Hybrid Organizations and the Alignment of Interests: The Case of Fannie Mae and Freddie Mac

• Author: Jonathan G. S. Koppell
• DOI: http://doi.org/10.1111/0033-3352.00050
• Date: 01 July 2001
• Published date: 01 July 2001

468 Public Administration Review •July/August 2001, Vol. 61, No. 4

Jonathan G.S. Koppell

Yale University

Hybrid Organizations and the Alignment

of Interests: The Case of Fannie Mae and

Freddie Mac

This article explores the political influence of government-sponsored enterprises (GSEs). Using

Congress’s overhaul of the regulatory infrastructure for Fannie Mae and Freddie Mac as a case

study, the article presents two principal findings: (1) The characteristics that distinguish govern-

ment-sponsored enterprises from traditional government agencies and private companies endow

Fannie Mae and Freddie Mac with unique political resources; and (2) the alignment of interest

groups around Fannie Mae and Freddie Mac is subject to strategic manipulation by the GSEs. A

triangular model of this alignment is proposed and employed to analyze the legislative outcome.

The case has implications for students of organizational theory as well as policy makers consider-

ing the use of GSEs or other hybrid organizations.

Jonathan G.S. Koppell is an assistant professor of politics, policy, and orga-

nization at the Yale School of Management. His research concerns the impli-

cations of delegating public policy responsibilities to different types of hybrid

organizations including government-sponsored enterprises, government-

backed venture capital funds, and government corporations. He was on the

staff of the Office of Federal Housing Enterprise Oversight from 1993 to

1995. Professor Koppell’s article was accepted in the fall of 1999. Conse-

quently, it relies on sources and events prior to 2000. Email: jonathan.

koppell@yale.edu.

Although their names suggest Southern folksiness,

Fannie Mae and Freddie Mac are recognized in Washing-

ton for their political clout, not their down-home cooking.

Fannie Mae and Freddie Mac, known formally as the Fed-

eral National Mortgage Association and the Federal Home

Loan Mortgage Corporation, respectively, are government-

sponsored enterprises (GSEs)—stockholder-owned, profit-

seeking corporations created by Congress to help address

America’s housing needs. GSEs are one type of hybrid

organization that combines characteristics of public- and

private-sector entities.

Although they are increasingly popular at the local, state,

and national levels of government, hybrids receive rela-

tively little attention. This article considers the political

influence of GSEs through an examination of congressional

crafting of legislation in 1992 to reshape the regulatory

oversight of Fannie Mae and Freddie Mac. Specifically,

this article has two objectives:

•Provide better understanding of GSEs. “While called

‘private,’” observes Harold Seidman, who coined the

term government-sponsored enterprise, “these enter-

prises really function in a terra incognita, somewhere

between the public and private sectors” (1988, 23). While

some have suggested frameworks for considering the

gamut of hybrid organizations (see Perry and Rainey

1988), this article takes the opposite tack: It is field re-

connaissance, an effort to understand the dynamics sur-

rounding a particular type of hybrid.

•Specify the interaction of organizational structure and

political influence. David Truman observes that “Al-

though the effect of structural arrangements is not al-

ways what its designers intended, these formalities are

rarely neutral” (1993, 322). It should not be surprising

that the characteristics distinguishing government-spon-

sored enterprises from private corporations and govern-

ment agencies should distinguish the nature of their po-

litical influence as well.

Federal regulators recently unveiled proposed regula-

tions intended to ensure the financial safety and sound-

ness of the two GSEs and to set levels of performance for

low-income borrowers. Thus it is a timely moment to re-

visit legislation calling for the regulatory overhaul. The

legislative history presented in this article was constructed

from official records, trade magazines and newspapers, and