All the Devils Are Here [10]
What he couldn’t change was the combination of resentment and envy that Washington felt toward Fannie Mae. There was, Maxwell says, “tremendous disdain” for Fannie. “All over Washington, there were people doing stressful, important jobs for not a lot of money, and here was this place on Wisconsin Avenue where people did work that wasn’t any more challenging—and yet, by Washington standards, they made huge amounts.” He remembers taking his wife to a dinner party shortly after he arrived in town. “By the time we left, she was in tears, and I was close!” he later recalled.
Fannie’s ostentatious headquarters didn’t help. Under Hunter, the company had moved from modest digs on Fifteenth Street to a building in Georgetown that resembled a giant mansion. The front section had been occupied by an insurance company; to build the back to match perfectly, Fannie had a brickyard reopened specifically to supply the proper brick. “To many people, it was a living symbol of power and arrogance,” says Maxwell.
Yet for all their resentment, people were envious of Fannie Mae’s employees. They all wanted cushy jobs there—so they could get rich, too. “It happened over and over again,” Maxwell says. “The same people who had power over you, whether they were congressional staffers or HUD employees or even members of Congress, wanted jobs and would unabashedly seek them. If you didn’t hire them, then you had enemies.”
Like Ranieri, Maxwell sang from the hymnal of homeownership. He’d later say that another reason for his conversion to the Democratic Party was his irritation at Republican attitudes toward affordable housing. Under Maxwell, Fannie created an office of low- and moderate-income housing, and the company helped pioneer the first deals that used the low-income housing tax credit program to create affordable rental housing. But he also understood that homeownership was Fannie’s trump card: it’s what made the company untouchable. Under Maxwell, Fannie also began to trumpet its contributions to affordable housing in advertisements. In addition, Fannie’s press releases began to describe it, and Freddie, as “private taxpaying corporations that operate at no cost to taxpayers.”
Also like Ranieri, Maxwell saw how critical mortgage-backed securities were to the future of the housing market—and to his company’s bottom line. For Fannie, selling mortgage-backed securities was a way not only to get risk off its own books, but to earn big fees. Mortgage-backed securities represented an opportunity for Fannie to become even more central to the housing market than it already was, because the GSEs were the natural middleman between mortgage holders and Wall Street. If Fannie grabbed hold of that role—and kept it for itself—a profitable future was assured.
In public settings, Ranieri and Maxwell were generous in their praise for each other. “I think he’s a genius, synonymous with Wall Street’s entrance into mortgage finance,” Maxwell told an audience of savings and loan executives in 1984. “David, as much as I, understood the implications of what I was trying to do,” says Ranieri today. “He was my ally. We needed them and they needed us.”
But under the surface, it was always an uneasy alliance. Ranieri was part of Wall Street. No one on the Street wanted to cede huge chunks of possible profit to the GSEs. “David and I jockeyed,” Ranieri acknowledges. “The intellectual argument was, what should the government do? What should it be allowed to win at?” A person close to Ranieri put it more bluntly: “Despite his alliance with Fannie and Freddie, [Ranieri] was against them.” He wanted Fannie and Freddie to have, at best, a junior role. Maxwell wanted to prevent Wall Street from shutting Fannie Mae out, and he wanted to establish the primacy of the GSEs in this new market. For all the noble talk about helping people buy homes, what ensued was really a fight about money and power.
What made Fannie and