Thursday, December 11, 2008

30 years ago in Time Magazine

The more things change...

Politics and policy rend a big lender

The White House has become involved in a maneuver to oust yet another top-level holdover Republican appointee. He is Oakley Hunter, chosen by Richard Nixon as chairman of the Federal National Mortgage Association, known as Fannie Mae, the nation's largest provider of housing finance. As boss of Fannie Mae, Hunter has been feuding with Patricia Harris, Secretary of Housing and Urban Development. Largely to appease her, the White House acted last week on a HUD memo urging that an emissary be chosen to end the quarrel, perhaps by bringing about Hunter's "voluntary resignation." The memo named five men as possible mediators, including Bert Lance, but the White House gave the job to Robert Strauss, the President's special trade negotiator.

There is a personality clash between the liberal, Humphrey-style Democrat Pat Harris and Oakley Hunter, a former Republican Congressman from Southern California. Their deeper problems center on policy: Should Fannie Mae retain its semi-independence, as Hunter wants, or should it bow to HUD directives, as Harris insists? Specifically, Harris feels that Fannie Mae is far too concerned about making money—last year its profits rose from $127 million to $165 million—and too unconcerned with stimulating mortgage lending for low-income housing in the cities.

For its first 26 years, Fannie Mae was a Government agency. In 1968 Congress turned it into a private, profit-oriented company answerable primarily to its stockholders, both individuals and institutions. But the President was given the right to fire its directors "for cause," and HUD was granted some powers to limit Fannie Mae's borrowing. It raises billions of dollars a year in private markets and then buys mortgages from banks, savings and loan associations and other lenders, giving them money to invest in other mortgages. Currently, Fannie Mae holds about $34 billion worth of housing debt. In a war of nerves, Harris in recent months has not granted big new borrowing authority to Fannie Mae, but instead has doled it out in dribs and drabs.

Hunter, who earns $140,000 a year, also faces opposition within Fannie Mae's board; of its 15 directors, five are appointed by the President and ten are voted in by stockholders after being nominated by a management committee. Last October, one stockholder-chosen director, Julian Zimmerman, a mortgage banker who was head of the Federal Housing Administration under President Eisenhower, called for Hunter's resignation on the grounds that Fannie Mae's management had grown aloof and unresponsive to both its own board and the Government. In November a motion to censure Hunter barely lost, by an 8 to 6 vote.

The latest crisis was set off because HUD executives heard that Zimmerman and one other anti-Hunter director would not be nominated for re-election at a board meeting scheduled for this Tuesday. So the White House dispatched Strauss to settle the fight and get Hunter's terms for resigning. Meeting with Strauss last week, Hunter talked about quitting in the future, provided that the Administration would guarantee Fannie Mae's "fiscal integrity and independence." Hunter also wanted all of HUD'S authority over Fannie Mae transferred to the Treasury. But Pat Harris rejected any such deal, and so the White House remains in the middle of an ongoing fight.


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