Nice work if you can get it: how Fannie Mae became Washington's biggest power player - U.S. Federal National Mortgage Association - Cover Story

Washington Monthly, June, 1998 by Michelle Cottle

Of course, Fannie also knows the value of direct cash transfers to legislators. During the 1995-96 election cycle, Johnson personally gave to the tune of $30,000, according to the Center for Responsive Politics, while the corporation itself made $158,000 in soft money donations. Granted, it probably would take Clinton a few months to get used to handing out money rather than soliciting it, but at least he's familiar with the basic drill.

Wielding a carrot-stick combination has proved particularly successful for the corporation in making its voice heard. For instance, in 1993, '94, and '95, D.C. officials publicly broached the subject of requiring Fannie Mae to pay corporate income taxes like other companies -- supplying D.C. an extra $300 million or so a year by their count (see sidebar). At least once, legislation was introduced, and a handful of council members signed on to the crusade. Faced with such threats to its bottom line, however, Fannie promptly ratcheted up the foundation's philanthropic efforts, contacting community groups and pledging to invest more in local housing efforts and youth programs. At the same time, company executives began publicly musing about how tragic it would be were tax pressures to "force" the corporation out of the District.

In addition to helping keep Fannie Mae's GSE perks, Clinton would most likely be recruited to lobby for new ways to maximize profits. The corporation obviously has no interest in allowing competitors into its market, and so was understandably miffed when HUD Secretary Andrew Cuomo recently began pushing to raise the value of mortgages that can be insured by the government-run Federal Housing Administration. Concerned that this would cut into its business, Fannie has lobbied against such a move -- thus far effectively. But Cuomo remains determined, and an administration proposal is now before a congressional committee. Should Cuomo retain his post in 2001, Clinton might be the perfect person to lobby his former appointee against such efforts.

The president might also prove successful in helping Fannie broaden its range of business activities. Having dominated all portions of the market in which it may compete, Fannie Mae must find ways to expand its operations or soon face a slowdown in growth. Already, private-sector players are nervous about the corporations plans to extend its reach into subprime lending (mortgages that don't meet ideal credit standards) and rumblings that Fannie intends to enter the home-equity business. As one industry watcher noted, "These are markets that developed just fine without government subsidies, and the participants don't want to see a government-sponsored enterprise come in and take over." just last year Fannie attempted to expand into the life insurance field, offering policies free to home buyers and making money through fees paid by insurance companies. Concerns were raised about how Fannie's entrance into the market would affect private competitors, and about the ability of Fannie's primary regulator, the tiny Office of Federal Housing Enterprise Oversight, to monitor the mammoth corporation as it spread into new areas. Fannie pitched the move as more of a public service than a business decision, only to be publicly embarrassed when an internal memo was leaked to the press portraying the effort as a way for Fannie to expand its profits exponentially -- decidedly bad PR for a company that likes to invoke its social "mission" as a way to justify its subsidies. Fannie says the memo was simply a first draft and that later estimates showed the plan to be less profitable. Nonetheless, the plan was killed during the 1997 budget battle in Congress -- one of Fannie's rare defeats on the Hill.