Franklin Raines and Daniel Mudd
As chairman and CEO of Fannie from 1998 to 2005, Raines had helped turn it into a financial behemoth by pushing it into new markets such as subprime mortgage loans. The price of Fannie's stock soared during his tenure, and Raines earned roughly $90 million in salary and bonuses. Mudd became chief executive at Fannie Mae in January, 2005, when the agency was losing precious business to rivals and was under mounting pressure from Congress and Wall Street banks to direct more loans to low-income home buyers. From 2005 to 2007, Fannie tripled its purchases of mortgages with down payments below 10%—typically the kind given to less creditworthy buyers—and expanded its activity in hot areas such as California and Florida.
But the collapse of the housing market bubble caused defaults and foreclosures to surge, putting the agency's securitized assets at risk. In early September, the Treasury Dept. took full control of Fannie and its closest peer, Freddie Mac, in exchange for $1 billion of super-preferred shares, which pushed Fannie's stock price to near zero, wiping out the value of common shareholders' shares. Neither Raines nor Mudd could be reached for response before this slide show was published.
Big Wheels or Small Cogs? Big Wheels
