origins of Freddie Mac and Fannie Mae?"
- ^ Fabozzi, Frank J.; Modigliani, Franco (1992), Mortgage and Mortgage-backed Securities Markets, Harvard Business School Press, pp. 19–20, ISBN 0-87584-322-0
- ^ [2] Alford, Rob: "What Are the Origins of Freddie Mac and Fannie Mae?"
- ^ "General Records of the Department of Housing and Urban Development". National Archives and Records Administration. http://www.archives.gov/research/guide-fed-records/groups/207.html.
- ^ According to Fannie Mae's timeline, the corporation continues to operate under the charter, with subsequent amendments to the charter, notably a 1968 amendment which allowed Fannie to issue mortgage-backed securities. See 12 USC 1716-1723
- ^ Krishna Guha, Saskia Scholtes, James Politi: Saviours of the suburbs, Financial Times, June 4, 2008, page 13
- ^ a b Fabozzi, Frank J.; Modigliani, Franco (1992), Mortgage and Mortgage-backed Securities Markets, Harvard Business School Press, p. 20, ISBN 0-87584-322-0
- ^ Fabozzi, Frank J.; Modigliani, Franco (1992), Mortgage and Mortgage-backed Securities Markets, Harvard Business School Press, p. 23, ISBN 0-87584-322-0
- ^ a b Fabozzi, Frank J.; Modigliani, Franco (1992), Mortgage and Mortgage-backed Securities Markets, Harvard Business School Press, p. 21, ISBN 0-87584-322-0
- ^ http://www.presidency.ucsb.edu/ws/index.php?pid=21697#axzz1jh10frXI
- ^ http://www.law.cornell.edu/uscode/12/usc_sec_12_00004501----000-.html
- ^ http://www.law.cornell.edu/uscode/12/usc_sec_12_00004562----000-.html
- ^ a b Holmes, Steven A. (September 30, 1999). "Fannie Mae Eases Credit To Aid Mortgage Lending". New York Times. http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html.
- ^ Holmes, Steven A. (September 30, 1999). "Fannie Mae Eases Credit To Aid Mortgage Lending". The New York Times. http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260. Retrieved 2008-10-16.
- ^ Berenson, Alex (August 7, 2003). "Fannie Mae's Loss Risk Is Larger, Computer Models Show". The New York Times. http://query.nytimes.com/gst/fullpage.html?res=9A07E5DD1731F934A3575BC0A9659C8B63&sec=&spon=&pagewanted=all=.
- ^ The Black Swan: Quotes & Warnings that the Imbeciles Chose to Ignore
- ^ America's Financial Apocalypse: Excerpts from the Real Estate Bubble
- ^ [America’s Financial Apocalypse: How to Profit from the Next Great Depression. 2006. ISBN 978-0-9755776-5-3]
- ^ LABATON, STEPHEN (September 31, 2003). "New Agency Proposed to Oversee Freddie Mac and Fannie Mae". The New York Times. http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63. Retrieved 2009-03-16.
- ^ Leonnig, Carol D. (June 10, 2008). "How HUD Mortgage Policy Fed The Crisis". Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html.
- ^ Mudd, Daniel (April 17, 2007). "Opening Statement as Submitted to the U.S. House Committee on Financial Services". Fannie Mae. http://www.fanniemae.com/media/speeches/printthispage.jhtml?repID=/media/speeches/2007/speech_267.xml.
- ^ "S. 190 Introductory Remarks", Sen. Chuck Hagel, 2005-01-26
- ^ "S. 190: Federal Housing Enterprise Regulatory Reform Act of 2005". 109th Congress. GovTrack.us. 2005-07-28. http://www.govtrack.us/congress/bill.xpd?bill=s109-190. Retrieved 2009-04-17.
- ^ "S. 190 Cosponsor Record". Congressional Record - 109th Congress. Library of Congress. 2006-05-25. http://thomas.loc.gov/cgi-bin/bdquery/z?d109:SN00190:@@@P. Retrieved 2009-04-17.
- ^ "S. 190 Cosponsorship Statement", Sen. John McCain, 2006-05-25
- ^ "Statement of Administration Policy Opposed to H.R. 1461", (PDF), President George W. Bush, OMB - the White House, 2005-10-26
- ^ "H.R. 1461: Federal Housing Finance Reform Act of 2005". 109th Congress. GovTrack.us. 2005-10-31. http://www.govtrack.us/congress/bill.xpd?bill=h109-1461. Retrieved 2009-04-17.
- ^ a b c d A. J. Levitin, S. M. Wachter “Explaining the Housing Bubble”, online at http://ssrn.com/abstract=1669401)
- ^ a b Michael Simkovic “Competition and Crisis in Mortgage Securitization”, online at http://ssrn.com/abstract=1924831
- ^ Michael Simkovic, "Secret Liens and the Financial Crisis of 2008," http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1323190
- ^ Davidson, Paul (2010-10-22). "Fannie, Freddie bailout to cost taxpayers $154 billion". USA Today. http://www.usatoday.com/money/economy/housing/2010-10-21-fannie-mae-freddie-mac-bailout_N.htm.
- ^ a b Duhigg, Charles, "Loan-Agency Woes Swell From a Trickle to a Torrent", The New York Times, Friday, July 11, 2008
- ^ Michael M. Grynbaum: Woes at Loan Agencies and Oil-Price Spike Roil Markets, New York Times, July 12, 2008
- ^ Paulson stands by Fannie and Freddie Statement by Secretary Henry M. Paulson, Jr. on Fannie Mae and Freddie Mac, 2008-07-11
- ^ On the Brink, Henry Paulson
- ^ a b On the Brink, Henry Paulson
- ^ a b Lockhart, James B., III (2008-09-07). "Statement of FHFA Director James B. Lockhart". Federal Housing Finance Agency. http://www.ofheo.gov/newsroom.aspx?ID=456&q1=0&q2=0. Retrieved 2008-09-07.
- ^ a b "Fact Sheet: Questions and Answers on Conservatorship" (PDF). Federal Housing Finance Agency. 2008-09-07. http://www.ofheo.gov/media/PDF/FHFACONSERVQA.pdf. Retrieved 2008-09-07. [dead link]
- ^ a b Goldfarb, Zachary A.; David Cho and Binyamin Appelbaum (2008-09-07). "Treasury to Rescue Fannie and Freddie: Regulators Seek to Keep Firms' Troubles From Setting Off Wave of Bank Failures". Washington Post: pp. A01. http://www.washingtonpost.com/wp-dyn/content/article/2008/09/06/AR2008090602540.html?hpid=topnews. Retrieved 2008-09-07.
- ^ Hilzenrath, David S.; Zachary A. Goldfarb (2008-09-05). "Fannie Mae, Freddie Mac to be Put Under Federal Control, Sources Say". Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2008/09/05/AR2008090503351.html. Retrieved 2008-09-05.
- ^ Labaton, Stephen; Andres Ross Sorkin (2008-09-05). "U.S. Rescue Seen at Hand for 2 Mortgage Giants". New York Times. http://www.nytimes.com/2008/09/06/business/06fannie.html. Retrieved 2008-09-05.
- ^ Hilzenrath,, David S.; Neil Irwin, and Zachary A. Goldfarb (2008-09-06). "U.S. Nears Rescue Plan For Fannie And Freddie Deal Said to Involve Change of Leadership, Infusions of Capital". Washington Post: pp. A1. http://www.washingtonpost.com/wp-dyn/content/article/2008/09/05/AR2008090503351.html. Retrieved 2008-09-06.
- ^ Paulson, Henry M., Jr.; (Press release statement) (2008-09-07). "Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers". United States Department of the Treasury. http://www.treas.gov/press/releases/hp1129.htm. Retrieved 2008-09-07.
- ^ Herszenhorn, David (2008-07-27). "Congress Sends Housing Relief Bill to President". New York Times. http://www.nytimes.com/2008/07/27/washington/27housing.html. Retrieved 2008-09-06.
- ^ Herszenhorn, David M. (2008-07-31). "Bush Signs Sweeping Housing Bill". New York Times. http://www.nytimes.com/2008/07/31/business/31housing.html. Retrieved 2008-09-06.
- ^ See HR 3221, signed into law as Public Law 110-289: A bill to provide needed housing reform and for other purposes.
Access to Legislative History: Library of Congress THOMAS: A bill to provide needed housing reform and for other purposes.
White House pre-signing statement: Statement of Administration Policy: H.R. 3221 – Housing and Economic Recovery Act of 2008 (July 23, 2008 ). Executive office of the President, Office of Management and Budget, Washington DC.
- ^ All the Devils are Here, Bethany McClean, Joe Nocera, Penguin/Portfolio 2010
- ^ Hilzenrath DS. (2008). Fannie's Perilous Pursuit of Subprime Loans. Washington Post.
- ^ Morgenson, Gretchen; Charles Duhigg (2008-09-06). "Mortgage Giant Overstated the Size of Its Capital Base". New York Times. http://www.nytimes.com/2008/09/07/business/07fannie.html?hp. Retrieved 2008-09-07.
- ^ Krovvidy S. (2008). Custom DU: A Web-Based Business User-Driven Automated Underwriting System. AI Magazine. Free-full text (abstract).
- ^ CATO Institute, November 17, 1997
- ^ Vernon L. Smith, The Clinton Housing Bubble, Wall Street Journal, December 18, 2007, p. A20
- ^ Fannie and Freddie ride again, The Economist, 2007-07-05
- ^ Fed Chief Warns of a Risk to Taxpayers, N.Y. Times, 2004-02-25
- ^ Capital Adequacy Guidelines for Bank Holding Companies: Tier 1 Leverage Measure, Appendix D to 12 C.F.R. Part 225, FDIC's Law, Regulations & Related Acts Index
- ^ Congressional Budget Office, Assessing the Public Costs and Benefits of Fannie Mae and Freddie Mac, May 1996
- ^ All The Devils are Here, Bethany McLean, Joe Nocera, published by Portfolio / Penguin, 2010. p 41-44
- ^ McClean, Nocera, p 48-49
- ^ http://www.ofheo.gov/media/pdf/FNMfindingstodate17sept04.pdf[dead link]
- ^ 6-15-00, Statement of William Michael Cunningham
- ^ Countrywide Friends Got Good Loans - The Wall Street Journal
- ^ Friends of Angelo program, article
- ^ Andrejczak, Matt, "SEC charges 6 ex-Fannie, Freddie execs with fraud", MarketWatch, December 16, 2011 10:37 am EST. Retrieved 2011-12-16.
- ^ a b Hilzenrath, David S., "Former Fannie Mae CEO Mudd takes leave from hedge fund firm", Washington Post, December 21, 2011. Retrieved 2011-12-21.
- ^ CNN
- ^ "Feud over Fannie Mae". TIME. February 27, 1978. http://www.time.com/time/magazine/article/0,9171,919374,00.html. Retrieved 2006-12-30.
US$ 20.4 billion (2011)
