Changes

Countrywide and Fannie Mae further expanded their relationship with another strategic alliance agreement in 2005. During each quarter, Countrywide was required to sell to Fannie Mae at least 70 percent of all “Expanded Criteria Mortgages,” and at least 65 percent of those mortgages each month. Fannie Mae also agreed to “provide special marketing and other assistance” to Countrywide in its efforts to reach low-income borrowers. Both parties pledged to continue a “Favored Relationship” in which they were “committed to the business success of the other party.” The 2005 agreement required both companies to “maintain the complete confidentiality of the existence and terms of this agreement.”

Countrywide and Fannie Mae further expanded their relationship with another strategic alliance agreement in 2005. During each quarter, Countrywide was required to sell to Fannie Mae at least 70 percent of all “Expanded Criteria Mortgages,” and at least 65 percent of those mortgages each month. Fannie Mae also agreed to “provide special marketing and other assistance” to Countrywide in its efforts to reach low-income borrowers. Both parties pledged to continue a “Favored Relationship” in which they were “committed to the business success of the other party.” The 2005 agreement required both companies to “maintain the complete confidentiality of the existence and terms of this agreement.”

===Stiglitz and Orszag hired to calm fears===

===Stiglitz and Orszag hired to calm fears 2001 - 2002===

As worries about Fannie Mae's overexposure for securitizing nearly $1 trillion in debt grew, Raines' Fannie Mae hired Economist [[Joseph Stiglitz]], former Clinton Special Assistant for Economic Policy [[Peter Orszag]], and the Managing Director of their firm Jonathan Orszag to write a paper to calm fears. The conclusion made the fantastic claim that Fannie Mae's chance of insolvency were 1 in 500,000:

As worries about Fannie Mae's overexposure for securitizing nearly $1 trillion in debt grew, Raines' Fannie Mae hired Economist [[Joseph Stiglitz]], former Clinton Special Assistant for Economic Policy [[Peter Orszag]], and the Managing Director of their firm Jonathan Orszag to write a paper to calm fears. The conclusion made the fantastic claim that Fannie Mae's chance of insolvency were 1 in 500,000:

{{QuoteBox|...the probability of a shock as severe as embodied in the risk-based capital standard is substantially less than one in 500,000 – and may be smaller than one in three million. Given the low probability of the stress test shock occurring, and assuming that Fannie Mae and Freddie Mac hold sufficient capital to withstand that shock, the exposure of the government to the risk that the GSEs [government sponsored entities Fannie Mae and Freddie Mac] will become insolvent appears quite low. <br><br>

{{QuoteBox|...the probability of a shock as severe as embodied in the risk-based capital standard is substantially less than one in 500,000 – and may be smaller than one in three million. Given the low probability of the stress test shock occurring, and assuming that Fannie Mae and Freddie Mac hold sufficient capital to withstand that shock, the exposure of the government to the risk that the GSEs [government sponsored entities Fannie Mae and Freddie Mac] will become insolvent appears quite low. <br><br>

Stiglitz was awarded the [[Nobel Prize]] in [[Economics]] for 2001. When Fannie Mae went insolvent in 2008, throwing the planet into deep economic upheaval for the better part of the next decade, Fannie Mae removed the paper from its website.<ref>[http://econlog.econlib.org/archives/2009/11/stiglitz_and_or.html Stiglitz and Orszags on Fannie Mae,] David Henderson, November 9, 2009. econlog.econlib.org </ref> And shortly after Peter Orszag was proven disastrously in error with his prediction of 1 in a half million chance of a Fannie Mae meltdown, President [[Barack Obama]] appointed Orszag to manage the U.S. government's finances as Director of the Office of Management and Budget.

Stiglitz was awarded the [[Nobel Prize]] in [[Economics]] for 2001. When Fannie Mae went insolvent in 2008, throwing the planet into deep economic upheaval for the better part of the next decade, Fannie Mae removed the paper from its website.<ref>[http://econlog.econlib.org/archives/2009/11/stiglitz_and_or.html Stiglitz and Orszags on Fannie Mae,] David Henderson, November 9, 2009. econlog.econlib.org </ref> And shortly after Peter Orszag was proven disastrously in error with his prediction of 1 in a half million chance of a Fannie Mae meltdown, President [[Barack Obama]] appointed Orszag to manage the U.S. government's finances as Director of the Office of Management and Budget.

===Fraudulent accounting exposed===

===Fraudulent accounting exposed 2003 - 2006===

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.