Mortgage Scene: The Best Advice for Fannie Mae: Make Love, Not War.(Brief Article)

On March 8 FM Watch - formed to control GSE "charter creep" -dropped a hand grenade in Fannie Mae and Freddie Mac's front yard when its chairman Gerald Friedman declared, via press release, that its board members have "been systematically approached and threatened by" the two.

Mr. Friedman's communique said each of its eight board members - none of whom are business lightweights, I can assure you - had been subject "to attempts at intimidation and threats" by the two GSEs. Mr. Friedman added: "In each instance the message was the same: stop supporting the activities of FM Watch or be prepared to see your business opportunities and products suffer."

Mr. Friedman gets credit for going "on-the-record," addressing gripes that have been expressed for years "off-the-record" by lenders, mortgage insurance executives and a host of others who feel Fannie Mae and Freddie Mac are slowly - and not so slowly - nibbling at their market niches, stealing business, reducing their profit margins and endangering their livelihoods, using their government charters as a battering-ram.

Are these fair criticisms? You can draw your own conclusions.

What Mr. Friedman's statement lacked was specific examples of where a board member was threatened for supporting FM Watch. Some of the specifics were supplied on March 8 by the Wall Street Journal but only one of the WSJ's three examples of FM Watch-related arm twisting nailed the sucker on the head. This involved a statement made by Wells Fargo chairman Richard Kovacevich saying "Fannie Mae has used its ability to allocate business to the detriment of institutions that have executives on the FM Watch board...I am personally aware of an instance involving our company in which we were removed without cause from the list of approved bidders for Fannie Mae bonds..."

The only problem with Mr. Kovacevich's statement is that it leaves out the fact that (a) Wells is not a bigger player in the Fannie Mae bond business and (b) Wells' mortgage unit has a 'strategic alliance' agreement with Fannie Mae's chief competitor, Freddie Mac.

The best example of FM Watch-related arm twisting - or alleged arm twisting - cited by the WSJ involved J.P. Morgan Chase executive William Harrison who was supposedly asked by Fannie Mae to leave FM Watch or Fannie would pull the plug on Chase's participation in its debt seller group. But Mr. Harrison did not go on-the-record and instead his comments surfaced via other executives he apparently told about the incident. In my book there is nothing wrong with quoting anonymous sources who talked to a key player especially if the sources are well placed and trustworthy.