Mortgage finance giant Fannie Mae has quietly dismissed several senior employees and is dismantling its vaunted grass-roots lobbying corps, a network that has reached deeply into the halls of Congress for more than a decade.
As it wrestles with a multibillion-dollar financial restatement and an overhaul of its business, the District-based firm laid off 20 grass-roots lobbyists and publicists in its five regional offices, company officials said. The Monday morning conference call that announced the job cuts effectively ends Fannie's long reign as the king of ribbon-cutting politics -- its controversial use of favors to and friends of members of Congress to get what it wants on Capitol Hill.
The workers laid off Monday helped direct a grass-roots network considered among the most sophisticated and extensive political-influence machines in corporate America, exceeding even the much-storied programs of AT&T Corp. and a range of military contractors.
The changes are part of an effort by Fannie's new chief executive, Daniel H. Mudd, to de-emphasize political maneuvering and refocus on the company's core mission of keeping the home mortgage markets well funded. The company's credibility was badly tarnished last year by a $10.8 billion accounting scandal that led to the ouster of Franklin D. Raines as chief executive and from which it is still struggling to recover.
One indication of the company's newfound modesty is Mudd's own move from a sprawling office in the company's elegant executive suite on the second floor of Fannie's Wisconsin Avenue headquarters to a much smaller and barer space on the first floor. The executive suite is crowded with meeting spaces and teams of accountants rushing to complete Fannie's complicated financial restatement.
Fannie had already disclosed that it was paring by a third the outside lobbyists it dispatched to Capitol Hill, where they became a power in their own right. But behind the scenes it was also taking apart its elaborate system of wooing legislators from their home states and districts. This spring, the company eliminated the headquarters office that coordinated such grass-roots communications. It also stopped using as a lobbying arm its 55 "partnership offices" across the country. The partnership offices will be reorganized later this month and renamed "community business centers," according to company officials.
The company also decided this year not to renew the contracts of the nation's two most prominent experts in grass-roots politics: Michael J. Whouley of Dewey Square Group, who was a senior aide in Sen. John F. Kerry's failed run for the White House last year, and Ralph E. Reed Jr. of Century Strategies LLC, former executive director of the Christian Coalition and an adviser to President Bush's campaign.
The partnership offices, located in all but three states and costing about $50 million annually, were part business and part political operations. As political entities they arranged frequent public events to proclaim the start of popular community development projects and invariably invited lawmakers so they could take credit with the local press. The offices conducted a thousand such ceremonies annually and once held as many as 2,000 in a single year.
The grass-roots network overseen by Fannie's regional and partnership offices also made friends with lawmakers by recruiting people who were close to them, such as local bankers and charity chieftains, and then regularly asked the recruits to contact legislators on Fannie's behalf.
At its height last year, Fannie had 2,000 such "affinity contacts" who had agreed to secure a response from lawmakers no later than 24 hours after Fannie asked them. Fannie also had a database of 100,000 other supporters who would barrage lawmakers with material from the company.
The targeting of individual lawmakers was so precise that Fannie lobbyists were able to ask advocates to telephone lawmakers just as they were about to vote on amendments that Fannie wanted to defeat. One person close to the company, who spoke on condition of anonymity for fear of retribution, boasted that the network once got the barber of a House member to write a letter to the lawmaker as a way of advancing Fannie's cause.
The tactics worked. Pressure from Fannie has been credited with repeatedly derailing legislation it did not like, including an effort last year that would have created a tough new regulator to oversee the company.
A similar bill is before Congress this year, and Fannie's lobbying -- now in support of a new regulator -- has been noticeably lower-keyed, lawmakers and observers of the company have said. It has not mobilized its grass-roots army, for example, in part because it had been overused in the past -- angering the lawmakers that Fannie wanted to persuade -- and in part because Fannie's home-grown advocates have become wary of continuing their support in the midst of an accounting scandal.
Fannie was chartered by Congress to support homeownership, and the bulk of its business involves buying mortgages from banks and other lenders and packing them into larger securities for investors, thus providing lenders with the cash to make more loans.
Fannie's local offices will continue to conduct business, such as seeking loans for apartment buildings and single-family homes. In addition, the company plans to hire seven public relations workers, some of whom will probably be drawn from among those who were laid off. The bolstering of the company's communications staff raises the prospect that Fannie will continue to play politics, albeit from the back of the room rather than in open sight.
Still, Fannie officials said the company is determined to stand clear of political hardball. It has also killed a $40 million-a-year advertising campaign about homeownership. While the company said the ads were educational, critics lambasted them as little more than an image-burnishing effort.
"We're now taking some steps to better align our business with the needs and focus of our customers and partners," said Charles V. Greener, Fannie's spokesman. "Our focus is on our business, and the community business centers will continue to serve as catalysts in their communities to expand affordable housing opportunities and to work with our customers and lenders to get more people into homes and help them remain in those homes."
Fannie is pressing to pass the bill that would create a new regulator for its industry. It is so eager to enact the legislation that it has instructed its outside lobbyists to approach lawmakers only sparingly, allowing Congress to work unfettered to approve a measure that the company once fought against.
While the company has not been able to release financial statements because of its accounting problems, Fannie's earnings have almost certainly come under pressure lately. The company has had to shrink the size of its investment holdings, which have been its main source of profit. As of July, the latest figure available, the company's investment portfolio was declining at an annualized rate of about 20 percent, to $788.8 million.