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

Scared Silent

Considering the political nature of Fannie's business, the genius of its hiring strategy is clear. While most companies have to worry about choosing executives to manage business risks, the biggest threat Fannie faces is that an act of Congress will take away its GSE status and, thus, its license to make money. As such, tempting former political and government folks into the fold with visions of posh offices, political and market clout, and seven-figure incomes is smart business. Indeed, Fannie Mae has learned how to manipulate Washington's famed revolving door better than most purely private corporate giants. (Franklin Raines and John Buckley are on their second tour of duty, having worked at Fannie, gone into political jobs, then returned to the company.) The cyclical nature of the system is magnificent: Fannie uses its government-subsidized profits to snag former political and government folks, then sends them out to make sure the corporation retains the government-sponsored perks that provide for those subsidies/salaries.

But here's the best part: No one seems to mind. No matter how richly the company profits from its subsidies, no matter how hard it lobbies to keep out competitors, no matter what plans it makes to muscle in on other segments of the industry, Fannie retains an approval rating even Clinton would envy. It appears that, through its philanthropy, its community involvement, and its low-income housing commitments, Fannie Mae remains one of the most popular organizations in D.C. Even staunch anti-government GOPers are strangely silent when it comes to the corporation -- thanks in no small part to Fannie's bipartisan approach to both its hiring and its financial largesse. (The Washington Post reported that in 1996, after House Republican Richard Baker started agitating for hearings on Fannie Mae's GSE status, Johnson hosted a campaign fund-raiser at his home for Baker. When the hearings at last began, they focused on Congress' oversight of Fannie rather than on the privatization issue. Johnson assured the Post that the timing was coincidental) "Fannie buys these guys off," says Tom LaMalfa. "There's no one important on the Hill who hasn't gotten a big check from Fannie."

In reality, it is fear as much as love that keeps potential Fannie critics silent. The company is famous for its vindictiveness toward those who cross it, with perhaps the most oft-told story being Fannies decision to stop doing business with investment powerhouse Salomon Brothers for a period after folks at Salomon spoke out against Fannie's operations. No one in the mortgage business wanted to be quoted for this article, and many didn't want to speak even off-the-record. "You'll have to find someone who has nothing to lose," an executive at one mortgage company demurred.

Policy makers are equally hesitant to displease Fannie. In addition to outside lobbyists, the company keeps a cadre of its own people up on Capitol Hill monitoring both sides of the aisle. (During the first six months of 1997, Fannie reported $2,460,000 in lobbying expenses, earning it the No. 36 spot on the Center for Responsive Politics' list of top spenders) If somebody does something the company feels is undercutting it, Fannie mobilizes mortgage bankers, real estate agents, securities dealers, and homeowners all across America to put pressure on the offending party, say staffers (all of whom, incidentally, asked not to be quoted). "Fannie has the Congress cowed," says Charles Lewis, the head of the Center for Public Integrity. "They are arguably the most powerful special interest that lawmakers encounter." In 1995, when House Banking Chairman Leach proposed having Fannie Mae pay "user fees" for the maintenance of its subsidies, the veteran congressman got steamrolled. Fannie mobilized its lobbying forces and threatened to pass along all costs to homeowners in the form of higher rates. Leach was forced to withdraw his proposal, explaining, "Fannie Mae and Freddie Mac -- its duopolistic partner -- have ties to Congress which are much stronger than those of 13,000 financial institutions in the 50 states."