Fannie Mae headquarters in Washington, D.C.
NEW YORK –
from Fannie Mae and
Freddie Mac made to Barack Obama may backfire if the
Democratic presidential hopeful wages an aggressive
campaign to cast blame on rival John McCain and the
Republicans in Congress for the
-related losses that forced the
U.S. Treasury to take over the quasi-governmental mortgage
A review of Federal Election Commission records
back to 1989 reveals Obama in his three complete years in
the Senate is the second largest recipient of Freddie Mac
and Fannie Mae campaign contributions, behind only Sen.
Christopher Dodd, D-Conn., the powerful chairman of the
Senate banking committee. Dodd was first elected to the
Senate in 1980.
According to OpenSecrets.com, from 1989 to 2008, Dodd
received $165,400 in Fannie Mae and Freddie Mac campaign
contributions, including contributions from PACs and
individuals, followed by Obama, who received $126,349 in
such contributions since being elected to the Senate in
In contrast, McCain warned of the coming mortgage
crisis as he pressed in 2005 for regulatory reform of
Fannie Mae and Freddie Mac.
"For years I have been concerned about the regulatory
structure that governs Fannie Mae and Freddie Mac – known
as government-sponsored entities or GSEs – and the sheer
magnitude of these companies and the role they play in the
McCain said on the floor of the Senate in 2005,
speaking in favor of the Federal Housing Enterprise
Regulatory Reform Act of 2005.
McCain pointed out Fannie Mae's regulator had stated
the company's quarterly reports of profit growth over the
past few years were "illusions deliberately and
systematically created" by the company's senior
management, which resulted in a $10.6 billion accounting
The bill passed the House but was never brought up for
a vote in the Senate, largely because of Democratic
opposition to change in the Fannie Mae and Freddie Mac
regulatory structure that remained in place until the
Treasury takeover two weeks ago.
As evidenced by the failure to pass the Federal Housing
Enterprise Regulatory Reform Act of 2005, the Democrats in
Congress have repeatedly fought back Republican Party
efforts to reform the two
Instead, Democrats in Congress have sought to preserve
the quasi-governmental status of the mortgage giants,
seeing Fannie Mae and Freddie Mac as places to locate
former top Democratic Party operatives, where they have
earned millions in compensation, despite a continuing
series of financial scandals. Enron-like accounting
manipulation, for example, boosted earnings to a level at
which massive executive bonuses could be paid.
In the aftermath of the U.S. government takeover,
attention has focused on three Democrats with close ties
to Obama who served as Fannie Mae executives: Franklin
Raines, former Clinton administration
budget director; James Johnson, former
aide to Democratic Vice President Walter Mondale; and
Jamie Gorelick, former Clinton administration deputy
All three Obama-related executives earned millions in
compensation from Fannie Mae.
Johnson earned $21 million in just his last year
serving as Fannie Mae CEO from 1991 to 1998; Raines earned
$90 million in his five years as Fannie Mae CEO, from 1999
to 2004; and Gorelick earned an estimated $26 million
serving as vice chair of Fannie Mae from 1998 to 2003,
according to author David Frum, a fellow at the
American Enterprise Institute.
All three have been involved in mortgage-related
according to the Washington Post, Gorelick, as Fannie
Mae vice chairman, received a bonus of $779,625, despite a
scandal in which employees falsified signatures on
accounting transactions to manipulate books to meet 1998
earning targets. The moves, in turn, triggered
multi-million-dollar bonuses for top executives.
Gorelick was embroiled in another controversy over an
alleged conflict of interest when a 1995 memo she authored
as deputy attorney general surfaced while she was a member
of the 9/11 commission.
The memo, which became known as the "Gorelick Wall,"
appeared to establish barriers that barred federal
anti-terrorist criminal investigators from accessing
various federal records and databases that may have
assisted them in their criminal investigations.
According to the Associated Press, Raines and several
other Fannie Mae top executives were ordered in a civil
lawsuit to pay nearly $31.4 million for manipulating
Fannie Mae earnings over a period of six years to trigger
their massive bonuses.
Raines was also forced in the settlement to give up
options valued at $15.6 million.
Last year, the
Securities and Exchange Commission alleged Freddie Mac
had engaged in accounting fraud from 2000 to 2002,
imposing a $50 million fine on the company and on four
executives fines for amounts ranging from $65,000 to
Raines currently advises Obama on housing policy.
Johnson was appointed to head Obama's vice presidential
selection committee, until a controversy concerning an
alleged $7 millions in questionable real estate
loans he received on favorable terms
from failed sub-prime mortgage
lender Countrywide Financial surfaced
and forced him to step down.
previously reported a panel chaired by Elena Kagan,
dean and professor of law at Harvard Law School,
speculated at the June two-day meeting of the American
Constitution Society that Gorelick was a possible attorney
general cabinet appointment if Obama should be elected
The decision by the U.S. Treasury to take over Freddie
Mac and Fannie Mae
could end up costing the U.S. taxpayer as much as $100
billion, although the extent of losses at the two
giant mortgage companies remains to be determined.
According to the Wall Street Journal, Freddie and
Fannie own or guarantee about $5.2 trillion worth of
The riskiest loans held by Freddie and Fannie are known
as "Alt-A" and sub-prime mortgages, worth about $780
billion, or about 15 percent of the total portfolio.
The federal government takeover of Freddie and Fannie
passes to U.S. taxpayers the contingent liability for
failures in the entire $5.2 trillion loan portfolio held
by the two mortgage giants.
Over the past four quarters, Freddie and Fannie have
suffered losses of about $14 billion, as the mortgage
market has been hit by a wave of defaults and foreclosures
not seen in the U.S. since the 1930s.