CHAPTER 4Managing Risk

AS DAVID MAXWELL LIKED TO SAY, “FANNIE MAE WAS POLITIcal to its bone marrow.” It hardly could have been otherwise. It had the benefit of a special congressional charter that gave it valuable advantages over purely private companies, and it operated in a mammoth financial market—residential mortgages—whose smooth functioning was vital to the health of the American economy. If that weren’t enough, it was located in Washington, D.C.

A Unique and Controversial Charter

Fannie Mae’s 1954 charter, as amended in 1968, gave it the mission “to provide supplementary assistance to the secondary market for home mortgages by providing a degree of liquidity for mortgage investments, thereby improving the distribution of investment capital ...

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