Limited Oversight Doomed Mortgage Giants

What brought the financial powerhouses Fannie Mae and Freddie Mac to the brink of collapse? Critics say it was a combination of the companies' political clout - and too little government regulation. CBS News chief investigative correspondent Armen Keteyian has the story.

Whenever Fannie and Freddie found themselves in trouble they would invariably point the finger to a government mandate that dates back to the depression: The need to provide affordable housing to every American.

To help make that happen, the government granted them privileged status, including:

  • guaranteed lines of credit
  • exemption from state and local taxes
  • and limited oversight

    Those are powers that would only expand over the years.

    "You'd have people in Congress that would make it very clear they wanted nothing to touch Fannie and Freddie," said former Rep. Jim Leach.

    He said he tried to hold Fannie and Freddie's feet to the fire - with little or no success.

    "At one point in time, they had more lobbyists in their employ that any other institution ever," Leach said.

    In fact, CBS News has learned, Fannie and Freddie now boast nearly 150 lobbyists, spending almost $175 million combined over the past decade alone. That's more than pharmaceutical giant Pfizer and defense contractor Boeing.

    The mortgage giants doled out $2 million more over the last four years through political action committees. It was money used to fend-off regulation that would have required it to maintain deeper financial reserves to act as a cushion to the kind of risky loans that led to their undoing.

    "Fannie and Freddie were thuggish," said Amity Shlaes, the deputy director of the Council on Foreign Relations. "People who worked there misled other people. They used political power in an ugly way."

    A few years ago, Fannie was fined nearly $400 million after an investigation revealed it overstated earnings by $10 billion to maximize executive pay. That cost former CEO Franklin Raines his job but not $65 million of the $90 million he received in bonuses.

    Now the CEO's who presided over the demise of Fannie and Freddie are out the door as well, walking away with some $30 million.

    While every American, it seems, is paying the price.