Fannie Mae vs. Honesty

Many internal and external incidents continually caused negative effects on the mortgage company, Fannie Mae. Its internal decisions and actions eventually concluded with a necessity for a 200 billion gov’t buy-out in order to stay afloat and to prevent other mortgage lenders from going out of business. (Jennings, 2012).

where was the soul of Fannie Mae during this time? Using Entine and Jennings’ 8 questions of social responsibility, I will evaluate its core.

Does the company comply with the law? Externally speaking, Fannie Mae followed the rules of the business, but with great stretching of the limits. It did increase the profit of the housing market, but once the Community Reinvestment Act (CFA) was initiated, Fannie Mae overly extended itself with high-risk mortgages, especially due to ballooning-rate lending. It was Fannie Mae’s internal behaviors of falsifying books, leaving information out when presenting to investigations and in general, and attaching quotas to bonuses.

Does the company have a sense of propriety? This is a difficult and subjective question. In 2001, 2002 and 2004, Fannie Mae was voted the most ethical company in the United States: diversity, affirmative action, but as the problems began, the next 4 years brought lying, fraud and deceit.  So, it is difficult to decide which one outweighs the other.

Has honestly do product claims match with reality. I find Fannie Mae to be within the guidelines of the CFA but that did not make it ethical.  Underwriters were up and above board with the company by warning it about the number of mortgages were exceeding the needed repayment.   It was the marketing division that worked outside its realm of social responsibility, by enticing applicants to choose Fannie Mae, but did not explain the many hidden or unfair aspects of the contract.

How forthcoming is the company with information? This is almost non-existent. When investigating employee and Controller Division complaints, Fannie Mae did work with lawyers. It sent limited information to the Accounting Division. When presenting contract information to customers, the consequences of ballooning interest rates were not readily available.

How does company treat its employees? Poorly for all but the head executives, CEOs, President and Vice-President, who received bonuses equaling or exceeding base pay. Other employees lost increment raises in order to pay for pay of the executives. Their complaints were not addressed. And Fannie Mae did not consider job security when it came to decision-making.

How does the company handle 3rd party ethics issues? Fannie Mae used 3rd parties to pay for their mistakes. The government made sure all stockholders and investors were paid back, but the general public had to repay fines and notes.

How charitable is the company? Fannie Mae had its own charity foundation that distributed large amounts of money yearly. But, these donations always came with strings attached that benefited the company over the intended. They abused tax-empts status and gave favors to Congress, in order to get special treatment in return if problems arose for Fannie Mae. It went so far as to align company employees with Congress and other company executives.

How does the company react when faced with negative disclosures? Here I must give some credit to Fannie Mae. When publically investigated by the SEC in 2005, Fannie Mae delivered accounting books, even though they knew they were not in compliance and had limited information.

The answers to these questions proved Fannie Mae was unethical in many aspects of their structure and decisions due to the incorporation of greed.

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