Fannie Mae to Close Its Foundation, but Continue Supporting Charities

The Fannie Mae corporation has decided to shut down its foundation this spring as part of a reorganization of its business operations.

Fannie Mae, a government-sponsored company created to establish a market for secondary mortgages, said it will close the fund April 30. A new Office of Community and Charitable Giving will continue to support affordable housing and efforts to fight homelessness nationwide, and contribute to various charities here, in the company’s hometown.

Since its establishment in 1979, the foundation has awarded more than $1-billion to such causes.

The fund’s closure is part of a larger overhaul that the corporation is undergoing in the wake of an accounting scandal and the departure of several top executives in recent years.

In addition, Fannie Mae is under Congressional scrutiny for allegedly using its foundation to skirt campaign-finance and lobbying laws. Fannie Mae said it is cooperating with the inquiry and that the decision to close the foundation is unrelated.

Stacey D. Stewart, the former chief executive of the foundation who now leads the company’s charitable-giving office, said the move will improve Fannie Mae’s philanthropy by allowing Ms. Stewart and others to better tap into its expertise in housing issues.

“If we could bring the activities and operations of the foundation back in-house, then we could do even more things more effectively in terms of reaching the communities that Fannie Mae wants to reach and having the kind of impact it wants to have,” she explained.

$61-Million Awarded

Ms. Stewart promised the company would honor the fund’s philanthropic commitments and would award in 2007 at least $61-million — the same amount as the foundation made in grants last year.

As evidence of this, Ms. Stewart cited a $10-million pledge the company made last month in the nation’s capital. Beneficiaries will include after-school programs and efforts to improve high-school athletic facilities.

Fannie Mae does plan to eliminate the 60 staff positions at the foundation, though Ms. Stewart said many of those employees may be rehired by her office. The foundation’s two regional branches in Dallas and Pasadena, Calif., will also close and some of its nongrant-making charitable efforts will be spun off.

For example, KnowledgePlex, an Internet site operated by the foundation to gather and disseminate information about low-income housing, will become a separate nonprofit entity.

By closing the foundation, Fannie Mae will no longer have to disclose its grant making to the public, as the Internal Revenue Service requires of all nonprofit groups. Ms. Stewart pledged that information about the company’s donations will be put on its Web site and included in an annual report.

“The commitment is absolutely there for transparency to continue and to have everything that Fannie Mae does be open and available for public consumption. We would never exclude the corporate giving from that,” she said.

The foundation’s closure received a lukewarm response from Sen. Charles E. Grassley, the top Republican on the Senate Finance Committee, who started an investigation of the Fannie Mae Foundation last year for alleged improper political activities. Fannie Mae has said it did nothing wrong.

In a statement, Mr. Grassley, who represents Iowa, said he hoped the decision would lead to more openness.

“This could be a positive step toward more transparency and accountability from Fannie Mae for its charitable activities,” he said. “I’ll follow this move to see if that’s the case. But I’m not done looking into nonprofits and political activity.”

He promised to push the IRS to continue examining nonprofit groups and may write legislation to “fill in the enforcement gaps.”

Several nonprofit groups praised Fannie Mae for being forthcoming about its plans. Last month, the company invited about 20 leaders from Washington-area organizations to lunch and told them about the demise of the fund.

But despite the public announcement and the company’s promise to fulfill its commitments, there is some hand-wringing about the move.

“It likely will not affect our continued funding — and I hope that’s the case — but I don’t know for sure, and I don’t think anyone knows for sure until this sorts itself out,” said Walter Smith, chief executive of the D.C. Appleseed Center for Law and Justice. Last year, the social-justice advocacy group received $45,000 from the Fannie Mae Foundation.