Would the model mean that Fannie Mae could be labeled an “honest” company? Why or why not?

            Based on the methods and practices of mortgage lending at the time of the latest mortgage crash in the 2007-2008 timeframe, Fannie Mae was operating within both the law and current ethical standards. Unlike other lending agencies of the time, Fannie Mae was not funding true sub-prime mortgages. The purpose of Fannie Mae was to assist people of modest means buy houses through loans they may not otherwise have qualified for. The only thing Fannie Mae could be criticized for is being too lenient in granting loans to those with limited income (Poli, 2014). Based on this article from Poli Mortgage Group, Fannie Mae could not be accused of operating in a dishonest fashion but fell victim to the practices of other less scrupulous institutions.

            John Griffith also defends Fannie Mae in an article for “Center for American Progress". John writes that Fannie Mae fell victim to companies such as Lehman Brothers and Bear Stearns who package mortgage securities that were high risk and sold them as low risk. Fannie Mae lost market share and eventually lost over $265 billion during 2006-2007 (Griffith, 2012).

            This contrasts greatly from the more complete story of Fannie Mae from 1983 through 2008 as told by Entine and Jennings. Fannie Mae was formed under federal charter in 1938, is to increase first time home ownership, raise minority ownership, reduce homelessness and expand affordable home availability” (Jennings, 2012, p. 121). Later in 1968 Fannie Mae restructured into a stakeholder owned Corporation dependent on private investors (Jennings, 2012, p. 121).  GAAP (Generally Accepted Accounting Principles) were not followed. Also Fannie Mae used a computerized amortization schedule that maximized Fannie Mae earnings for higher yields for the purpose of attracting more investment funds. Executives of Fannie Mae are accused of using variations in bookkeeping and rates to hide volatility in earnings for the purpose of misleading investors in thinking that their investment was far more stable than it actually was. Further, executives are accused of working to show profits that would ensure they received bonuses. Mr. Mudd, CEO at the time in 2006 instructed officers of Fannie Mae to take risks to build earnings or leave (Jennings, 2012, p. 121-130).

            All of this may seem unethical unless one is of the same mindset as  Albert Carr who believes that bluffing or misdirection in business is moral as he likens business to poker where this is simply gamesmanship (Jennings, 2012, p. 49). Or perhaps Friedman and Freeman who believe that company officers work for the stakeholders and should only be concerned with meeting the needs required by the stakeholders, in this case creating consistent return on investment (Jennings, 2012, p. 100-101). It seems that regardless of opinion were they honest or not based any ethical standard, Fannie Mae officers were guilty of being overly greedy throughout the company history, leading to tremendous lose for shareholders and taxpayers alike (Jennings, 2012, p. 123, Griffith, 2012).

References:

Griffith, J. (2012). 7 Things You Need to Know About Fannie Mae and Freddie Mac.
Retrieved from http://americanprogress.org/issues/housing/report/2012/09/06/36736/7-things-you-need-to-know-about-fannie-mae-and-freddie-mac/

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Readings, (7th ed.).   
Retrieved from http://www.coursesmart.com/9780538473538/firstsection#X2ludGVybmFsX0J2ZGVwR            mxhc2hSZWFkZXI/eG1saWQ9OTc4MDUzODQ3MzUzOC9paQ==

Who Are Fannie Mae and Freddie Mac? (2014). Retrieved from      http://www.polimortgage.com/fannie-freddie-role-in-mortgages