Nice work if you can get it: how Fannie Mae became Washington's biggest power player.

• Author: Cottle, Michelle
• Position: U.S. Federal National Mortgage Association - Cover Story

With more than two years yet to go in Bill Clinton's second term -- assuming Reps. Burton and Barr fail in their impeachment crusade -- the pundits are already speculating about what our 42nd president will do post-White House. Facing unemployment at the tender age of 54, Clinton is too young to be put out to pasture a la Ronald Reagan or LBJ, and a little too fond of the spotlight to retreat to the ivory tower of academia, as some have suggested. Diplomat, government adviser, and spokesman for a pet cause are a few of the higher-profile possibilities being tossed about, and a handful of Bill-watchers (this magazine among them) have predicted that Clinton, addicted to the glad-handing life of a politician, will make a ran for the Senate. But in light of the excitement Bill's fund-raising techniques tend to generate among Republicans, hopping right back onto the money-grubbing campaign trail might be pushing his luck. Besides, after eight years of subpoenas, hairstyle jokes, and all-around public pillorying, dear Hillary deserves a break from the political viper pit. All told, President Clinton's shrewdest career move come 2001 might be simply to move his office across town and settle in at Washington's most prestigious rest home for ex-politicos and bureaucrats, more commonly known as Fannie Mae.

Chartered by Congress in 1938 as the Federal National Mortgage Association, Fannie Mae is a quasi-governmental entity whose central mission is to encourage home ownership by ensuring that the residential mortgage market remains well-funded. To this end, Fannie buys up mortgages from primary lenders such as banks and thrifts -- thereby enabling those lenders to finance even more mortgages -- then bundles the debts and resells them. (Thus, not only can investors buy shares in Fannie Mae, they can also purchase a piece of the mortgages the company has bought) Originally a public agency, Fannie was transformed in 1968 into a "government-sponsored enterprise." As a GSE, the company is subject to congressional oversight and certain limitations on its activities, but it nonetheless is a privately operated, publicly traded, for-profit corporation charged with making money for its shareholders.

Over the last two decades or so, Fannie has developed an unofficial secondary function as a refueling station for bureaucrats and political operatives fleeing the trenches of public service. Fannies management, like the corporation itself, comprises a rich blend Of government and business. Just this April, profiles in The Washington Post and Slate magazine highlighted the political pedigree of outgoing Chairman and CEO James A. Johnson, whose pre-Fannie credentials include work for the Democratic party on five presidential campaigns and a stint as executive assistant to Vice President Walter Mondale. When Johnson announced his resignation from Fannie, none other than White House budget director Franklin Raines promptly announced that he was leaving the administration to succeed Johnson as chairman and CEO. Raines expressed regret over having spent only a year and a half as chief of the Office of Management and Budget, but explained that the invitation to head Fannie's financial empire was "a once-in-a-lifetime opportunity."

Indeed, a less-than-glamorous career move on its surface, scoring an executive post at Fannie Mae is recognized around establishment Washington as the equivalent of winning the lottery. Much of the draw has to do with the corporation's dual public-private nature. Although Fannie takes great pains to portray itself as just another market player -- "We are not an agency," a staffer in the communications office politely but firmly reminded me -- the corporation's GSE status conveys a number of financial benefits that give the company a formidable edge in the marketplace. Fannie is exempt from state and local corporate income taxes, has a $2.25 billion conditional line of credit with the Treasury, is excused from paying to register the mortgage-backed securities it sells with the SEC, and, thanks to the implicit government guarantee of its debts, is able to borrow money at well below market-rate. This last benefit was worth an estimated $4 billion to Fannie in 1995 alone, according to a '96 analysis by the Congressional Budget Office.

Fannie's financial advantages make it almost impossible for private firms to compete in the field of "conforming" mortgages (those that meet Fannie's credit standards and are valued at less than the federally set ceiling of $227,150). As a result, the only serious competition Fannie faces is from a similar, and much smaller, GSE known as Freddie Mac. Fannie is revered on Wall Street as a money-making machine: In 1997 -- its 11th consecutive year of record earnings -- the corporation turned a profit of $3.1 billion. The company controls one-fifth of the nation's residential mortgage market and boasts that, in terms of assets, it is the largest corporation in the country.

Far from being seen as mercenary capitalists, however, Fannie executives are beloved of philanthropy groups and the public alike, thanks to the company's (government-mandated) commitment to low-income housing, as well as the community and charity works it funds through the Fannie Mae Foundation. During his eight-year reign as chairman, Johnson was invited to head both the Kennedy Center and the Brookings Institution, earning him such monikers as "the face of the Washington national establishment" and "the chairman of the universe" (Now, compare these descriptions to the public labels Clinton currently enjoys as president, such as "The Big Creep" and, as Rep. Dan Burton affectionately dubbed him, "a scumbag.")

In addition to the prestige of working at the mortgage powerhouse, President Clinton would also appreciate the luxury accommodations...