Fannie Mae and Freddie Mac, Humbled, Cooperate With Congress
By Jeffrey H. Birnbaum
Washington Post Staff Writer
Monday, May 23, 2005
Over the past decade, Rep. Richard H. Baker has been ignored, dismissed and, once, threatened with a lawsuit by representatives of Fannie Mae, the District-based mortgage-lending giant that his congressional committee helps oversee.
So the Louisiana Republican was shocked this year when Fannie Mae's interim chief executive, Daniel H. Mudd, handed him his cell phone number and invited him to call anytime. Baker did so a few days later and Mudd telephoned back almost immediately even though he was traveling overseas.
"In the past I had always been greeted with a dismissive approach, told that the CEO was a very busy person and then had to wait a long time for anyone to call back, often not the CEO," Baker said. "Now the company is very responsive. I am entering territory that I've never been before."
Fannie Mae, the biggest U.S. mortgage finance company, has been compelled by an accounting scandal to take a different approach as members of Congress debate legislation to limit the size and scope of its business. Once considered a fearsome force on Capitol Hill that repeatedly shot down such proposals, the federally chartered company -- and its smaller cousin in the home-finance business, Freddie Mac -- has accepted its weakened status and is trying to quietly temper and shape the legislation rather than kill it outright.
In place of a strategy that lawmakers regarded as bullying, Fannie Mae now emphasizes its eagerness to listen and to make its executives accessible. Its army of lobbyists has been reduced by a third and instructed not to swarm the Capitol as it once did. The company no longer targets lawmakers with acid-toned television commercials, instead working more closely with the housing industry to accomplish its goals.
"Their behavior has undergone a sea change," said Sen. Chuck Hagel (R-Neb.). "They had this town wired like no industry in America and everybody was scared to death to take them on. But now I sense more humility on their part."
"They were 800-pound gorillas," agreed Rep. Paul E. Kanjorski (D-Pa.). Today, he said, "They are much more interested in finding consensus."
In the past two years, Fannie Mae and Freddie Mac were forced to admit and then remedy huge financial irregularities and, as a result, replace their top managers. As a way to bolster their stock prices and their standing in the marketplace, the companies have reversed earlier objections and now enthusiastically support creation of a new federal regulator with enough authority to stop such problems from recurring.
Fannie Mae and Freddie Mac are still lobbying, of course, and their friends in the housing industry have stepped up their efforts to compensate for the companies' retrenchment. The National Association of Home Builders, for example, has told lawmakers that it may fight to defeat the bill if Fannie Mae and Freddie Mac are restricted too much.
But largely because of Fannie Mae and Freddie Mac's cooperation, lawmakers don't expect the legislation to fail. For the first time in memory, the companies are only quibbling over legislation that would replace their weak regulator with a vigorous alternative -- debating not whether they will be more tightly controlled, but by how much. The focus of debate now is whether Congress will limit the size of the companies or ask the new regulator to do so.
Drafting of the bill is scheduled to begin this week in the House Financial Services Committee.
"It's important for us to play a cooperative, constructive role; this is the year to get legislation passed," said Timothy J. McBride, Freddie Mac's chief lobbyist. "Our enterprise has been through a difficult period. This is hardly the time for arrogance. Our role is not to threaten, not to bully, not be a legislative bulldozer but to convince policymakers we're serious about our task."
"Our goal is to be invited back," said Duane S. Duncan, Fannie Mae's top lobbyist.
Fannie Mae lobbyists were notorious for telling lawmakers and their aides what the company's position was, and making it clear that they were expected to agree. Many lawmakers were particularly irritated by what they saw as the condescending attitude of Franklin D. Raines, Fannie Mae's former chief executive.
"He [Raines] was inflexible, had a little bit of a tin ear and was offended if it seemed like people were being critical of him," said Rep. Barney Frank (D-Mass.).
Fannie Mae once retained Kenneth W. Starr, the special prosecutor who investigated President Bill Clinton, to prevent lawmakers from disclosing a document that detailed the annual incomes of the company's senior officers. Starr threatened to sue Baker in 2003 to keep the report private, Frank said. Baker finally disclosed the list during a congressional hearing a year later, but only after consulting several legal experts who assured him that he wouldn't be held personally liable.
"I'm not a wealthy man," Baker said. "I didn't want to take what little I had and give it to Fannie Mae."
But now, Duncan said, "we're striking a different tone."
He and McBride recently met with their slimmed-down lobbying teams to admonish them against highhanded tactics. Duncan was especially pointed. Speaking to 15 lobbyists in a conference room at Fannie Mae's headquarters early this month, Duncan said the company's effort to pass the legislation was so sensitive, complex and important to the company that the lobbyists should avoid even talking to lawmakers about it. "Unless you're called on, don't engage on the bill," he said.
Fannie Mae has retreated so far that insiders say Freddie Mac is now playing the feistier role. "Fannie, which used to be the biggest junkyard dog, is taking a back seat to Freddie Mac," said Robert R. Davis, executive vice president of America's Community Bankers, a trade association of banks and savings institutions. One reason, he speculated, is that Fannie Mae's financial foul-up is fresher in lawmakers' minds. Freddie Mac owned up to its problems in 2003 and reduced its estimated earnings by $5 billion, more than a year before Fannie Mae's estimated $9 billion in earnings overstatements came to light.
Both companies have long operated in tandem with housing industry groups. But lately they have been leaning harder than ever on those allies to make their case for them. Davis said he's been getting more phone calls from company executives asking his organization to write letters to lawmakers, including one recently that objected to part of a bill by Hagel. "Compared to two years ago, we've been getting more calls from Fannie and Freddie," Davis said.
The National Association of Home Builders has been especially outspoken. The association's chief executive, Gerald M. Howard, complained that he had been excluded from a meeting last month between Frank and the chief executives of Fannie Mae and Freddie Mac. Howard told Dow Jones News Service that he was worried that the executives were in such a hurry to complete the legislation that they might be too accommodating and pinch off the supply of financing that home builders need.
Howard declined to be interviewed for this article.
The sudden reticence by Fannie Mae and Freddie Mac is the result of corporate-wide cutbacks prompted by the accounting restatements and the acknowledgment by executives that the scandals have so depleted the firms' credibility that lobbyists wouldn't be much help anyway. "No one would be surprised by the thesis that Freddie and Fannie had more impact on the outcome of legislation in the past than we do today," McBride said.
"For years, Freddie and Fannie controlled the terrain on the Hill," said Sen. Richard C. Shelby (R-Ala.), chairman of the Senate Banking, Housing and Urban Affairs Committee. But their actions and attitude these days are "light-years away."
Last year, Fannie Mae and Freddie Mac spent a total of $24.2 million on lobbying and were each among the top 20 corporate spenders in the nation on lobbying, according to PoliticalMoneyLine, which compiles political finance and lobbying information. This year they have reduced their budgets for contract lobbyists by about a third and may trim more.
Fannie Mae has also cut out the millions of dollars it spent annually on TV issue ads and has curbed its grants for housing programs in the districts and states of lawmakers whom it considered essential to legislation affecting the company.
So far, a bill to create a new oversight agency appears on track. Then again, the company's history of testiness isn't being overlooked by lawmakers.
"I've told them that I hope they will continue to support us," Shelby said. "But we'll soon know for sure whether they're with us or against us."