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Ann Kappler is executive vice president and general counsel of the Federal National Mortgage Association, more commonly known as Fannie Mae. The government-chartered mortgage company has certainly been in the news. In December it was ordered to restate its earnings going back to 2001, and some say the company may have been off by as much as $11 billion. Kappler has been general counsel of Fannie Mae since 2000. She recently talked to Legal Times about her work. How do you describe Fannie Mae to those who have only a vague sense of what it does? We’re a federally chartered shareholder-owned company with a very specific mission to provide secondary market financing for residential mortgages, with a particular emphasis on low- and moderate-income homeowners and renters. We partner with lenders to bring money to the mortgage market by attracting capital markets funding from all over the world through the issue of corporate debt and mortgage-backed securities. What is the size of the legal department? Is it divided up in a particular way? We have a pretty-good-sized legal department. Fannie Mae is one company, with no subsidiaries. We operate only in the United States, with a fairly narrow line of business. Fannie Mae has slightly over 5,000 employees. The legal department is 205 individuals, with 124 attorneys located across the country. The bulk of the attorneys, though, are in the D.C. area. We also have offices in Atlanta, Philadelphia, Dallas, Chicago, and Pasadena [Calif.]. As far as structure, we have a combination of those attorneys dedicated to business units and those serving the entire company. For example, there are attorneys dedicated to multifamily housing financing and to single-family housing financing. Then we have attorneys who do corporate securities, tax, regulatory, employment, litigation, intellectual property, and similar companywide work. The bulk of our lawyers are transactional, focused on real estate, contracts, or securities. Whom do you report to? I report to the CEO, Dan Mudd. [Mudd, who was officially named CEO on June 1, had been serving as the company's interim CEO since last December.] And I have three principal deputies who report to me, as well as several practice groups: tax, fair lending, corporate governance, and now the attorneys supporting the restatement. The company is in the process of restating and reauditing several years of financial statements. In addition to the attorneys supporting the accountants’ work and engaging with the Securities and Exchange Commission and the New York Stock Exchange, several attorneys are dedicated to the project, for example, in negotiating consulting contracts. One of my deputies oversees all single-family transactions; one oversees all the principal risk issues, such as litigation, employment, antitrust, compliance, and insurance; and the third oversees the bulk of everything else, including regulatory, technology, and corporate practice. What are the main outside firms that you use? Primarily we use Wilmer Cutler, Arent Fox, and O’Melveny & Myers. Wilmer does a lot of our regulatory work and corporate securities work, Arent does a huge amount of real estate, and O’Melveny does litigation. What are the big legal issues you face? Fannie Mae is obviously in the news with Congress pushing for more regulatory oversight. How has that affected your job? It’s affected my job in a couple of ways. There has been legislation proposed for some years now. Mainly it’s our regulatory practice group that analyzes the proposed legislation, including the proposed language changes, and supports the work of our government relations department. I’ve had the opportunity to meet with members of Congress and their staff to help explain our position on various proposals. Once the legislation is in place and we have a new regulator with new powers and presumably new regulations, there will be a lot of work involved in adjusting to the new regulatory structure. The company is very focused on change — both in terms of internal change, changing the culture and building internal controls, and in terms of re-establishing the confidence and trust of our external stakeholders, including our regulators. I and the company’s other lawyers are part of that effort. I think we are trying to embrace the current circumstances as an opportunity and a challenge to help bring about the necessary changes. One of the challenges we have is that the company’s going to establish a compliance and ethics department outside the legal department; right now, compliance is handled within the department. In addition, investigations will move outside the legal department. We have to work out how the legal department will interact with the new compliance department. What do you think about the growing prevalence of interest-only loans? Does that affect Fannie Mae at all? Tom Lund, the head of our single-family business group, has been talking about the potential risk to home buyers when they combine interest-only loans with other features, such as adjustable interest rates and prepayment penalties. We are helping to make sure homeowners understand what they are getting involved in. There is a concern that borrowers might get in a situation that they cannot handle. From our perspective, we have to mitigate the company’s risk when purchasing loans. But we also want to be leaders, and we’re taking a position on features that could be inappropriate to some consumers. We’ve taken a similar approach in the predatory lending area — not purchasing loans with some features. What is your background? I was at Jenner & Block in D.C. for 10 years. My practice was a combination of litigation, regulatory, and legislative work. I tried to concentrate on litigation in appellate work, including a significant amount of constitutional law. In addition, I had a group of clients who were insurance agent trade associations, who were battling banks’ entry into insurance sales. That led to two Supreme Court arguments for me. I effectively acted as outside general counsel to one of the associations. Before Jenner, I did two clerkships in D.C., one with Judge Abner Mikva and one with Justice Harry Blackmun at the Supreme Court. I’ve been at Fannie Mae for six and a half years. What’s the best part of the job? Learning the business and engaging with my business colleagues where I feel it’s a joint enterprise. That’s one thing you don’t get as an outside attorney, especially when you concentrate in litigation. It has been a great learning experience for me. Every day I feel I’m getting new issues I have to wrestle with. Where would we find you when you’re not at work? I have two young boys at home, 11 and 8 years old. So I’m on the soccer field or driving someone around. If the time’s my own, I’m in the garden or at the theater. Have you read any good books or seen any good movies lately? You’ve got to be kidding me [laughter]. The only movies I see are kids movies. I just finished reading DisneyWar [by James Stewart], about Michael Eisner. It’s meant to be nonfiction, but it reads like a novel. I’ve started rereading The Tipping Point [by Malcolm Gladwell].

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