ABOUT 40 YEARS AGO, Congress created the Federal National Mortgage Association to broaden the market for housing mortgages throughout the country. Commonly known as "Fannie Mae," this federally chartered corporation does not provide direct loans to individuals. Instead, it buys and sells mortgage loans made by commercial banks, savings and loan associations, life insurance companies and other financial institutions. Over the years, Fannie Mae has grown into one of the largest privately owned profit-making corporations in the country, with a portfolio of nearly $38 billion.
Despite its public-private character and despite provisions in its charter that allow for some regulation by the Department of Housing and Urban Development, Fannie Mae has maintained its distance from Congress, political factions and the public. And HUD has given the association a free hand. Most of the policy decisions are made by a board of directors, 10 of whom are elected by FNMA stockholders and five appointed by the president. The executive director is chosen by the board - with no formal review by the White House or the Congress. Moreover, almost none of the inner workings of the corporation, including investment decisions, fiscal audits and conflict-of-interest information, is made available to Congress or federal agencies - and that has allowed Fannie Mae to carry out its business as it chooses.
So, it is not surprising that Fannie Mae is opposed to a recent decision by HUD Secretary Patricia Harris to start regulating some of the institution's activities. Last month, Mrs. Harris proposed a number of regulations that would give the public basic information while also requiring the corporation to adhere to certain investment policies. For example, Mrs. Harris wants minutes of board meetings, periodic audits, equal-employment statements and the like to be submitted to HUD on a periodic basis. But HUD's main mission, as we understand it, would be to expand Fannie Mae's role in the cities; FNMA would be required to make a specific percentage of its mortgage purchases in central cities, and starting next year would have a direct 30 percent of its investments to mortgages of low and moderate-income households.
Fannie Mae chairman Oakley Hunter and several board members have expressed opposition to those proposed regulations, particularly to investing capital in central cities and for mortgages of low- and moderate-income households. They believe the regulations would drastically change the character of the corporation by requiring the board to approve risky investments that would not return a reasonable profit to the corporation. In addition, FNMA does not want its corporation policies influenced by the federal government's other banking and housing policies. For her part, Mrs. Harris says that type of regulation was envisioned when the corporation was revised in 1968. She believes the proposed regulations do not jeopardize the character of the corporation. Rather, they would direct some corporate investments toward areas that have been long neglected - with as little risk as possible.
It strikes us that Fannie Mae should have someone looking over its shoulder. While these regulations may add to the paperwork, they won't endanger the basic independence of the corporation or threaten the imposition from on high of unreasonable fiscal judgments. With respect to information, Fannie Mae is only being asked to make the same kind of reports that savings and loan associations, for example, are now required to provide. As for the increased emphasis on inner cities, where the lending risks are higher, it strikes us as a good idea. The price, which could be slightly higher interest rates on all mortgages, does not seem to us to be too much to pay.