It’s Time For Fannie Mae And Freddie Mac To Let The Sunshine In

Article by Adrianna C. Rodriguez1

Adrianna Rodriguez is an Associate in the Washington D.C. office

As the economy cautiously recovers from the collapse of the housing market, we've learned remarkably little about the role of two of the boom and bust's most notorious players—Fannie Mae and Freddie Mac. One reason for the dearth of information is that Fannie and Freddie—federally chartered corporations created to promote home ownership—are not subject to the Freedom of Information Act (FOIA). On his first day in office, President Barrack Obama committed his administration to a new age of transparency within the government.2 However, since taxpayers poured $185 billion into Fannie and Freddie to save them from collapse, two legislative attempts to make them subject to FOIA have failed.3 As a result, we are no closer today than we were five years ago to understanding exactly how Fannie's and Freddie's unchecked actions fuelled the boom that sent the economy into a tailspin we are still recovering from today.

For nearly half-a century FOIA has allowed the public not only to keep their government open and transparent in the present, but also to hold it accountable for its past blunders. Enacted in 1966, FOIA guarantees the public access to federal agency records.4 Agencies subject to FOIA include "any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch of the Government (including the Executive Office of the President), or any independent regulatory agency."5 Under FOIA, these agencies are required to make their records "promptly available to any person" who requests them.6 The law's presumption of access is subject to nine exemptions, including for information that is classified in the interest of national security and information reflecting the deliberative process of an agency.7 In addition, the law does not extend to federal courts, Congress, and many entities that straddle the private-public divide, such as government-sponsored enterprises (GSEs), like Fannie and Freddie.8

Fannie Mae and Freddie Mac

Fannie Mae, officially the Federal National Mortgage Association, and Freddie Mac, officially the Federal Home Loan Mortgage Corporation, are congressionally chartered, publicly traded, for-profit corporations.9 Congress created both corporations to promote homeownership by making it easier for prospective homebuyers to obtain mortgages. The corporations do this by operating in the secondary mortgage market where they purchase mortgages issued by private institutions in the primary mortgage market, package them into mortgage-backed securities, sell them to investors, and guarantee payment of the principal and interest of the security. Through their activities in the secondary mortgage market, Fannie and Freddie promote home ownership by creating the liquidity that enables private lenders to make more mortgages.10

Between 2004 and 2007—the housing boom years—Fannie and Freddie aggressively purchased and guaranteed home mortgages to many people whose credit could not support the mortgages they were offered.11 This led to record homeownership rates and record profits for Fannie and Freddie. When housing prices plummeted in 2007, Fannie and Freddie were left holding billions of dollars in delinquent or defaulted mortgages for devalued properties.12 The enterprises did not have sufficient reserves to honor their debt obligations, including their guarantees of mortgage-backed securities.13 To save them from collapse, Congress created the Federal Housing Financing Agency (FHFA) as part of the Housing and Economic Recovery Act of 2008.14 The FHFA placed Fannie and Freddie into conservatorship on September 7, 2008.15 Under conservatorship, the FHFA, a federal agency subject to FOIA, "assumed all the powers of the shareholders, directors, and officers" of Fannie and Freddie.16

Although Fannie and Freddie have received FOIA requests over the years, the federally created corporations consistently have taken the position that as government-sponsored enterprises they are not "agencies" subject to FOIA.17 The FHFA supports this position.18 Thus, despite having been placed entirely within the control of a federal agency, Fannie's and Freddie's records remain beyond FOIA's reach.19 In addition, the D.C. Circuit has found that not even all the Fannie and Freddie records that the FHFA has access to are subject to FOIA. In 2010, Judicial Watch, a nonprofit government watchdog, made a FOIA request to the FHFA for "[a]ny and all Freddie Mac and/or Fannie Mae records concerning campaign contributions" and "[a]ny and all Fannie Mae and/or Freddie Mac records concerning policies, stipulations, and/or...