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June 3, 2010
Clrairmall
Via Email & FedEx
Mr. Robert Levin
c/o Mr. Erik Kitchen, Esq.
Steptoe & Johnson LLP
1330 Connecticut Avenue, NW
Washington, DC 20036
ekitchen l 'steptoe.com
Hon. Bill Thomas
Re:
Phil Angelides
Financial Crisis Inquiry Commission Hearing on' April 9, 2010
Vice Chairman
Dear Mr. Levin:
Brooksley Born
COII/missioller
Byron S. Georgiou
Commissioner
Senator Bob Graham
Commissioner
Keith Hennessey
Commissioller
Douglas Holtz-Eakin
Commissioner
On April 12, 20 I 0, Chairman Angelides and Vice Chairman Thomas sent you a
letter thanking you for testifying at the April 9 2010 hearing and informing you
that the staff of the FCIC would be contacting you to follow up on certain areas of
your testimony and to submit written questions and requests for information
related to your testimony, which are listed below. Please provide your answers
1
and any additional information by June 17, 2010.
1. The FHFA's September 6,2008 memorandum recommended placing the
company into conservatorship. Do you agree or disagree with this
recommendation and the conclusion of that memorandum that Fannie
Mae's executive management team made imprudent deLisions that led to
the company operating in an unsafe and unsound condition, despite clear
signs in the latter half of 2006 and 2007 of growing problems in the
economy. If you do not agree, please explain why.
Heather H. Murren, CFA
Commissioller
John W. Thompson
2. Would you agree that having extremely high leverage ratios and the
inability to manage the risks was more important to the firm failing than a
lack of diversi1ication? Please explain.
Commissioner
Peter J. Wallison
Commissioner
I The answers you provide to the questions in this letter are a continuation of your testimon y and
under the same oath you took before testifying on April 9, 2010. Further, please be advised that
according to section 1001 of T itle 18 of the United States Code, "Whoever, in any matter within
the jurisdiction of any department or agency often United States knowingly and willfully falsifies .
conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious
or fraudulent statements or representations, or makes or uses any false writing or document
knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined
under this title or imprisoned not more than five years, or both."
1717 Pennsylvania Avenue, NW, Suite 800 • Washington, DC 20006-4614
Wendy Edelberg
Executive Director
202.292.2799 • 202.632.1604 Fax
.~.
®
1. Please explain all specific actions Fannie Mae took, either directly or through its
lobbyists, to influence 1) the funding levels of its regulator; 2) the enactment of stricter
capital standards; and 3) the regulator's authority to regulate the size of Fannie Mae's
portfolio.
2. How large was Fannie Mae's political action committee during your tenure at the
company? How many employees contributed to the PAC? How large were the
contributions made to the PAC?
3. Did Fannie make unsecured loans to delinquent borrowers under the Home Saver
Advance Program or any other program where the underlying loans, thereafter were, no
longer reported as delinquent loans? Did Fannie make those unsecured loans so it would
not have to repurchase the underlying loans and record mark-to-market charges? If so,
do you think the practice was proper?
4. Ilow influential were HUD's affordable housing guidelines in Fannie Mae's purchase of
subprime and Alt-A loans? Were J\lt-J\ loans "goals rich?" Were J\\t-A loans net
positive for housing goals?
5. Did Fannie Mae's purchase of MBS structured by Wall Street allow Wall Street to
increase their volume?
6. Prior to September of 2008, did you ever tell Fannie Mae that its increased purchase and
guarantee of risky, non-traditional mortgages was unsafe and unsound? Why or why not?
Was there internal discussion within OFHEO/FHFA that the company was operating in
an unsafe and unsound manner?
The FCIC appreciates your cooperation in providing the information requested. Please
do not hesitate to contact Jeff Smith at (202) 292-1398 or jsmith{@,fcic.gov if you have
any questions or concerns.
Sincerely,
Wendy Edelberg
Executive Director
Financial Crisis Inquiry Commission
cc :
Phil Angelides, Chairman, Financial Crisis Inquiry Commission
Mr. Robert Levin
June 3, 2010
Page 3 of3
Bill Thomas, Vice Chairman, Financial Crisis Inquiry Commission
4844-8113-4342. v 1
June 17,2010
Ms. Wendy Edelberg
Executive Director
Financial Crisis Inquiry Commission
1717 Pennsylvania Avenue, NW, Suite 800
Washington, DC 20006-4614
Re:
April 9, 2010 FCIC Hearing
Dear Ms. Edelberg:
Set forth below are my responses to the questions listed in your June 3, 2010 letter as
follow-up to the FCIC's April 9, 2010 hearing:
1.
The FHFA's September 6,2008 memorandum recommended placing the
company into conservatorship. Do you agree or disagree with this recommendation and the
conclusion of that memorandum that Fannie Mae's executive management team made imprudent
decisions that led to the company operating in an unsafe and unsound condition, despite clear
signs in the latter half of 2006 and 2007 of growing problems in the economy. If you do not
agree, please explain why.
Response: I announced my retirement prior to the FHFA's decision to
impose conservatorship and the September 6, 2008 memorandum. While I
agree that Fannie Mae needed some form of assistance or temporary relief
from capital standards from the Federal government in light of the
unprecedented decline of the housing market, I do not believe that
conservatorship was necessary. I do not agree that the Fannie Mae
executive management team made imprudent decisions that led to the
Company operating in an unsafe and unsound condition. Fannie Mae
carefully considered the pros and cons of increased participation in higherrisk markets, built up its risk management infrastructure before
proceeding, sought to minimize risk by using underwriting standards more
conservative than those prevailing in the market, and reacted to market
conditions by tightening underwriting standards in 2007.
Ms. Wendy Edelberg
June 17,2010
Page 2
2.
Would you agree that having extremely high leverage ratios and the inability to
manage the risks was more important to the firm failing than a lack of diversification? Please
explain.
Response: It is difficult to establish a hierarchy of the relative importance
of the factors that contributed to Fannie Mae's financial problems. Fannie
Mae's capital ultimately proved inadequate in the face of the
unprecedented deterioration of the national housing market. The impact
of the crisis was exacerbated because Fannie Mae, restricted by its Charter
to one class of assets and with a Charter mandate to support market
liquidity, could not simply exit the market.
3.
Please explain all specific actions Fannie Mae took, either directly or through its
lobbyists, to influence 1) the funding levels of its regulator; 2) the enactment of stricter capital
standards; and 3) the regulator's authority to regulate the size of Fannie Mae's portfolio.
Response: Fannie Mae had ongoing discussions with government officials
regarding appropriate capital standards and issues related to Fannie Mae's
portfolio. I do not recall Fannie Mae taking specific actions to influence
the funding levels of its regulator.
4.
How large was Fannie Mae's political action committee during your tenure at the
company? How many employees contributed to the PAC? How large were the contributions
made to the PAC?
Response: I am no longer at Fannie Mae and do not have information
regarding the number of employees who contributed to Fannie Mae's PAC
or the size of the contributions to Fannie Mae' s PAC. This infonnation
should be available from Fannie Mae or the public record.
5.
Did Fannie make unsecured loans to delinquent borrowers under the Home Saver
Advance Program or any other program where the underlying loans thereafter were no longer
reported as delinquent loans? Did Fannie make those unsecured loans so it would not have to
repurchase the underlying loans and record mark-to-market charges? If so, do you think the
practice was proper?
Response: Fannie Mae initiated the Home Saver Advance program in
2008 to help qualified borrowers experiencing a temporary financial
hardship bring delinquent mortgages current. The program permitted
servicers to offer an unsecured loan to cure the payment default on a
mortgage loan that Fannie Mae owned or had securitized. As Fannie Mae
stated in its February 27, 2008 news release announcing the program,
Ms. Wendy Edelberg
June 17,2010
Page 3
Fannie Mae anticipated that Home Saver Advance would reduce the
number of delinquent mortgage loans Fannie Mae purchased from its
mortgage-backed securities trusts and the fair value losses it would record
in connection with those purchases. The accounting for the program was
determined by Fannie Mae's accountants.
6.
How influential were HUD's affordable housing guidelines in Fannie Mae's
purchase of subprime and Alt-A loans? Were Alt-A loans "goals rich?" Were Alt-A loans net
positive for housing goals?
Response: One of the reasons for Fannie Mae's purchase of the
AAA-rated portion ofPLS backed by subprime loans was that those
purchases contributed to Fannie Mae's achievement of its housing goals.
My recollection is that while certain portions of Fannie Mae's Alt-A
purchases contributed to housing goal objectives, Fannie Mae's AIt-A
investments as a whole did not have a net positive effect on Fannie Mae's
housing goals.
7.
Did Fannie Mae's purchase ofMBS structured by Wall Street allow Wall Street
to increase their volume?
Response: Because Fannie Mae's participation in the PLS MBS market
was substantially limited to the AAA tranches of those securities, I believe
that Fannie Mae's purchases had little if any impact on the volume of the
PLS MBS market.
8.
Prior to September of 2008, did you ever tell Fannie Mae that its increased
purchase and guarantee of risky, non-traditional mortgages was unsafe and unsound? Why or
why not? Was there internal discussion within OFHEOIFHFA that the company was operating
in an unsafe and unsound manner?
Response: This question appears to be directed to the actions and thought
process of Fannie Mae's regulator.
Please let me know if I can be of further assistance.
Respectfully submitted,
'/dvI#--Robert J. Levin
@FedFRASER