Foundation Gives Fannie Shelter From the Storm

Posted October 3, 2003 at 3:51pm

Nearly a year after Congress outlawed massive soft-money donations, Franklin Raines came to Capitol Hill last week with something unusual: $1 million.

After a brief ceremony on the terrace of the Cannon House Office Building, the chairman and CEO of mortgage giant Fannie Mae pledged the money to Rep. Ciro Rodriguez (D-Texas), the chairman of the Congressional Hispanic Caucus and its charitable arm, the CHC Institute.

But the contribution was not for Rodriguez or any members of the Hispanic caucus. That would be illegal under the new campaign finance law.

Instead, the $1 million helped the Hispanic caucus launch a two-year campaign designed to put more Hispanics in homes. Two years ago, Fannie Mae funded a similar housing venture with the Congressional Black Caucus with another $1 million contribution.

Together, Fannie Mae hopes these programs will be a valuable tool in the effort to boost homeownership rates among minorities. But critics say that Fannie Mae sees another value in the donations.

By contributing millions of dollars to the favorite charitable causes of key political constituencies, the mortgage-financing giant has helped to cement its political backing on Capitol Hill as it works to head off new federal oversight of its business.

“While Fannie Mae funds many worthwhile projects, much of their funding seems to be directed at taking care of their political interests, not the public interest in homeownership,” said Mike House, a lobbyist for FM Policy Focus, an alliance of companies that compete with Fannie.

House and other opponents of Fannie note that many of these contributions come from Fannie’s nonprofit arm, the Fannie Mae Foundation. In the past decade, the charitable foundation has given another $800,000 to the nonprofit arms of the Congressional Black Caucus and the Hispanic caucus. Meanwhile, the foundation has steered more than $27 million to a vocal team of nonprofit housing advocates that have loyally supported Fannie Mae in letters to lawmakers and testimony before Congress.

“They are paying a lot of groups to go out and fight for them,” said Leslie Paige of Citizens Against Government Waste. Housing organizations that receive large grants from the foundation, she said, “are not going to go before Congress and advocate that Freddie and Fannie should be reformed.”

Fannie officials, however, call the charge “ridiculous.”

“I’m not sure why the Coalition for Higher Mortgage Costs and their members would choose to attack these consumer and housing organizations, which have had a long and respected history of helping more and more Americans achieve the dream of homeownership,” said Fannie spokesman Chuck Greener, referring disparagingly to Fannie’s competitors at FM Policy Focus.

Greener and other Fannie executives maintain that the sole goal of the foundation is to promote affordable housing, and that grants are awarded without regard to an applicant’s views on government-sponsored entities.

“We don’t take into consideration anything that they are doing on Capitol Hill when we decide our grants,” said Beverly Barnes, a Fannie Mae Foundation spokeswoman.

The foundation hands out more than $30 million to nearly 700 organizations each year, Barnes said, so it is inevitable that some grants end up in the hands of their supporters.

What’s more, Barnes said that the Fannie Mae Foundation is a completely separate organization, run by its own officers and independent from its parent.

However, the foundation receives all of its funding from Fannie Mae and Raines doubles as the chairman of the foundation. Ten other Fannie executives sit on the foundation’s 19-member board.

A Common Practice

Fannie Mae is certainly not the first corporation that has benefited in Washington by spreading a little money around town. From Microsoft Corp. to Lockheed Martin, many corporate powerhouses see political benefits from charitable giving.

Meanwhile, it has become increasingly common for corporations to set up and fund outside groups and alliances to help support their causes on Capitol Hill. Even Fannie’s opponents are open to the charge.

Citizens Against Government Waste, for example, is partially funded by a group of banks that oppose Fannie and Freddie.

“We’ve gotten some money from some of Fannie’s competitors in the past,” Paige said. “Why does that impugn me and not them?”

Paige said corporate donations are responsible for about 25 percent of her budget, but she declined to name names.

Another top critic of Fannie and Freddie, the American Enterprise Institute, also recently acknowledged that it receives funding from competing mortgage banks. Because CAGW and the AEI are private entities, however, they do not have to reveal their financial backers.

The two organizations revealed that they have accepted funds from Fannie and Freddie competitors only under questioning by lawmakers and journalists.

Further, FM Policy Focus flatly refuses to disclose its members, though it is widely assumed the lobbying alliance is backed by competing players in the mortgage finance industry, such as General Electric, American International Group, Household International, Wells Fargo and J.P. Morgan Chase.

A Window Into Fannie

In contrast, the 20-year-old Fannie Mae Foundation is required by law to disclose its grants because it is a nonprofit foundation.

Those disclosures, detailed in annual reports, offer a rare glimpse into how some of the most influential corporations in town benefit from their nonprofit charitable arms. The donations also reinforce the perception in Washington that the foundation steers its grants to brand the Fannie Mae name and reinforce political alliances.

According to the foundation’s annual reports, more than half of the $81 million it spent last year went to fund an extensive advertising campaign, rather than housing grants. Foundation supporters say the $49 million television, radio and newspaper ads play a key role educating consumers about the process of buying a home.

“Lack of information is the biggest barrier to homeownership,” said foundation spokesman Barnes. “The goal is to provide consumers with information about getting their credit in order so they can get on the road to home ownership.”

The ads ask consumers to pick up a free handbook on buying a home from the foundation. The Fannie Mae Foundation said it does not break down where its ads run, but opponents say the campaign is carefully targeted to boost Fannie’s image on Capitol Hill.

“They are trying to curry favor with those that make public policy,” said Bert Ely a leading critic of Fannie Mae.

Fannie Mae counters that its advocacy ads inside the Beltway are purchased by Fannie itself, not its foundation.

Meanwhile, many of the housing grants are awarded to organizations that support Fannie and Freddie’s legislative goals in Washington.

Over the past decade, the foundation has given $28 million to about a dozen organizations that have backed Fannie and Freddie in letters to Congress or testimony before key committees, from the National Council of La Raza to the Consumer Federation of America.

During that time, two key minority groups have received particular attention. The Congressional Black Caucus has received $573,600 since 1992, including a $98,600 check last year to fund a homeownership program it sponsored with historically black colleges.

Meanwhile, the foundation has given $225,800 to the Congressional Hispanic Caucus Institute, including $30,000 last year to sponsor its 25th annual gala.

“They use their foundation to buy off the Congressional Black Caucus and the Hispanic,” charged House.

But members of the caucuses say the donations do not buy Freddie and Fannie influence.

“We get money from a lot of corporations, but it doesn’t get them anything,” said Rep. Bob Menendez (N.J.), the chairman of the Democratic Caucus and the highest-ranking Hispanic in Congress.

“It’s in the best interest of all these businesses to have ties to the largest, fastest growing, $1 trillion Hispanic market. But that doesn’t get them anything,” he said.

Menendez noted that Congressional Hispanics also received a sizeable check from Hispanic media giant Univision, even though Menendez was a leading opponent of the company’s plan to merge with the Hispanic Broadcasting Corp.

Donations off Capitol Hill

Another top beneficiary of Fannie grants is the Enterprise Foundation. In the past decade, the Maryland-based affordable housing advocate has received $11.1 million in grants from the foundation.

But the connection between Fannie and the Enterprise Foundation go far beyond dollars. Franklin Raines, Fannie’s chairman, and Barry Zigas, a top Fannie executive, sit on the board of directors at Enterprise.

In recent testimony on Capitol Hill, Terri Montague, the president and CEO of the Enterprise Foundation, disclosed his financial and personal ties before stating that the nonprofit organization “has no more important partners in our work than Fannie Mae and Freddie Mac.”

Without the government-chartered and privately run corporations, Montague told the Financial Services Committee, “Much of our work simply would not be possible.”

Grants from the Fannie Mae Foundation make up about $1 million — or 2 percent — of the Enterprise Foundation’s $50 million annual budget.

F. Barton Harvey, the chairman of Enterprise, said in an interview that the contributions are too small to sway his views on government regulation of government-sponsored entities.

He also said he solicits and receives contributions from Fannie and Freddie’s competitors, such as J.P. Morgan Chase and Wells Fargo.

Still, he acknowledged that “we are a fan” of Fannie and Freddie. “They do a huge amount of affordable housing,” he said.

The National Urban League, another leading Fannie and Freddie ally, has received $1 million in grants from the Foundation.

Fannie Mae also promised the New York-based Urban League that it would spend up to $50 million to help put more African-Americans in homes.

In a letter earlier this year to the House Financial Services Committee, the Urban League and a dozen other housing organizations said Fannie and Freddie play “an indispensable role” in the nation’s housing system.

More recently, the Urban League’s William Spriggs disappointed Fannie Mae and Freddie Mac by testifying before Oxley’s committee that the pair should continued to be regulated by the Housing and Urban Development Department, not by the Treasury Department.

“The Treasury gives banks a cakewalk,” Spriggs said in an interview, “while HUD would keep Fannie Mae and Freddie Mac to their mission” of promoting affordable housing.

Bang for the Buck

Though the foundation gives out hundreds of grants each year, not all affordable housing advocates accept the cash.

Bruce Marks of the Neighborhood Assistance Corporation of America said Fannie’s money is intended to silence its critics and support in the housing community.

“I have never seen a foundation out there or even a corporation that is as aggressive as Fannie Mae in giving out hush money,” Marks said.

“They do what no other foundation that I have seen has done. They say, ‘The condition of us giving you money is that you don’t criticize us and you support Fannie Mae in everything that Fannie Mae wants,’” Marks alleged.

Meanwhile, Fannie Mae representatives say its housing grants are accomplishing their goal of bringing minority homeownership rates up to the national average.

In the year after partnering with the Congressional Black Caucus, Fannie Mae officials saw a steady increase in the number of minorities purchasing their own homes.

From 2001 to 2002, Fannie Mae reported that its mortgage loans to blacks increased to a total of $24 billion — a 45 percent increase in one year — for 213,000 families.

Among Hispanics, mortgage financing jumped 55 percent to $52 billion, covering 394,000 families.

“We are seeing our number of minority families surge,” said Fannie spokeswoman Janice Daue. “That is a start. And that is why we invest in these initiatives.”