The company became the subject of a formal investigation by the Securities and Exchange Commission SEC regarding whether Freddie Mac was manipulating its earnings or, worse, attempting to disguise the amount of its credit or other risk. The Freddie Mac scandal had severe repercussions for Fannie Mae. It generated uncertainty in the capital markets, which led to higher interest rates and an inability on the part of Fannie to do more for its consumers.
Raines remarked, "I jokingly said to friends that I now know what the definition of collateral damage is" Fair Disclosure Wire , July 30, When asked in a press conference if Fannie Mae had used any accounting judgment that either its employees or its auditors considered debatable, Raines responded, "The answer to that is clearly, no.
We have not. If we had, I would have violated the law in certifying our financial results. If we had, our auditors would be obligated to publicly do something about that. So I do not think that there is any question on that, of our taking any steps to subvert accounting" Fair Disclosure Wire , July 30, Raines responded to the calls for increased scrutiny with the adeptness of a politician campaigning for reelection.
He supported plans for stronger regulation of Fannie Mae and other government-sponsored entities while warning of the repercussions of reining in the company's charter. Said Raines in a speech at George Washington University, "In pursuing positive reform, we believe—and I think most policymakers believe—that Congress needs to be extraordinarily careful to avoid changes that would undermine our mission and stifle the flow of low-cost mortgage capital and mortgage innovations" CBS MarketWatch.
Raines had long used his impressive political connections to defend attacks on Fannie Mae. Immediately each member of the U. House of Representatives was mailed a letter saying that more than two dozen groups, including the National Association of Realtors and the National Council of La Raza, which represented Hispanic Americans, would fight the bill based on the negative effects it would have on consumers.
Fannie Mae ultimately relented and became an SEC registrant. The extent of confidence in Raines was illustrated in the tepid reaction from government officials in response to Fannie Mae's October announcement that it had to correct quarterly financial results. The day after the announcement, Paul S. Sarbanes of Maryland, a top Democrat on the Senate Banking Committee, brushed off the news as a nonevent. Said Sarbanes, "It didn't affect their financial strength.
That's an important consideration" Congressional Quarterly Weekly , April 16, But others saw such a reaction as further evidence of a problem. Said Representative Richard H.
Baker R-Louisiana , a longtime Raines nemesis, "If this were any other publicly traded corporation of any stature, those statements would be of such enormous consequences in the market that you might have to suspend trading.
It has not yet had that kind of effect…. So there isn't any market discipline here, and that's what makes them unique" Congressional Quarterly Weekly , April 16, In the Bush administration, some members of Con gress, and several competitors in the housing market continued to raise questions about whether Fannie Mae's size and growth posed a risk to the nation's economy and whether the company and its smaller rival, Freddie Mac, required more oversight.
That year Senator Richard C. ET NOW. Brand Solutions. Video series featuring innovators. ET Financial Inclusion Summit. Malaria Mukt Bharat. Wealth Wise Series How they can help in wealth creation. Dow Jones. By Alan Zibel. To Read the Full Story. Subscribe Sign In. How long can it last? Ballston's tallest building hits the market. The stage is set for a River Farm sale.
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