Fannie Mae Overview: Fannie Mae, the Federal National Mortgage Association, or FNMA, was established in 1938 as part of the New Deal program of President Franklin D. Roosevelt. Fannie Mae was charged with increasing the supply of mortgage credit available to homeowners and prospective homeowners by facilitating an active and liquid secondary market in mortgages. That is, Fannie Mae would purchase mortgages from banks, thereby increasing banks' liquidity (and thus their ability to lend even more) and lowering their risk.
While technically an independent corporation chartered by the federal government, and not a department of the federal government itself, Fannie Mae nonetheless has been treated by the securities markets as a quasi-governmental agency, with an implicit federal guarantee. Thus, until very recently, its credit rating has rivalled that of the federal government itself. Fannie Mae is often referred to as a GSE, or government-sponsored enterprise. In 1970, Congress chartered Freddie Mac to provide competition for Fannie Mae.
In recent years, Fannie Mae has been embroiled in controversy over its accounting and business practices. On September 7, 2008, after mounting worries about Fannie Mae's solvency, the federal government took direct control, placing Fannie Mae under the conservatorship of the Federal Housing Finance Agency (FHFA).
Size: Fannie Mae reports the following figures as of June 30, 2008:
- Book of Business (Investment Portfolio) = $3.0 trillion
- Employees = 6,400 (as of 6/30/07)
Positives: The first action taken by the FHFA was to install veteran Merrill Lynch and TIAA-CREF executive Herbert M. Allison, Jr. as CEO of Fannie Mae. It must be noted that Allison left Merrill Lynch in 1999, long before its disastrous flirtation with subprime mortgages and other unduly risky ventures. As CEO of TIAA-CREF (2002-08), Allison turned around decades of subpar investment performance by that insurance and money management firm.
Allison is a hard-nosed and decisive manager. He quickly secured the resignations of top management at Fannie Mae, then reorganized to make the organization flatter and less bureaucratic, with major business units reporting directly to him. He has launched a comprehensive review of Fannie Mae's organization and business practices.
Allison's efforts are bound to weed out underperforming employees, increase accountability and streamline decision-making. This should create an exciting, but challenging, work environment.
The federal conservatorship arrangement ensures that Fannie Mae will have direct access to federal funding, removing the risk of bankruptcy.
Negatives: Fannie Mae remains a troubled organization. Allison is bound to cut costs dramatically by reducing staff, an action that will limit job openings and increase workloads for remaining employees.
