Citizen McCain

First of all, it’s important to understand that Fannie and Freddie were originally created by the U.S. Congress to purchase home mortgages from banks, which would free up money for banking institutions to offer more loans to prospective homeowners.

The political blame game for Fannie Mae and Freddie Mac has begun in Washington, D.C. This post is an attempt to provide verifiable facts about both of the failed companies from national news sources. If you have additional facts about Freddie and Fannie, please submit the information in the comment form, along with active links to a verifiable national level news source.

The video below offers insight into some of the political ties of Fannie and Freddie. More will be available as they are found.

What are Fannie Mae and Freddie Mac?

1938 – Fannie Mae established by Congress. “Fannie Mae, the largest nonbanking financial institution in the world, plays a pivotal role in the nation’s housing markets. It was established by Congress and President Franklin D. Roosevelt during the Depression and was a unit of the federal government until 1968, when it became a publicly traded company on the New York Stock Exchange.” ^[1]

1970 – Freddie Mac established by Congress. “The Federal National Mortgage Association (Fannie) and the Federal Home Loan Mortgage Corp. (Freddie) have always been unique institutions. They are publicly held, for-profit corporations that were legislated into existence by Congress and operate with a congressional charter to help lower- and middle-income Americans buy homes. (They are often referred to as government-sponsored enterprises, or GSEs.) Fannie was founded in 1938 as a federal agency and became a for-profit company in 1968. Freddie, started in 1970, offered shares to the public in 1989.” ^[2]

Who’s been running Fannie Mae? The answer is Democrats.

The CEO of Fannie Mae from 1991 to 1998 was James A. Johnson, who once served as a senior aide to  Democrat Senator Mondale, executive assistant to Vice President Mondale, and chairman of Mondale’s presidential campaign. Prior to that, the Minnesota Post reported that “Johnson worked on the campaigns of Gene McCarthy and George McGovern. More recently, Jim Johnson was selected to vet VP candidates for democratic vice presidential nominees John Kerry and Barack Obama.

Who was the vice chairman, or second in command of Fannie Mae from 1991 to 1996? Franklin Delano Raines, who was appointed as the Clinton Administrations Director of the Office of Management and Budget from 1996 until 1998. When Jim Johnson retired from Fannie Mae in 1998, Franklin Delano Raines was appointed as CEO by Clinton and headed Fannie from 1999-2004. Additionally, Clinton’s Deputy Attorney General, Jamie Gorelick, left her post in the Justice Department in 1997 and was immediately
appointed as Vice Chairman of Fannie Mae, where she served from 1997 to 2003.

Franklin Delano Raines served as Fannie Mae CEO until he was forced out for accounting rules violations on December 21, 2004. Mr. Raines also played a major role during the Carter Administration as Associate Director for Economics and Government in the Office of Management and Budget and Assistant Director of the White House Domestic Policy Staff from 1977 to 1979;

In 2006, the Office of Federal Housing Enterprise Oversight (OFHEO) announced a suit against Raines in order to recover some or all of the $90 million in payments made to Raines based on overstated earnings initially estimated to be $9 billion but have been announced as 6.3 billion. The following quote from the Acting Director of OFHEO, Mr. James B. Lockhart III, was submitted as testimony to the U.S. Senate Committee on Banking, Housing, and Urban Affairs Special on June 15, 2006.

“Fannie Mae’s management directed employees to manipulate accounting and earnings to trigger maximum bonuses for senior executives from 1998 to 2003. The image of Fannie Mae as one of the lowest-risk and ‘best in class’ institutions was a façade. The examination found an environment where the ends justified the means.

Senior Fannie Mae executives were precisely managing earnings per share (EPS) to the one-hundredth of a penny to maximize their bonuses while neglecting investments in systems, internal controls and risk management. The combination of earnings manipulation, mismanagement and unconstrained growth resulted in an estimated $10.6 billion of overstated profits, well over a billion dollars in expenses to fix the problems, and ill-gotten bonuses in the hundreds of millions of dollars. Senior executives were flat-out wrong, or, to use the proper regulatory phrase, were managing Fannie Mae in an “unsafe and unsound” manner. Senior management manipulated accounting; reaped maximum, undeserved bonuses; and prevented the rest of the world from knowing about it. They co-opted their internal auditors and other managers. They stonewalled OFHEO.“

By the way, Jeff Skillings was sentenced to 24 years in jail for his role in Enron. Who’s going to be his cell mates from Fannie and Freddie?

CEO of Freddie Mac, Leland Brendsel

I haven’t found any national news sources that state Freddie Mac CEO Leland Brendsel’s political affiliation, however based on his 2002 political contributions, it appears he’s a little partial to Democrats. The following data was obtained from http://www.campaignmoney.com/political/contributions/leland-brendsel.asp?cycle=02

Leland Brendsel Contribution List in 2002

—–ROUGH OUTLINE OF CURRENT SOURCES————————
References

1. Labaton, Stephen (Dec 22, 2004), ““Chief Is Ousted at Fannie Mae Under Pressure”, New York Times. Retrieved from http://www.nytimes.com/2004/12/22/business/22fannie.html on 9/26/2008.

2. McClean, Bethany (Jan. 24, 2005), “The Fall of Fannie Mae”, Fortune Magazine. Retrieved from http://money.cnn.com/magazines/fortune/fortune_archive/2005/01/24/8234040/index.htm on 9/26/2008.

3. Peterson, James R. (Mar. 1, 2000), Leleand Brendsel: “The tide is turning toward the small lender”, ABA Banking Journal. Retrieved from http://www.allbusiness.com/aba-banking-journal/41389-1.html on 9/26/2008.

4. Whitaker, Charles (April 2001), Franklin Raines: First Black Head of a Fortune 500 Corporation — Fannie Mae, Ebony (April 2001).