Fannie Mae Chairman and CEO Franklin D. Raines, one of BLACK ENTERPRISE’s Wall Street all-stars (see October 2002), is weathering quite a storm. One of the fourth largest housing lenders in the country, Fannie Mae is one of two U.S. entities mandated with increasing homeownership among America’s poorest citizens. But in recent months, everyone from mortgage bankers to corporate governance watchdogs have called for Fannie Mae to scale back the conventional loan programs it offers to low-income home buyers.
Fannie Mae has come under attack for unfairly using its congressional mandate to borrow money at an advantage and having insufficient methods for managing interest rate shifts. The company has been too slow in upgrading its computer systems, which led to it having to restate earnings by $1.1 billion last year.
President George W. Bush wants the Treasury Department to take over management from the Office of Federal Housing Enterprise Oversight and the U.S. Department of Housing and Urban Development. He wants it to have final authority over Fannie Mae products, capital levels, and liquidation in a crisis.
But industry analysts say Raines has the political support to outlast the trial. “Fannie and competitor Freddie Mac have done a fantastic job of fulfilling their mission of increasing homeownership and lowering housing costs,” says Mike McMahon, analyst for investment banking firm Sandler O’Neill & Partners L.P. in San Francisco. Even the most strident reformists, such as the Mortgage Bankers Association of America, which wants Fannie Mae prohibited from offering mortgages directly to consumers, agree that Raines’ team is adept. “Overall, there is every indication that Fannie is financially sound and well-managed,” says MBA Vice President of Government Affairs Steve O’Connor.
The Senate is likely to approve changes that lean toward Raines’ call to address safety concerns while retaining Fannie’s ability to offer new housing programs. During a Senate Committee appearance earlier this year, Raines opposed giving a well-funded regulator control of minimum capital, liquidation, and financial programs, saying that “micromanagement would harm our ability” to achieve congressional mandates: “What public policy purpose would be achieved by slowing or stopping our ability to fight predatory lending … to help families with slightly imperfect credit get a low-cost loan … or to help minority families become first-time home buyers?”