Former Fannie Mae VP Wilkinson '84 criticizes government takeover

Wilkinson was formerly an executive vice president and general counsel of Fannie Mae, the nation’s largest mortgage buyer. She, along with three other company executives, resigned shortly after the federal takeover of the firm in September 2008. Wilkinson joined the Paul, Weiss, Rifkind, Wharton & Garrison law firm last week.

While there was widespread support for the U.S. Treasury’s decision to place Fannie Mae and another mortgage giant, Freddie Mac, under a government conservatorship, Wilkinson said she thought it was a damaging move.

Wilkinson, who took part in discussions between Fannie Mae and the Treasury last year, said that though “there’s enough blame to spread around,” the government did not handle the situation as well as it could have.

“I did my job professionally with the board and the company, but I didn’t agree with the government’s decision, and I quit about two weeks after the government took over,” Wilkinson said.

She acknowledged, however, that Fannie Mae would have operated a lot differently had it foreseen the current housing crisis. “I’m sure there are lots of things we would do differently if we knew what was going to happen in the market,” she said.

Learning on the job

Wilkinson was a politics major at Princeton, a member of the Army ROTC and a dancer in the Expressions Dance Company.

After graduating from Princeton and the University of Virginia Law School, Wilkinson embarked on a successful legal career. For her work in the prosecution of Colombian narco-terrorists in 1994, Wilkinson received the Attorney General’s Exceptional Service Award, the highest honor bestowed by the Justice Department. Wilkinson received the award again in 1998 for her successful prosecution of the Oklahoma City bombers, making her the only two-time recipient in history.

Wilkinson served as a trial lawyer at the law firm Latham & Watkins before joining Fannie Mae. The organization, along with Freddie Mac, guarantees half of the $11.5 trillion in outstanding U.S. home-loan debt.

“Fannie Mae was just coming through an accounting scandal, and they had put in a new CEO, and they called me, and I interviewed and was quite impressed with the CEO and the board,” Wilkinson said.

Wilkinson added that though she enjoyed her experience and learned a lot about the financial industry from her colleagues and on the job, she was unhappy with the last few months she spent at the company, during which she worked very long hours.

“Even though the end was not what I hoped or expected, I learned so much,” she said. “I was not someone who had ever really knew anything about the markets, and, of course, it turned out to be very useful now that we’re in this major world economic crisis.”

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Wilkinson explained that her biggest regret was not explaining in a more accessible manner the role of the secondary housing market in the current financial crisis. She noted that she believed the Obama administration is having that same problem in explaining the role of the financial market.

“I’m a big proponent for financial literacy, and we have not done a good job,” she said. “I felt like I didn’t learn what I should have until I went to Fannie Mae.”

Government takeover of Fannie Mae

Since the government takeover of the two companies, the national foreclosure rate has risen significantly, prompting Fannie Mae and Freddie Mac to declare a brief moratorium on foreclosures last year. Efforts to rewrite home loans have disappointed, helping only a small fraction of the several hundreds of thousands of mortgages they were expected to help refinance.

“Obviously … one of the biggest mortgage insurers in the world is going to have difficulties in a housing crisis,” Wilkinson said. “Thus far, what I can see is that [the government] running the company has not helped the housing market.”

Wilkinson added that the government takeover has, in general, made investing less attractive to Americans.

“The problem with what the government did with Fannie Mae and Freddie Mac and letting Lehman [Brothers] go down was that private investors didn’t want to put capital in these companies because they were afraid the government was going to take over and run [their] stock price[s] down to zero,” she explained. “[T]hat’s what happened at Fannie and Freddie Mac.”

Wilkinson called the Treasury’s decision “damaging and detrimental.” She explained that the government should have provided an infusion of capital for mortgage companies like Fannie Mae, as it did for institutions like AIG and Citigroup.

She criticized the government for not effectively regulating the primary mortgage market in the first place. She said she blamed the banks for lending out money without proper discretion and mishandling the distribution of mortgage-backed securities.

“To be fair to [the Treasury], I didn’t see what was going on with all the companies in all the markets,” she said. She discouraged public ownership of such companies “because you want to keep attracting private capital.”

Though she said she did not know what the entire picture was, Wilkinson said she believes the government takeover was a “damaging and detrimental” decision.

Reviving the economy

Wilkinson said that Treasury Secretary Timothy Geithner’s speech on Tuesday signaled his desire to attract more capital to private firms. She noted that she thought there was a genuine need for the stimulus bill to be passed, adding that it would take years to restore the economy.

“The capital markets and private markets are not putting money into the system, so in order to create demand and create jobs, the government needs to spend this money to get the economy working,” she said.

Wilkinson explained that the subprime-mortgage crisis and the economic recession have affected nearly everyone.

“There’s a lot of anger towards Wall Street,” she said. “People thought they’d get their fair share, and now [some] don’t have a job, their house has gone down in value, and they still have five years until retirement … It’s a very, very difficult situation for a lot of people.”