Franklin Raines on the erosion of credit standards

Most of the erosion in credit standards happened on Wall Street, it didn't happen amongst the GSEs. Wall Street led with the securitization of subprime loans, they led with the securitization of non-performing loans, loans that didn't fit the Fannie and Freddie standards. So, they really were the engine.

~Franklin Raines, former chairman and CEO, Fannie Mae, CNBC, May 4th, 2010

Franklin Raines on risk management at Fannie Mae

When I was at Fannie Mae, we had a very tough risk management structure. That was 5, almost 6 years ago [2003, when housing bubble first took off]. Instead of staying the course as later management said, they changed that structure in order to become a bigger player in the market. They were losing market share by maintaining their tough standards, they wanted to be players, they jumped in and they bought a lot of things they shouldn't have bought. They've testified to this themselves so I'm not really speaking out of turn here, and that really led to the company's failing financially because they took on more risk than they should have.

~Franklin Raines, former chairman and CEO, Fannie Mae, CNBC, May 4th, 2010

(Of course, this directly contradicts the point he made moments earlier in the interview, in which he argued that Fannie Mae, Freddie Mac and the FHA need to be available to support the mortgage market when traditional lenders become risk-averse and flee from these very types of mortgages he now says shouldn't have been made.)

Franklin Raines on how to prevent financial crises amongst large institutions

I think the American system and its focus on 30-year fixed-rate mortgages is a very, very powerful thing. Canada is a country of 20, 25 million people with adjustable-rate mortgages for banks, not a very consumer-friendly environment. Although, if you put the burden on the consumers, it's true you won't have as many crises amongst your large financial institutions.

~Franklin Raines, former chairman and CEO, Fannie Mae, CNBC, May 4th, 2010

Franklin Raines on the importance of federal mortgage subsidies

Today, they [Fannie and Freddie] and the FHA are 100% of the mortgage market and we have seen in this last crisis that ordinary financial institutions will withdraw from that market at the slightest indication of problems. You simply can't have a country like ours, with a large middle class, that doesn't have a functioning mortgage market all the time.

~Franklin Raines, former chairman and CEO, Fannie Mae, CNBC, May 4th, 2010

Franklin Raines responds to WSJ op-ed questioning Fannie Mae's risk levels

Shame on you. The Wall Street Journal, of all publications, has the opportunity and responsibility to provide leadership and shed light on the Enron debacle. At the very least, markets jittery about Enron need calm, trustworthy, responsible voices to clarify complex issues, get the facts, get them right, and put them in the proper context.

Unfortunately, in your Feb. 20 editorial about Fannie Mae, you only fan fears with your glib, disingenuous, contorted, even irresponsible attempt to tar our company with the Enron brush. At best, the editorial betrays a complete lack of knowledge or understanding about our business. At worst, you chose the thrill of a good smear job over the hard work of reporting or writing opinion pieces grounded in facts.

~ Franklin D. Raines, CEO, Fannie Mae, "Don't Tar Us With an Enron Brush," The Wall Street Journal, February 25, 2002

Franklin D. Raines on why Fannie Mae is no Enron (2002)

There are many lessons to be learned from the Enron debacle. One is the importance of careful fundamental analysis of major companies. Fannie Mae welcomes and, indeed, we seek out, that type of analysis.

Another lesson from Enron is that corporate behavior is fundamentally a product of the culture of the company. At Fannie Mae we take pride in the tone we set at the top, in our risk management focus, in our commitment to integrity and intellectual honesty and in the values of our people.

~ Franklin D. Raines, CEO, Fannie Mae, "Don't Tar Us With an Enron Brush," The Wall Street Journal, February 25, 2002

WSJ: Did friends of Countrywide get preferential treatment on loans?

Countrywide Financial Corp. makes mortgage loans through a vast network of offices, brokers and call centers. But a few customers have gotten their loans a special way: through Countrywide Chief Executive Angelo Mozilo.

These borrowers, known internally as "friends of Angelo" or FoA, include two former CEOs of Fannie Mae, the biggest buyer of Countrywide's mortgages, say people familiar with the matter.

One was James Johnson, a longtime Democratic Party power and an adviser to Sen. Barack Obama's campaign, who this past week was named to a panel that is vetting running-mate possibilities for the presumed nominee. Another was Franklin Raines, a onetime Clinton administration budget director, who left Fannie Mae amid an accounting scandal in 2004.

There is nothing illegal about a mortgage firm treating some borrowers better than others. But if Fannie Mae officials received special treatment, that could cause a political problem for the government-sponsored, shareholder-owned company.

Its code of conduct, a spokesman said, "requires the disclosure of potential conflicts of interest and prohibits acceptance of substantial gifts, including loans with preferential terms, from an organization seeking to do business with the company without prior review and approval by the company." The spokesman said the code has been in effect since the early 1990s.

~ The Wall Street Journal, "Countrywide Friends Got Good Loans," June 7, 2008, by Glenn R. Simpson and James R. Hagerty

Franklin D. Raines on expanding homeownership as local and national policy

Homeownership is a local and national policy priority. The U.S. Conference of Mayors has placed expansion of affordable housing at the top of its agenda for 2002. And in his 2002 State of the Union address, President George W. Bush called for "broader homeownership, especially among minorities."

~ Franklin D. Raines, chairman and CEO, Fannie Mae, Fannie Mae 2001 Annual Report

Holman W. Jenkins, Jr. on the drive towards homeownership

Everybody talks about moral hazard. A wisp of memory came to mind last week. Then-Fannie Mae chief Franklin Raines visited The Journal years ago and entertained himself by mocking editorial writers who assume that establishing that a policy is economically inefficient is enough to establish that it's unwise.

He yukked it up quite a bit, in fact, noting that voters are perfectly entitled to assert values other than those of the market, namely that homeownership is a social blessing and should be encouraged with subsidies. And so we've done with tax subsidies, lending subsidies and a concerted set of policies by Bill Clinton's HUD to move low-income people out of rental units and into homes they own. His goal, which was achieved, was to lift the homeownership rate from 64.2% to 67.5% of households.

~ Holman W. Jenkins, Jr., "Payback," The Wall Street Journal, August 22, 2007

Franklin Raines: "Housing is a safe, leveraged investment"

In 2001, your company helped a record 5.2 million Americans purchase or refinance homes or obtain affordable rental housing. Fannie Mae helped to expand mortgage consumer rights, broaden homeownership among Americans of color and modest means, and spruce up old neighborhoods all over the country.

Fannie Mae is one of only three companies in the Standard & Poor's 500 index to achieve double-digit growth in operating earnings per share for each of the past 15 years.

At a time when the market, shareholders, policy makers, and the public are seeking - and deserve - additional assurance and confidence in their public companies, Fannie Mae is a model for openness, transparency, regulatory oversight, capital protections, and market discipline.

Housing is a safe, leveraged investment - the only leveraged investment available to most families - and it is one of the best returning investments to make.

Home values are expected to rise even faster in this decade than in the 1990s as homes continue to get bigger and better, the growth in households and homeownership rates boost the demand for homes, and the supply of homes will be squeezed by land use and growth restrictions.

Fannie Mae's key role in housing America is to help supply the mortgage capital. The demand for the housing capital Fannie Mae provides is - and will be - especially great because we supply the lowest-cost capital on the most consumer friendly, flexible terms in the market.

Your company has a lot of work to do, and many great years ahead.

~ Franklin D. Raines, chairman and CEO, Fannie Mae, Fannie Mae 2001 Annual Report