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'''Fannie Mae'''  is the common name for the '''Federal National Mortgage Association''' ('''FNMA'''). <ref>[http://www.visualthesaurus.com/cm/wordroutes/1529/ Blaming Fannie and Freddie], Ben Zimmer, ''Visual Thesaurus'', September 16, 2008</ref> Fannie Mae is a company that deals with the secondary [[mortgage]] market. It is a [[New Deal]] agency founded by the U.S. government to provide increased liquidity for mortgages. Although remaining a government sponsored entity (GSE), the company began selling stock to the public in 1968. Fannie Mae has been described as middle class welfare.<ref>[http://www.bloomberg.com/news/2012-03-01/middle-class-welfare-state-invisible-by-design-commentary-by-ezra-klein.html Middle-Class Welfare State Is Invisible by Design,] Ezra Klein, ''Bloomberg'', 2012-03-01. </ref>

'''Fannie Mae'''  is the common name for the '''Federal National Mortgage Association''' ('''FNMA''').<ref>[http://www.visualthesaurus.com/cm/wordroutes/1529/ Blaming Fannie and Freddie], Ben Zimmer, ''Visual Thesaurus'', September 16, 2008</ref> Fannie Mae is a company that deals with the secondary [[mortgage]] market. It is a [[New Deal]] agency founded by the U.S. government to provide increased liquidity for mortgages. Although remaining a government sponsored entity (GSE), the company began selling stock to the public in 1968. Fannie Mae has been described as middle class welfare.<ref>[http://www.bloomberg.com/news/2012-03-01/middle-class-welfare-state-invisible-by-design-commentary-by-ezra-klein.html Middle-Class Welfare State Is Invisible by Design,] Ezra Klein, ''Bloomberg'', 2012-03-01.</ref>

The company and its reputation were kept alive by the US Government (along with [[Freddie Mac]]) after making billions in loans available to borrowers with demonstratively poor credit histories. Many individuals and pension funds globally, who bought into the illusion of safety and security in a government backed entity, were wiped out when it faltered. It was placed in the [[conservator]]ship of another government sponsored enterprise, the Federal Housing Finance Agency (FHFA), in September 2008, for mismanaging its affairs. It currently guarantees against default about $5 trillion in mortgages of American homeowners -- nearly half of all mortgages in the [[United States]].

The company and its reputation were kept alive by the US Government (along with [[Freddie Mac]]) after making billions in loans available to borrowers with demonstratively poor credit histories. Many individuals and pension funds globally, who bought into the illusion of safety and security in a government backed entity, were wiped out when it faltered. It was placed in the [[conservator]]ship of another government sponsored enterprise, the Federal Housing Finance Agency (FHFA), in September 2008, for mismanaging its affairs. It currently guarantees against default about $5 trillion in mortgages of American homeowners—nearly half of all mortgages in the [[United States]].

==Loan bundling==

==Loan bundling==

Fannie does not lend money directly to consumers. Instead, it purchases bundles of loans that banks make on what is called the secondary market. Fannie Mae issues Guidelines to mortgage lenders on the documentation required from borrowers to conform to what Fannie Mae agrees to buy.<ref>[http://www.fanniemae.com/portal/about-us/company-overview/about-fm.html Who is Fannie Mae Today?] About Us. www.fanniemae.com</ref> Qualifying guidelines primarily focus on income, credit reports, and loan to value.<ref>Loan to Value (LTV); loan size in relation to the properties appraised value. For example, at the time of the 2008 crash, 80% financing, or 80% LTV was the maximum amount Fannie Mae guidelines would approve for borrowers with qualifying credit scores without mortgage insurance (also known as foreclosure insurance, which can significantly increase the monthly payment). LTV thus can be manipulated through an inflated appraisal.</ref> By Fannie Mae guaranteeing purchase of bundles of mortgages from banks, lenders funds are quickly replenished and they are able to originate more loans.

Fannie does not lend money directly to consumers. Instead, it purchases bundles of loans that banks make on what is called the secondary market. Fannie Mae issues Guidelines to mortgage lenders on the documentation required from borrowers to conform to what Fannie Mae agrees to buy.<ref>[http://www.fanniemae.com/portal/about-us/company-overview/about-fm.html Who is Fannie Mae Today?] About Us. www.fanniemae.com</ref> Qualifying guidelines primarily focus on income, credit reports, and loan to value.<ref>Loan to Value (LTV); loan size in relation to the properties appraised value. For example, at the time of the 2008 crash, 80% financing, or 80% LTV was the maximum amount Fannie Mae guidelines would approve for borrowers with qualifying credit scores without mortgage insurance (also known as foreclosure insurance, which can significantly increase the monthly payment). LTV thus can be manipulated through an inflated appraisal.</ref> By Fannie Mae guaranteeing purchase of bundles of mortgages from banks, lenders funds are quickly replenished and they are able to originate more loans.

When Fannie Mae purchases a mortgage from a loan originator, it is repackaged and sold in bundles to investment banks and other entities who market them globally with a credit rating stamp.<ref>True story. You can watch [http://www.hulu.com/watch/59026/cnbc-originals-house-of-cards CNBC's House of Cards special here] to see it; reporter David Faber travels to the small town of Narvik, Norway, which invested $200 million lured in by their AAA ratings and the assurance by Citigroup of their safety. The town has had to close schools, slash expenditure to the elderly, and cut back on fire department hours. </ref>  

When Fannie Mae purchases a mortgage from a loan originator, it is repackaged and sold in bundles to investment banks and other entities who market them globally with a credit rating stamp.<ref>True story. You can watch [http://www.hulu.com/watch/59026/cnbc-originals-house-of-cards CNBC's House of Cards special here] to see it; reporter David Faber travels to the small town of Narvik, Norway, which invested $200 million lured in by their AAA ratings and the assurance by Citigroup of their safety. The town has had to close schools, slash expenditure to the elderly, and cut back on fire department hours.</ref>  

==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]] for two years. In 1998 Raines returned to Fannie Mae as Chief Executive Officer (CEO). Big banks securitization of [[subprime loan]]s was already underway, <ref>{{cite web

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). Big banks securitization of [[subprime loan]]s was already underway,<ref>{{cite web

|title=FIRST UNION CAPITAL MARKETS CORP., BEAR, STEARNS & CO. PRICE SECURITIES OFFERING BACKED BY AFFORDABLE MORTGAGES   

|title=FIRST UNION CAPITAL MARKETS CORP., BEAR, STEARNS & CO. PRICE SECURITIES OFFERING BACKED BY AFFORDABLE MORTGAGES   

|url=http://www.wachovia.com/inside/page/textonly/0,,134_307%5E306,00.html

|url=http://www.wachovia.com/inside/page/textonly/0,,134_307%5E306,00.html

Given the extremely small probability of default by the GSEs, the expected monetary costs of exposure to GSE insolvency are relatively small — even given very large levels of outstanding GSE debt and assuming that the government would bear the costs of all GSE debt in the case of insolvency. For example, if the probability of the stress test conditions occurring is less than one in 500,000, and if the GSEs hold sufficient capital to withstand the stress test, the implication is that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million. <br><br>

Given the extremely small probability of default by the GSEs, the expected monetary costs of exposure to GSE insolvency are relatively small — even given very large levels of outstanding GSE debt and assuming that the government would bear the costs of all GSE debt in the case of insolvency. For example, if the probability of the stress test conditions occurring is less than one in 500,000, and if the GSEs hold sufficient capital to withstand the stress test, the implication is that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million. <br><br>

...In the absence of Fannie Mae and Freddie Mac, mortgage risk would likely be held by large banks and other types of financial institutions, which themselves benefit from the perception that they are “too big to fail.” Fannie Mae and Freddie Mac are among the largest financial institutions in the country. Even in the absence of a GSE charter it is likely that they would continue to benefit from their size, since the government has intervened on behalf of other large institutions in the past....<ref>[http://www.pierrelemieux.org/stiglitzrisk.pdf Implications of the New Fannie Mae and Freddie Mac Risk-based Capital Standard,] by Joseph E. Stiglitz, Jonathan M. Orszag and Peter R. Orszag. Fannie Mae Papers, Volume 1, Issue 2, March 2002, Conclusion p.6. </ref>}}

...In the absence of Fannie Mae and Freddie Mac, mortgage risk would likely be held by large banks and other types of financial institutions, which themselves benefit from the perception that they are “too big to fail.” Fannie Mae and Freddie Mac are among the largest financial institutions in the country. Even in the absence of a GSE charter it is likely that they would continue to benefit from their size, since the government has intervened on behalf of other large institutions in the past....<ref>[http://www.pierrelemieux.org/stiglitzrisk.pdf Implications of the New Fannie Mae and Freddie Mac Risk-based Capital Standard,] by Joseph E. Stiglitz, Jonathan M. Orszag and Peter R. Orszag. Fannie Mae Papers, Volume 1, Issue 2, March 2002, Conclusion p.6.</ref>}}

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 2003 - 2006===

===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.  

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,

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,

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.

In April 2008 Raines agreed to pay $24.7 million in a settlement with the U.S. government.<ref>[http://seattletimes.com/html/businesstechnology/2004358433_webraines18.html Franklin Raines to pay $24.7 million to settle Fannie Mae lawsuit,] By MARCY GORDON, ''The Associated Press'', April 18, 2008. </ref> Some proceeds from the settlement were used to help homeowners facing [[foreclosure]].

In April 2008 Raines agreed to pay $24.7 million in a settlement with the U.S. government.<ref>[http://seattletimes.com/html/businesstechnology/2004358433_webraines18.html Franklin Raines to pay $24.7 million to settle Fannie Mae lawsuit,] By MARCY GORDON, ''The Associated Press'', April 18, 2008.</ref> Some proceeds from the settlement were used to help homeowners facing [[foreclosure]].

==Collapse and conservatorship 2008==

==Collapse and conservatorship 2008==

==Cash contributions to political candidates 1989 - 2008==

==Cash contributions to political candidates 1989 - 2008==

The top three recipients of individual campaign contributions from Fannie Mae employees under current [[FEC]] reporting guidelines since 1989 were all Democrats. <ref>[http://www.foxnews.com/politics/2008/12/22/white-house-fires-times-housing-meltdown-story/ White House Fires Back at Times Over Housing Meltdown Story] Fox News, December 22, 2008</ref> <br>

The top three recipients of individual campaign contributions from Fannie Mae employees under current [[FEC]] reporting guidelines since 1989 were all Democrats.<ref>[http://www.foxnews.com/politics/2008/12/22/white-house-fires-times-housing-meltdown-story/ White House Fires Back at Times Over Housing Meltdown Story] Fox News, December 22, 2008</ref> <br>

No.1 [[Connecticut]] Senator and former [[DNC]] Chairman [[Chris Dodd]]  <br>

No.1 [[Connecticut]] Senator and former [[DNC]] Chairman [[Chris Dodd]]  <br>

No.2 [[Illinois]] Senator and later President [[Barack Obama]]  <br>

No.2 [[Illinois]] Senator and later President [[Barack Obama]]  <br>

[[Category:New Deal]]

[[Category:New Deal]]

[[Category:Clinton Administration]]

[[Category:Clinton Administration]]

[[[[Category:Hillary Clinton]]

[[Category:Hillary Clinton]]

[[Category:Obama Administration]]

[[Category:Obama Administration]]