According to Jennings (2012), Fannie Mae started out with admirable intentions; to increase the availability of affordable housing availability and attract investments within the housing market. What started out as federally funded in 1968 became a shareholder-owned corporation.
Though Fannie Mae was once considered the most ethical company in 2004 by Business Ethics magazine and subsequently won the award many years later, it became one of the most scrutinized companies during the housing crash (Jennings, 2012). All of this did not come without warranted suspicion and doubt on what became a glare into what had once been considered an admirable company.
Based on what became apparent with Fannie Mae, it could not be labeled an honest company and did not use the eight questions as an ethical guideline or model to compare. This became clear as Fannie Mae was a company driven to earnings targets through a compensation system, which incentivized payouts to executives that used dubious tactics in regards to buying and selling mortgage assets (Jennings, 2012).
When you tie bonuses to business practices, those that are responsible for acting ethically are inclined to look at their own compensation and lifestyles and are drawn to act on their best interests, not the best interests of the public. We put the executives in a position to fail by rewarding them with compensation that would make acting unethically attractive. Congress was also in the back pocket of both Fannie Mae and Freddie Mac which did not help with exposing the unethical and illegal practices (Isidore, 2012).
Fannie Mae was not forthcoming with information and had no sense of propriety. This became clear when executives that were in place dismissed the financial risks to their shareholders regarding their exposure to the subprime loan and in turn, made it impossible to recoup the financial losses (Trumbull, 2011). Allegedly, Fannie Mae told their investors in 2007 that only 0.2% of their portfolio were dedicated to subprime loans. The SEC said that there was actually 11% of subprime loans (Trumbull, 2011). This blatant disregard for the investors only catapulted Fannie Mae into an even harsher spotlight.
Fannie Mae did not adhere to Jennings eight ethical guidelines. Though the company seemed to take care of their own employees financially and have not admitted failure, they did not comply with the law and have cost taxpayers over $183.8 billion, making it the most expensive bailout during the latest financial crisis (Isidore, 2012).
This financial crisis has been a wake-up call to the public and has put in place a variety of new regulations and procedures that will ultimately dispel this type of wrongdoing in the future.
isidore, C. (2012, January 24). Freddie Mac: What it did, what went wrong. Retrieved November 23, 2014, from CNN: http://money.cnn.com/2012/01/24/news/economy/freddie_mac/
Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Reading. Mason: South-Western Cengage Learning.
Trumbull, M. (2011, December 16). Subprime scandal: ex-Fannie Mae, Freddie Mac execs accused of fraud. Retrieved November 20, 2014, from Christian Science Monitor: http://www.csmonitor.com/USA/Justice/2011/1216/Subprime-scandal-ex-Fannie-Mae-Freddie-Mac-execs-accused-of-fraud