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Fannie Mae Foundation Focused on D.C.

By David S. Hilzenrath and Derek Willis
Washington Post Staff Writers
Monday, February 21, 2005; Page E01

D.C. Mayor Anthony A. Williams's recent broadside against Fannie Mae, after the District-based mortgage funding company abandoned its plan to become an anchor for redevelopment in Southwest Washington, reopened an old debate over Fannie Mae's commitment to the city.

In the mid-1990s, the D.C. Council sought to repeal the federally chartered company's exemption from District income tax, and Fannie Mae threatened to leave the city. Fannie Mae's lobbying of the D.C. Council and Congress killed the proposal. After that battle, the company pledged to boost its local philanthropy.

Franklin D. Raines, in top photo, former chairman of Fannie Mae and its foundation, has ties to Arena Stage, middle, and Harvard. (Brendan Smialowski -- Bloomberg News)

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The company's decision last month not to build an office complex in Southwest left the mayor "really perturbed, really exasperated," as he put it. Williams threatened to use any means at his disposal to get Fannie Mae to reconsider.

So what has Fannie Mae done for the District?

The company says it helps its hometown through its housing finance activities and the charitable contributions of the Fannie Mae Foundation. The nonprofit organization funded by the company is one of the largest corporate foundations in the country.

Helping to improve the quality of life in the District is one of the foundation's main missions, said Beverly L. Barnes, its senior vice president for communications. "We feel that we've demonstrated that commitment, in part by investing about a third of our grant spending in the District," she said. "In year after year, we've been the number one or number two corporate giver in the D.C. area."

Last year, the foundation gave $25.3 million to District-based organizations, or 41 percent of the $61.4 million it gave in 2004, according to a Washington Post analysis of data on the foundation's Web site. Ranked second was California, which received $5 million, 8.1 percent of the total. Maryland ranked third with 8 percent, and Virginia ranked 10th with 2.5 percent.

The Fannie Mae Foundation, using a different measure, said that grants focused on the District last year, with some spillover into the rest of the metropolitan area, amounted to $15.6 million, or a third of its total 2004 grants. The foundation's D.C. estimate is smaller because it doesn't include grants approved last year for payment in future years or grants to organizations based in the District that spend the money elsewhere.

According to data from the foundation's Web site, 2004 District grants have ranged from $1,000 for the Northwest Washington Little League to $7,500 for the Capital Area Food Bank, $100,000 for the D.C. government and $825,000 for the East of the River Community Development Corp., which builds and renovates homes in Anacostia.

Other big grant recipients include Harvard University, where Franklin D. Raines, former chairman of the Fannie Mae company and foundation, has served as president of the board of overseers; Arena Stage, a theater in Southwest where Raines's wife, Wendy Farrow Raines, is board chairman; and the National Urban League and the Enterprise Foundation, where Raines has been a board member.

"Fannie Mae has long had a strong commitment to serve and support its home town," Raines said in a statement provided by a representative. "The foundation has sought to align itself with the priorities of the city, from affordable housing to education to economic development, to name a few."

During Raines's tenure as chairman of Fannie and the foundation, from 1999 through 2004, the foundation made grants to 663 groups in the District. Half the money went to 22 of those recipients.

The foundation estimates that its total charitable spending last year was $105 million. Beyond grants, that amount includes charitable programs such as promoting literacy in the District and a national advertising campaign to educate consumers about home buying. That advertising totaled more than $40 million in 2003.

The foundation's estimate of its charitable spending last year pales next to a federal estimate that the Fannie Mae corporation's exemption from state and local taxes was worth $848 million nationwide in 2003.

But D.C. officials have not geared up to challenge the company's tax exemption again, and even if Fannie Mae were to lose that privileged status, it is not clear how much tax it would pay to the District, because its tax liability would be spread across jurisdictions where it does business.

"We wouldn't have the foggiest idea of the revenue we're losing," said Edward Blick, a lawyer for the D.C. government. Apportioning Fannie Mae's income among states for tax purposes could be complicated, he said.

The federal government created Fannie Mae in the 1930s to promote the availability of home mortgages. The company borrows money from investors to buy mortgages from lenders, and it packages mortgages into securities that investors can buy and sell, thus replenishing lenders' funds.

The company reported a profit of $7.9 billion in 2003, but regulators have accused it of systematically violating accounting rules, and the company has said it will make corrections that could erase $9 billion of the profit it reported over the past four years. Under pressure from regulators, Raines gave up his positions at the company in December and left the helm of the foundation.

The company employs 3,100 people in the District, primarily on its Wisconsin Avenue NW campus. It paid the District real estate taxes of $1.6 million last year, a spokeswoman said.

Raines had spearheaded plans to build the new facility at the site of Southwest's Waterside Mall, but with Raines gone and the company retrenching, Fannie Mae last month withdrew from the project.

Asked about the corporation's impact on the District, Fannie Mae executives cited a variety of housing-related activities such as purchasing mortgages that D.C. residents obtained to buy or refinance homes, investing in tax-exempt bonds issued by the D.C. Housing Finance Agency, funding development projects that serve low-income residents and enable Fannie Mae to qualify for federal income tax credits and investing in other private housing projects that help redevelop neighborhoods.

For example, in Southeast, Fannie Mae invested about $2.7 million in a venture called Oxen Creek for the construction of 210 moderately priced housing units. Todd Lee, Fannie Mae's community development director for the Northeast region, said the project created new homeowners in a part of the District where there had not been development on such a scale in decades. The company's involvement can serve as a catalyst and help projects attract other investors, executives said.

But Fannie Mae executives emphasized that the corporation's housing-finance activities are intended to produce a financial return for the company. It does similar work in cities across the country, they said. What's more, the government requires the company to devote percentages of its funding to housing for low- and moderate-income borrowers and underserved communities.

"This is not charity," Lee said of Fannie Mae's funding for housing construction. "This is our business, number one. Number two, we receive our capital back at minimum. We don't do gifts."

The company's charity is conducted almost exclusively through its foundation, which it infuses with capital -- most recently, $300 million in stock in 2002.

The foundation's advertising and direct mail campaign publicizes the availability of foundation booklets on buying a home and obtaining a mortgage.

Pablo Eisenberg, a senior fellow at the Georgetown Public Policy Institute, said the foundation's advertising helps promote the corporation. "In my view, that's a business expense. It's not philanthropy."

Indirectly, the public outreach campaign can expand the market for Fannie Mae's business. And in 1996, when the foundation proposed taking over the campaign from the Fannie Mae corporation, the Internal Revenue Service approved the plan, saying that it would not constitute "self-dealing."

Glen S. Howard, general counsel of the foundation, said the advertising benefits the general public and entire housing-finance industry. "If lifts all boats," Howard said. "Fannie is one of those boats." In 2003, more than a million people requested copies of the foundation's guides, the foundation said.

The foundation's president is Stacey Davis Stewart, a former vice president of housing and community development in Fannie Mae's southeastern regional office in Atlanta. In 2003, the foundation paid Stewart $514,633, not including $68,686 in benefits and deferred compensation.

Within the District, the largest recipient of Fannie Mae Foundation grants last year was the Community Foundation for the National Capital Region, which was awarded $4.9 million, according to data from the foundation's Web site. The Community Foundation distributes grants to other groups, including money raised through an annual walkathon sponsored by the Fannie Mae Foundation to help the homeless.

The foundation has given to programs at Harvard, where Raines, a graduate of the college and the law school, has served as president of the board of overseers and chairman of the Visiting Committee of the Kennedy School of Government. The Harvard grants included funding for housing-related research and Kennedy School fellowships for officials in state and local government.

During the six years Raines led Fannie Mae and its foundation, Harvard was the fourth-largest recipient of foundation grants, with awards of $3.8 million. Grants to Harvard totaled $781,000 last year, compared with less than a tenth of that amount, $71,681, in 1998, the year before Raines took control of Fannie Mae.

"The foundation has policies and rules to avoid conflicts of interest in the awarding of grants," said Robert B. Barnett of the law firm Williams & Connolly LLP, an attorney for Raines. "Mr. Raines always scrupulously followed those policies and rules."

Asked whether the foundation's grants to Harvard had anything to do with Raines's relationship with the university, Barnes declined to comment.

Over the same period, Arena Stage ranked 17th out of more than 2,000 recipients of foundation grants, based The Post's analysis of data from the foundation Web site. Arena Stage ranked third in 2002, when the foundation awarded it $1 million for a planned renovation and expansion of the theater in addition to $105,000 of other grants.

"I'm sure it has something to do with the fact that the Raines[es] and the folks at Fannie Mae have long admired the work that Arena's done, so there's obviously a connection there, sure," said Stephen Richard, Arena Stage's executive director.

But Richard said Wendy Raines, who has chaired the Arena Stage board since 2001, "did not advise us on making an appeal to Fannie Mae." She did not respond to requests for comment.

Franklin Raines did not participate in any decisions about grants to organizations on whose boards he or a close relative served, the foundation's Howard said.

The theater is near the Southwest site where Fannie Mae had planned to become the lead tenant in a redevelopment project.

"The Foundation made such a large investment [in the theater] because of Arena's ability to serve as an anchor for the overall redevelopment of the Southwest Waterfront and Arena's plans to include affordable housing on-site for visiting artists," the foundation said in a written statement to The Post.

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