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SEPTEMBER : THE TAKEOVER OF FANNIE MAE AND FREDDIE MAC 

long or short in the market, able to operate internationally. And if the trade for that
would have been, you know, a cut in the so-called implicit ties with the government, I

think that would have—that would have been a better solution.” Chief Business Of-
ficer Levin, who received approximately  million from  to , answered
only that making such decisions “wasn’t done at my pay grade.” 

COMMISSION CONCLUSIONS ON CHAPTER 17

The Commission concludes that the business model of Fannie Mae and Freddie
Mac (the GSEs), as private-sector, publicly traded, profit-making companies with
implicit government backing and a public mission, was fundamentally flawed. We
find that the risky practices of Fannie Mae—the Commission’s case study in this
area—particularly from  on, led to its fall: practices undertaken to meet Wall
Street’s expectations for growth, to regain market share, and to ensure generous
compensation for its employees. Affordable housing goals imposed by the De-
partment of Housing and Urban Development (HUD) did contribute marginally
to these practices. The GSEs justified their activities, in part, on the broad and
sustained public policy support for homeownership. Risky lending and securiti-
zation resulted in significant losses at Fannie Mae, which, combined with its ex-
cessive leverage permitted by law, led to the company’s failure.
Corporate governance, including risk management, failed at the GSEs in part
because of skewed compensation methodologies. The Office of Federal Housing
Enterprise Oversight (OFHEO) lacked the authority and capacity to adequately
regulate the GSEs. The GSEs exercised considerable political power and were suc-
cessfully able to resist legislation and regulatory actions that would have strength-
ened oversight of them and restricted their risk-taking activities.
In early , the decision by the federal government and the GSEs to increase
the GSEs’ mortgage activities and risk to support the collapsing mortgage market
was made despite the unsound financial condition of the institutions. While these
actions provided support to the mortgage market, they led to increased losses at
the GSEs, which were ultimately borne by taxpayers, and reflected the conflicted
nature of the GSEs’ dual mandate.
GSE mortgage securities essentially maintained their value throughout the
crisis and did not contribute to the significant financial firm losses that were cen-
tral to the financial crisis.