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For the Protection of Investors and the Public:
Why Fannie Mae's Mortgage-Backed
Securities Should Be Subject to the
Disclosure Requirements of the
Securities Act of 1933
Brent J. Horton*
Despite the fact that Fannie Mae creation of mortgage-backedsecurities (MBS) played
a major role in causing the 2008 fimancial crisis, the issue of reforming Fannie Maes
secunization activities was ignored by the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (Dodd-Frank), the United States Congresss reaction to the crisis.
Former Secretary of the United States Department of the Treasuiy Henry Paulson said in a
recent interview with the Washington Times, It perplexes me that nothing has been done.'
Paulson wories thatifnottungis done, any future failure ofFannie Mae-a veryreal possibility
absent refornm-will lead to what he calls a financial horror showand that 'he ensuing crisis
[il be]much bigger than the financial collapse in the wake ofthe Lehman bankruptcy.,2
Given the urgency of the matter, it is surprising that post-2008 fmancial crisis
scholarship-much like Congress--has largely ignored the need to reform Fannie Mae. The
scholarship that does exist on the topic tends to recommend abolishing Fannie Mae (allowing
the private sector to fill the hole). As such, thisAr'icle fills a major gap in the scholarly debate.
This Aricle recognizes that Fannie Mae plays an important role in financing home ownership
As such, this Arn'icle forwards a solution that will maintain Fannie Mae but constrain its risk
taking in the future. Because [s]unlight is said to be the best of disinfectants; electfc light the
most efficient policeman, th3 i's Article proposes that the best way to reduce risk taking at
Fannie Mae is to subject its ABS offerings to the disclosure requirements of the Securties Act
of 1933. Right now-as was the case in 2008-Fannie Mae only engages in ad hoc voluntary
disclosure, which is void ofsubstance and entirely inadequate given the number ofinvestos that
purchase its MBS daily
In arguing that Fannie Mae k MBS should be subject to the hsclosure requirements of the
Securities Act of 1933, this Artcle moves beyond the tadional justication-investor
* © 2014 Brent J. Horton. Associate Professor of Law & Ethics, Faculty Director
of the Master of Science in Investor Relations Program, Fordham University Schools of
Business. Corporate LL.M., New York University School of Law; J.D., Syracuse University
College of Law. Thanks are in order to Neal Newman and David Reiss for their thoughtful
comments on prior drafts. I would also like to thank attendees of the 2014 National Business
Law Scholars Conference for their input and questions. Finally, thank you to Fordham
University for research assistance.
1. Patrice Hill, Henry Paulson, 'Mr Bailou 'Fears a New Finance Crisis Is Brewing,
WASH. TIMES (Feb. 4, 2014), http://www.washingtontimes.com/news/2014/feb/4/mr-
bailout-fears-a-new-fmance-crisis-is-brewing/?page=all#pagebreak (internal quotation marks
omitted).
2. Id.
3. Louis D. BRANDEIS, OTHER PEOPLE'S MONEY AND How THE BANKERS USE IT 92
(FrederickA. Stokes Co. 1914) (1913).](ViewImageLocal?handle=hein.journals/tulr89&div=8
&collection=journals&method=preview&ext=.png&size=3)
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