Would the eight question model mean that Fannie Mae could be
labeled an “honest” company? Why or why not?
The
real ethical dilemma is, is it ethical for the student to comment on this
question, as a neophyte researcher, without informing the reader of an interest
in the company due to stock ownership? The answer is for the reader to
determine. With the 1938 time stamp of
origination of Fannie Mae, for the expressed purpose of increasing affordable
housing availability and to attract investment into the housing market, the
1968 change in funding from government to private capital, and the magnificent performance
of Freddie Mac since the onslaught of the housing market crisis, it seems
fairly safe to say that the company has sound business practices and longevity
in order to remain intact after such a span of time and such a recent onslaught
of financial disaster. Some would say
that the fact that Fannie has been around for so long and remains profitable
should mean that the company is doing many things correctly. This, however, might be stated for the drug
trade also. More factual examination is
needed.
Following
the Fannie Mae link , it was
difficult, if not impossible to locate the Fannie Mae commitment and mission
statements that Jennings (2012) cites on
p. 121 of the text. The biggest discrepancy was discovered when attempting to
find the mission statement "and help raise the minority homeownership rate
with the ultimate goal of closing the homeownership gap entirely" or,
"transform targeted communities, including urban, rural, and Native American,
by channeling all the company's tools and resources and aligning efforts with
partners in these areas." Typing
into the search engine on the site "mission", "commitment",
"commitment and mission", "Native", all failed to locate the four commitment and
mission statements listed in the textbook.
The closest resemblance to the four mission statements actually came out
of reference to "mission" in a couple of quarterly reports
"Expand access to homeownership for first-time buyers" and "Make homeownnership and rental
housing a success for families at risk of losing their homes"; however,
those did not seem to be in the website proper.
The nearest statement about a mission on the website seems to primarily
be to assist first time home buyers, make renting a success, and to improve the
company. This is all a toll against the
validity of the text, however, not Fannie Mae.
When
continuing to get a feel for the perception of Fannie Mae, a simple websearch
entry of "Fannie Mae ethics" was performed. the first few results were pdf documents
citing the Fannie Mae corporate policies, and the first link to a
non-Fannie-Mae-connected entity was American Progress.org-fannie-mae-and-freddie-mac . In
the link, a description of the business, and of the mortgage crisis impact on the company wade through how the
company had very little impact on causing the crisis, and had some poor
decisions to blame on why the Federal government was required to place the
company into receivership. Overall, the website paints a fairly good and sound
picture of the company. Others have a
darker opinion.
"Fannie
Mae and Freddie Mac executives told the world that their subprime exposure was
substantially smaller than it really was," said Robert Khuzami, SEC's
enforcement director, in filing the suit in New York. "These material
misstatements occurred during a time of acute investor interest in financial
institutions' exposure to subprime loans, and misled the market about the
amount of risk." (Trumbull, 2011). This primarily, simply based on the
headlines, fails the Warren Buffet Front-Page-of-the-Newspaper Test nor the
Jennings National Enquirer Test. One sees the headlines and the full article at this Christian Science Monitor Article
Further, upon scrutiny of Fannie Mae's policies on amortization, in the
Offic eof Federal Housing Enterprise Oversight (OFHEO) report, Janet Pennewell,
Fannie's vice president of resource and planning was asked "What is
arbitrary volatility in earnings?"
Ms. Pennewell's answer included
"arbitrary volatility, in our view, was introduced when
--...--changing your view of long-term interest rates that caused a dramatic
change in the constant effective yield that you were reporting....." (Jennings, 2012). This
seems odd for a company whose primary volume of business involves stable long
term interest rates. At best, this is
allowing false impressions.
To
further complicate Fannie Mae's position during the post crisis investigation,
we are informed of a meeting with Franklin Raines of Fannie Mae and Donald
Nicolaisen, head of the SEC's accounting division, that the accounting
practices were inaccurate "in material respects", meaning that they
did not conform to GAAP procedures at all, (Jennings, 2012). This means that the company broke the law. Although none of the executives have been
charged criminally, it is clear that the Securities and Exchange Commission
(SEC) has sued and settled with Fannie Mae and Freddie Mac for substantial
funds.
Of
course, reading all of the actions and inactions and failures to report
impropriety in accounting and claims of solvency, it is apparent that the
Fannie Mae before receivership: did not comply with the law, did not have a
sense of propriety, was not honest in product claims matching to reality, was
not forthcoming with company information, and reacted dubiously when faced with
negative disclosures during a congressional hearing with Senator Chuck
Hagel. The Fannie Mae of the mortgage financial
crisis should be labeled as dishonest.
The present configuration of the company is under direct scrutiny by the
US Government, so, to say that the company called Fannie Mae of it's own accord
simply is an empty set: it is of no value to describe how Fannie Mae will
function, honestly or not, until it can be free of daily direct oversight under
the boundaries and restrictions of receivership. No one will be able to describe the company
ethics of Fannie Mae until it has recovered from receivership.
References
Fannie Mae
website. Retrieved from: http://www.fanniemae.com/portal/index.html
Griffith, J. (2012).
Seven things you need to know about Fannie Mae and Freddie Mac. Center for
American Progress. Retrieved from: https://www.americanprogress.org/issues/housing/
report/2012/09/06/36736/7-things-you-need-to-know-about-fannie-mae-and-freddie-mac/
Trumbull, M.
(2011). Subprime scandal: ex Fannie Mae, Freddie Mac execs accused of fraud.
The Christian Science Monitor. Retrieved from: http://www.csmonitor.com/USA/Justice/2011/1216/Subprime-scandal-ex-Fannie-Mae-Freddie-Mac-execs-accused-of-fraud
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