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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
modeling pricing fees, raised concerns that Fannie Mae was not charging fees for Alt-A
mortgages that adequately compensated for the risk. Winer recalled that Levin was crit-
ical of his models, asking, “Can you show me why you think you’re right and everyone
else is wrong?” Undercharging for the guarantee fees was intended to increase market
share, according to Todd Hempstead, the senior vice president at Fannie in charge of
the western region. Mudd acknowledged the difference between the model fee and
the fee actually charged and also told the FCIC that the scarcity of historical data for
many loans caused the model fee to be unreliable.
In the September , , memo that would recommend that Fannie be placed
into conservatorship, OFHEO would expressly cite this practice as unsafe and un-
sound: “During and , modeled loan fees were higher than actual fees
charged, due to an emphasis on growing market share and competing with Wall
Street and the other GSE.”
: “Moving deeper into the credit pool”
By the time housing prices had peaked in the second quarter of , delinquencies
had started to rise. During the board meeting held in April , Lund said that dis-
location in the housing market was an opportunity for Fannie to reclaim market
share. At the same time, Fannie would support the housing market by increasing liq-
uidity. At the next month’s meeting, Lund reported that Fannie’s market share
could increase to from about in . Indeed, in Fannie Mae forged
ahead, purchasing more high-risk loans. Fannie also purchased billion of sub-
prime non-GSE securities, and billion of Alt-A.
In June, Fannie prepared its five-year strategic plan, titled “Deepen Seg-
ments—Develop Breadth.” The plan, which mentioned Fannie’s “tough new chal-
lenges—a weakening housing market” and “slower-growing mortgage debt
market”—included taking and managing “more mortgage credit risk, moving deeper
into the credit pool to serve a large and growing part of the mortgage market.” Over-
all, revenues and earnings were projected to increase in each of the following five
years.
Management told the board that Fannie’s risk management function had all the
necessary means and budget to act on the plan. Chief Risk Officer Dallavecchia did
not agree, especially in light of a planned cut in his budget. In a July , ,
email to CEO Mudd, Dallavecchia wrote that he was very upset that he had to hear at
the board meeting that Fannie had the “will and the money to change our culture and
support taking more credit risk,” given the proposed budget cut for his department in
after a reduction in headcount in . In an earlier email, Dallavecchia
had written to Chief Operating Officer Michael Williams that Fannie had “one of the
weakest control processes” that he “ever witnessed in [his] career, . . . was not even
close to having proper control processes for credit, market and operational risk,” and
was “already back to the old days of scraping on controls . . . to reduce expenses.”
These deficiencies indicated that “people don’t care about the [risk] function or they
don’t get it.” 
