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ALL IN 

Stephen Ashley, the chairman of the board, introduced Fannie’s new chief risk officer,
Enrico Dallavecchia, he declared that the new CRO would not stand in the way of
risk taking: “We have to think differently and creatively about risk, about compliance,
and about controls. Historically these have not been strong suits of Fannie Mae. . . .
Today’s thinking requires that these areas become active partners with the business
units and be viewed as tools that enable us to develop product and address market
needs. Enrico Dallavecchia was not brought on-board to be a business dampener.” 
In , Fannie acquired  billion of loans; of those (including some overlap),
 billion, or about , had combined loan-to-value ratios above ;  were
interest-only; and  did not have full documentation.  Fannie also purchased 
billion of subprime and  billion of Alt-A non-GSE mortgage-backed securities. 
The total amount of riskier loans represented larger multiples of capital than before.
At least initially, while house prices were still increasing, the strategic plan to in-
crease risk and market share appeared to be successful. Fannie reported net income
of  billion in  and then  billion in . In those two years, CEO Mudd’s
compensation totaled . million and Levin, who was interim CFO and then chief
business officer, received . million. 
In , Freddie Mac also continued to increase risk, “expand[ing] the purchase
and guarantee of higher-risk mortgages . . . to increase market share, meet mission
goals, stay competitive, and be responsive to sellers’ needs.”  It lowered its under-
writing standards, increasing the use of credit policy waivers and exceptions. Newer
alternative products, offered to a broader range of customers than ever before, ac-
counted for about  of that year’s purchases. Freddie Mac’s plan also seemed to be
successful. The company increased risk and market share while maintaining the
same net income for  and ,  billion.  CEO Richard Syron’s compensation
totaled . million for  and  combined,  while Chief Operating Officer
Eugene McQuade received . million. 
Again, OFHEO was aware of these developments. Its March  report noted
that Fannie’s new initiative to purchase higher-risk products included a plan to cap-
ture  of the subprime market by . And OFHEO reported that credit risk in-
creased “slightly” because of growth in subprime and other nontraditional products.
But overall asset quality in its single-family business was found to be “strong,” and the
board members were “qualified and active.” And, of course, Fannie was “adequately
capitalized.” 
Similarly, OFHEO told Freddie in  that it had weaknesses that raised some
possibility of failure, but that overall, Freddie’s strength and financial capacity made
failure unlikely.  Freddie did remain a “significant supervisory concern,”  and
OFHEO noted the significant shift toward higher-risk mortgages.  But again, as in
previous years, the regulator concluded that Freddie had “adequate capital,” and its
asset quality and credit risk management were “strong.” 
The GSEs charged a fee for guaranteeing payments on GSE mortgage–backed secu-
rities, and OFHEO was silent about Fannie’s practice of charging less to guarantee secu-
rities than their models indicated was appropriate. Mark Winer, the head of Fannie’s
Business, Analysis and Decisions Group since May  and the person responsible for