Changes

==Franklin Raines era==

==Franklin Raines era==

Franklin Raines served as Fannie Mae's Vice Chairman from 1991 to 1996 when President [[Bill Clinton]]<ref>Bill Clinton appointed [[Rahm Emanuel]], later [[Obama]] Chief of Staff, to the Board of Directors of Fannie Mae's sister agency, Freddie Mac. Emanuel had no experience or qualifications for the position. Freddie Mac likewise was taken into conservatorship for mismanagement.</ref> recruited him to serve in the [[White House]] as Director of the [[Office of Management and Budget]].

Franklin Raines served as Fannie Mae's Vice Chairman from 1991 to 1996 when President [[Bill Clinton]]<ref>Bill Clinton appointed [[Rahm Emanuel]], later [[Obama]] Chief of Staff, to the Board of Directors of Fannie Mae's sister agency, Freddie Mac. Emanuel had no experience or qualifications for the position. Freddie Mac likewise was taken into conservatorship for mismanagement.</ref> recruited him to serve in the [[White House]] as Director of the [[Office of Management and Budget]] for two years. In 1998 Raines returned to Fannie Mae as Chief Executive Officer (CEO).

===Fannie Mae lowers guidelines for subprime borrowers 1999===

===Fannie Mae lowers guidelines for subprime borrowers 1999===

:''Main article:'' [[Community Reinvestment Act]]

:''Main article:'' [[Community Reinvestment Act]]

In 1999 Raines' Fannie Mae lowered its underwriting guidelines to expand into the subprime lending market,<ref>[http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html Fannie Mae Eases Credit To Aid Mortgage Lending,] Steven A. Holmes, ''New York Times'', September 30, 1999.</ref> a widely held contributing factor to the [[Financial crisis of 2008|Financial crisis of 2007-08]].

In 1999 Raines' Fannie Mae lowered its underwriting guidelines to expand into the subprime lending market,<ref>[http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html Fannie Mae Eases Credit To Aid Mortgage Lending,] Steven A. Holmes, ''New York Times'', September 30, 1999.</ref> a widely held contributing factor to the [[Financial crisis of 2008|Financial crisis of 2007-08]].

===Fraudulent accounting exposed===

===Fraudulent accounting exposed===

In 2004 the [[Securities & Exchange Commission]]'s (SEC) chief accountant ruled that Fannie had improperly accounted for hedging transactions in its trillion-dollar portfolio of derivatives.<ref>[http://www.businessweek.com/stories/2004-12-21/franklin-rainess-lost-gamble Franklin Raines's Lost Gamble,] ''Bloomberg Businessweek'', December 21, 2004. </ref> The SEC ordered it to restate it's earnings which were overstated by $11 billion. The Office of Federal Housing Enterprise Oversight declared the company was "significantly undercapitalized" using Fannie's "own unique methodology" for valuing derivatives. At $28.86 billion, Fannie's core capital was $2.98 billion, or almost 10%, below the required minimum. The [[U.S Justice Department]] joined the investigation.  

In 2004 the [[Securities & Exchange Commission]]'s (SEC) chief accountant ruled that Fannie had improperly accounted for hedging transactions in its trillion-dollar portfolio of derivatives.<ref>[http://www.businessweek.com/stories/2004-12-21/franklin-rainess-lost-gamble Franklin Raines's Lost Gamble,] ''Bloomberg Businessweek'', December 21, 2004. </ref> The SEC ordered it to restate it's earnings which were overstated by $11 billion. The Office of Federal Housing Enterprise Oversight declared the company was "significantly undercapitalized" using Fannie's "own unique methodology" for valuing derivatives. At $28.86 billion, Fannie's core capital was $2.98 billion, or almost 10%, below the required minimum. The [[U.S Justice Department]] joined the investigation.  

Regulators found a culture of corruption under Raines where management reaped huge bonuses for themselves.<ref>[http://articles.chicagotribune.com/2006-05-24/business/0605240197_1_senior-management-manipulated-accounting-fannie-mae-executive-officer-franklin-raines `Arrogant and unethical': Fannie Mae to pay $400 million penalty,] Robert Manor, ''Chicago Tribune'', May 24, 2006.</ref> Auditors stated,

Regulators found a culture of corruption under Franklin Raines where management reaped huge bonuses for themselves.<ref>[http://articles.chicagotribune.com/2006-05-24/business/0605240197_1_senior-management-manipulated-accounting-fannie-mae-executive-officer-franklin-raines `Arrogant and unethical': Fannie Mae to pay $400 million penalty,] Robert Manor, ''Chicago Tribune'', May 24, 2006.</ref> Auditors stated,

{{Cquote|The image of Fannie Mae as one of the lowest-risk and `best in class' institutions was a facade...Our examination found an environment where the ends justified the means. Senior management manipulated accounting, reaped maximum, undeserved bonuses, and prevented the rest of the world from knowing.}}

{{Cquote|The image of Fannie Mae as one of the lowest-risk and `best in class' institutions was a facade...Our examination found an environment where the ends justified the means. Senior management manipulated accounting, reaped maximum, undeserved bonuses, and prevented the rest of the world from knowing.}}

The auditor's report stated executives moved profits from one year to the next to assure they would meet company goals to receive undeserved bonuses and accused Fannie Mae of taking large and sometimes unprofitable risks that were not revealed to investors. Raines was forced out. The auditors report was only the beginning of the revelations that shook the world.

The auditor's report stated executives moved profits from one year to the next to assure they would meet company goals to receive undeserved bonuses and accused Fannie Mae of taking large and sometimes unprofitable risks that were not revealed to investors. Raines was forced out. The auditors report was only the beginning of the revelations that shook the world.