What worries lenders most is that Fannie spends millions each year on radio and print ads. Why does a company that serves mortgage bankers need to promote itself with the public?
A Fannie spokesperson concedes it's good for people to associate Fannie Mae with homeownership. A senior vice president suggests that the ads "educate" officials about Fannie's good works.
More advertising comes from the Fannie Mae Foundation, a charitable organization funded by Fannie Mae the corporation. Last year, the foundation gave out $34.8 million in grants. It spent more than that--$44 million--on television "outreach" ads so consumers can request brochures about obtaining a mortgage. Housing advocates say Fannie's foundation should be doubling the size of its grants rather than spending millions to provide people with information available elsewhere.
Lenders offer another explanation: Fannie wants to brand its name with the public to prepare for the day when the company will lend to consumers directly.
"People want us to be a passive little company that just buys and sells loans," complains Arne Christenson, a Fannie executive who once served as chief of staff to former House Speaker Newt Gingrich.
Former Federal Reserve chairman Paul Volcker may be one of those people. In a recent speech, he said that Fannie and Freddie's mandate originally wasn't to dominate the home-mortgage market. "It was solely to develop a secondary market, and they've gone way beyond that."
To keep Fannie and Freddie from going even further, in 1999 a coalition of big banks, small lenders, home appraisers, and mortgage insurers formed an advocacy group called FM Watch. Its ranks include Mike House, a lobbyist at the law firm Hogan & Hartson, and Haley Barbour, former head of the Republican National Committee.
FM Watch tries to pass itself off as a consumer watchdog group. It's anything but. Nor has the group passed or blocked anything on the Hill. What FM Watch does is fuel the debate over Fannie and Freddie by publishing critical reports and planting negative stories that knock the two behemoths off their game.
In that, they've done well. The Web site fmwatch.org gets more hits from Fannie employees than from anyone else. Fannie has to defend itself against FM Watch's accusations in speeches, in the press, and online. One executive said in an interview he'd have a stroke if an FM Watch report wasn't removed from his sight.
The brawl boiled over last year, when the chief executives of Wells Fargo, GE Capital, and American International Group--all members of FM Watch's board and Fannie customers--told the Wall Street Journal that Fannie and Freddie had threatened to cut off their companies' underwriting business if they continued to support the FM Watch agenda. Industry observers were skeptical that Fannie would risk violating the antitrust laws in such a way--but just as skeptical that the three respected CEOs would lie.
Fannie claims that the episode was a public-relations stunt. Mortgage-industry sources confirm, however, that Fannie has threatened lenders that their business might suffer if criticism gets out of hand.
Some see that criticism of Fannie as sour grapes. Democratic Represen-tative Maxine Waters of California, a member of Baker's subcommittee, says, "FM Watch is just jealous because their products aren't as good" as Fannie's. And as much as the lenders gripe, they like selling their loans to Fannie and Freddie.
Angelo Mozilo, CEO of Countrywide Credit Industries, says Fannie and Freddie "have given us a liquid, organized market. If you took them away, it would be a disaster." But he adds that their ventures into the lenders' market show "a lack of respect" for direct lenders, which has created mistrust.
One reason for "mission creep" is that Raines has promised Fannie's shareholders 15-percent earnings growth a year. That's a bold prediction for any company. (Billionaire investor Warren Buffett sold his Fannie stock in response.) It's even more audacious because mortgages are expected to grow at only half that rate, and Fannie and Freddie already own or guarantee most of the nation's middle-class home loans.
To satisfy investors, critic Bert Ely says, Fannie and Freddie will eventually have to finance the entire middle-class housing market. In a confidential report last winter, Morgan Stanley analyst Ken Posner predicted that the companies' borrowing advantages and management would soon drive many lenders out of business. Fannie's executives appear confident that as long as Fannie makes it cheaper and easier to obtain a mortgage, consumers aren't going to object.
Publicly, Raines claims that the monopoly fears are hogwash. He says you can tattoo it on his forehead that Fannie will never try to lend to consumers directly; he adds that the mortgage market will grow fast enough to keep Fannie busy for years. More important, he says, while middle-class whites already own homes, many other Americans don't; by targeting those underserved borrowers, Fannie can be a positive social force while improving its bottom line.
On March 2, 2000, a story in the Washington Post suggested that Fannie and Freddie's policies were harming the ability of African-Americans and Hispanics to obtain mortgages. The bombshell came from William Apgar, then a top official at the Department of Housing and Urban Development, now a professor at Harvard's Kennedy School of Government.
Raines called a press conference to denounce the story. He also wrote a letter to the editor attacking Apgar's qualifications and accusing the paper of "journalistic malpractice."
Raines has reason to be defensive. Although both HUD and housing advocacy groups have long said that Fannie and Freddie should do more to help underserved borrowers, the loudest voices have been those of FM Watch and libertarian think tanks not known for their interest in providing affordable housing. Raines insists that improving homeownership for all Americans is his top priority.
It's not empty rhetoric: In addition to financing trillions of dollars in loans for targeted groups, Fannie is the nation's leader in developing low-down-payment, flexible-underwriting, and other innovative programs for credit-impaired borrowers. Says Maxine Waters, who represents South Central Los Angeles: "I'm looking at this stuff day in and day out. Fannie has been very responsive in opening up opportunities for minorities and the poor."
But the gist of the Post story was correct. Fannie's good intentions aside, for years HUD has found that Fannie and Freddie lag behind private lenders in serving African-American borrowers and other underserved communities.
A Fannie spokesperson says the company has pledged to do better. Former HUD official Bill Apgar retorts: "Changing the numbers would be better than changing the perception of those numbers."
The lagging numbers are not just embarrassing. Congress has spent a decade goading Fannie and Freddie to increase the proportion of their portfolios devoted to low-income and minority borrowers. In exchange for their benefits, Fannie and Freddie are supposed to be willing to make less profit from affordable-housing loans than from middle-class loans. Wall Street is not encouraging either company in that direction.
Peter Wallison, former counsel to the Treasury and a resident fellow at the conservative American Enterprise Institute, says it's impossible for the company both to maximize profits and to fulfill its public mission. Raines denies that the two tracks are incompatible, but he faces pressure from the competing constituencies.
Fannie's executives claim that outsiders focus on the company's "political story" more often than on its business. But Fannie Mae devotes so much effort to stifling dissent and preserving the status quo that it can be hard to know which is which.
At Raines's disposal is the most formidable team of Washington heavyweights that corporate America has ever seen.
"It's all a matter of know-who, not know-how," complains Ralph Nader about Fannie's higher ranks. "They've perfected all the techniques of lobbying and pay massive salaries for Rolodex hiring to ensure against any change." Nader's favorite example: Fannie Mae vice chair Jamie Gorelick, a well-connected Washington lawyer who earned almost $1 million in her first eight months on the job after serving as counsel to the Defense Department and deputy to former attorney general Janet Reno.
Besides Gorelick, Raines, and former Gingrich aide Arne Christenson, other politicos have cashed in at Fannie's executive suites. Running political campaigns is invaluable: Raines's predecessor Jim Johnson ran Walter Mondale's 1984 campaign after decades as a Democratic kingpin. Coaching debates is worth