Turmoil at Fannie Mae calls for a stronger, more exacting regulatory hand, but the zeal for reform should not eclipse the financial institution's singular mission: providing low...

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Turmoil at Fannie Mae calls for a stronger, more exacting regulatory hand, but the zeal for reform should not eclipse the financial institution’s singular mission: providing low- and moderate-income Americans with entree into home ownership.

Fannie Mae, the nation’s largest buyer of home mortgages, is currently a soupy mess of overcooked books and bloated compensation packages. The nearly $1 trillion institution is under investigation by the Justice Department with criminal charges against current and former executives a possibility. It must also restate its earnings, which may have been exaggerated by as much as $9 billion.

The departure of its chief executive, Franklin Raines, is a welcomed start to reshaping the mortgage-financing behemoth. He treated Fannie Mae like his personal bank. Raines’ 2003 compensation totaled $20 million. He can cash in stock options valued at around $11 million. As though there were a possibility he could ever run out of money, Raines is eligible for a $1.1 million annual pension.

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Raines is the highest-paid executive to ever have delivered so little. A Wall Street Journal report cites cumulative shareholder returns at Fannie Mae of around 4 percent, a fraction of the 23 percent achieved by the private financial sector.

A refocused Fannie Mae would spend its money more wisely. The Federal Reserve has found about half of the government subsidy that goes to Fannie Mae is kept by the company rather than spent purchasing mortgages. When the Department of Housing and Urban Development proposed a rule to require Fannie Mae, and its brother bank, Freddie Mac, to buy more mortgages from lower-income households, the two banks balked.

The U.S. Senate will hold hearings early next year about a new federal regulator for Fannie Mae. Detractors of the bank will try to strip its special status and make it compete more evenly with other banks. It is true that other lending institutions don’t have the special status able to borrow directly from the Treasury as Fannie Mae can. But Fannie Mae is no ordinary bank. It is one with a government-sponsored principle to broaden the opportunity for home ownership.

It must be held to a higher standard and still be true to its core mission.