All the Devils Are Here [9]
Two things saved Fannie Mae. First, the banks never did stop lending it money. Why? Because their working assumption was that Fannie Mae’s status as a government-sponsored enterprise, with its central role in making thirty-year mortgages possible for middle-class Americans, meant that the federal government would always be there to bail it out if it ever got into serious trouble. Although there was nothing in the statute privatizing Fannie Mae that stated this explicitly—and Fannie executives would spend decades coyly denying that they had an unspoken government safety net—that’s what everyone believed. Over time, Fannie Mae’s implicit government guarantee, as it came to be called, became a critical source of its power and success.
The second thing that saved Fannie Mae was the arrival, in 1981, of David Maxwell as its new chief executive. Maxwell’s predecessor, a former California Republican congressman named Allan Oakley Hunter, was not particularly astute about business, nor were the people around him. During the Carter administration, when he should have been focusing on the effects of rising interest rates on Fannie’s portfolio, he had instead spent his time feuding with Patricia Harris, Carter’s secretary of Housing and Urban Development.
Like Hunter, Maxwell had once been a Republican. A Philadelphia native, he graduated from Yale, where he was a champion tennis player, and then Harvard, where he studied law, before joining the Nixon administration as general counsel of HUD. When he was approached to run Fannie, he was living in California, running a mortgage insurance company called Ticor Mortgage, and he’d converted to the Democratic Party because he felt that in California that was the only way to have any influence. “I was a businessman,” Maxwell says now. A businessman was exactly what Fannie Mae needed. Jim Johnson, the Democratic power broker who succeeded Maxwell as Fannie’s CEO in the 1990s, would later say that he “stabilized the company as a long-term force in housing finance.” Judy Kennedy, an affordable housing advocate who worked for Freddie Mac as a lobbyist in the late 1980s, puts it more grandly. She calls Maxwell a “transformative figure.”
Maxwell was gracious and charming—the sort of man who sent handwritten notes, opened his office door to all his employees, and took boxes of books with him to read on vacation—but he was also incredibly tough, with blue eyes that could turn steely cold. He did not tolerate mediocrity. He couldn’t afford to. “He was fighting for the survival of the company, and anyone, no matter what level, who was not up to the task left or was asked to leave,” says William “Bill” Maloni, who spent two decades as Fannie’s chief lobbyist. During Maxwell’s ten-year reign, Fannie had four presidents and burned through lower-level executives. When Maxwell retired, the company’s head of communications made a video that showed corporate cars moving in and out of Fannie’s offices with body bags in the trunks.
Maxwell immediately began running Fannie in a more businesslike fashion. He tightened the standards for the loans that Fannie bought. He put in new management systems. Under Hunter, Fannie used to buy mortgages as much as a year in advance.