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ALL IN 

rities offered by Wall Street, its unfamiliarity with the new credit risks, worries that
the price of the mortgages wouldn’t be worth the risk, and regulatory concerns sur-
rounding certain products.  At this and other meetings, Lund recommended study-
ing whether the current market changes were cyclical or more permanent, but he also
recommended that Fannie “dedicate significant resources to develop capabilities to
compete in any mortgage environment.”  Citibank executives also made a presenta-
tion to Fannie’s board in July , warning that Fannie was increasingly at risk of
being marginalized, and that “stay the course” was not an option. Citibank proposed
that Fannie expand its guarantee business to cover nontraditional products such as
Alt-A and subprime mortgages.  Of course, as the second-largest seller of mort-
gages to Fannie, Citibank would benefit from such a move. Over the next two years,
Citibank would increase its sales to Fannie by more than a quarter, to  billion in
the  fiscal year, while more than tripling its sales of interest-only mortgages, to
 billion. 
Lund told the FCIC that in , the board would adopt his recommendation: for
the time being, Fannie would “stay the course,” while developing capabilities to com-
pete with Wall Street in nonprime mortgages.  In fact, however, internal reports
show that by September , the company had already begun to increase its acquisi-
tions of riskier loans. By the end of , its Alt-A loans were  billion, up from
 billion in  and  billion in ; its loans without full documentation
were  billion, up from  billion in ; and its interest-only mortgages were
 billion in , up from  billion in . (Note that these categories can over-
lap. For example, Alt-A loans may also lack full documentation.) To cover potential
losses from all of its business activities, Fannie had a total of  billion in capital at
the end of . “Plans to meet market share targets resulted in strategies to increase
purchases of higher risk products, creating a conflict between prudent credit risk
management and corporate business objectives,” the Federal Housing Finance
Agency (the successor to the Office of Federal Housing Enterprise Oversight) would
write in September  on the eve of the government takeover of Fannie Mae.
“Since , Fannie Mae has grown its Alt-A portfolio and other higher risk products
rapidly without adequate controls in place.” 
In its financial statements, Fannie Mae’s disclosures about key loan characteristics
changed over time, making it difficult to discern the company’s exposure to subprime
and Alt-A mortgages. For example, from  until , the company’s definition of
a “subprime” loan was one originated by a company or a part of a company that spe-
cialized in subprime loans. Using that definition, Fannie Mae stated that subprime
loans accounted for less than  of its business volume during those years even while
it reported that  of its conventional, single-family loans in ,  and 
loans were to borrowers with FICO scores less than . 
Similarly, Freddie had enlarged its portfolios quickly with limited capital.  In
, CEO Richard Syron fired David Andrukonis, Freddie’s longtime chief risk offi-
cer. Syron said one of the reasons that Andrukonis was fired was that Andrukonis
was concerned about relaxing underwriting standards to meet mission goals. He told
the FCIC, “I had a legitimate difference of opinion on how dangerous it was. Now, as