It's rare for Fannie Mae and Freddie Mac to duke it out in public. The two government-sponsored titans of the mortgage market prefer to battle behind closed doors.
But in an unusual display of their bitter rivalry, Freddie Mac went to court last month to stop Fannie from raiding its staff for an up-and-coming executive, Paul Allen.
"Mr. Allen could well earn his keep and more... at Fannie Mae simply by submitting to a debriefing on his experience at Freddie Mac," lawyers for Freddie Mac argued in a filing submitted to the U.S. District Court in the District of Columbia.
The matter has since been settled, but the unprecedented episode shows just how cutthroat the competition between the two can get. Both sides appear to be upping the ante, as they go after each other's talent to gain an edge.
The two agencies compete fiercely in the business of buying home loans from lenders around the country. Between them, they will buy more than half the mortgages made this year, in a market expected to total about $700 billion.
A confidant of Freddie Mac president David Glenn, Mr. Allen, 38, was vice president of pricing at Freddie Mac -- formally the Federal Home Loan Mortgage Corp. -- when Fannie Mae lured him away.
In that job, Mr. Allen designed a pricing model, which Freddie said was crucial in its fight against market leader Fannie Mac -- formally the Federal National Mortgage Association.
Freddie Mac argued that these and other "trade secrets" would "inevitably" be disclosed if Mr. Allen were to join Fannie.
As vice president of business planning at Fannie, Mr. Allen will analyze Fannie's nontraditional competitors --a group that includes all secondary-market companies except Freddie.
He will also represent Fannie's marketing division on a "business reengineering" task force headed by the agency's vice chairman, Franklin Raines.
Fannie officials said in court papers that Mr. Allen's duties at Fannie would not involve pricing at all. Freddie failed in court to keep Mr. Allen from starting work at Fannie on July 18.
A trial was scheduled to consider whether Mr. Allen should be barred permanently, or at least for six months, from working for Fannie.
But a Freddie Mac spokeswoman said the agencies subsequently settled the matter.
The saga began in mid-April when Mr. Allen approached a top Fannie executive at an industry meeting in Florida.
Two months later, Fannie made an offer to Mr. Allen.
When Mr. Glenn learned that Mr. Allen was considering another job offer, he tried to top it. And when he found out that the post was with Fannie -- and that Mr. Allen had decided to accept it -- he exploded.
"We will sue your ass," he told Mr. Allen, according to Fannie's court filings.
Mr. Allen was escorted out of Freddie the next morning by a lawyer for the agency, Alan Hausman.
Mr. Hausman's parting shot: Freddie was allowing Mr. Allen to leave only because "slavery was outlawed," Mr. Allen recounts in his affidavit.
While executives have routinely moved between Fannie Mae and Freddie Mac, each agency is apparently becoming more territorial.
Sources say Fannie threatened court action after its vice president for mortgage securities trading, Charles Foster, joined Freddie as securities sales manager last December.
But the two agencies settled the dispute. According to Freddie's recent court filing, Mr. Foster agreed not to use or disclose confidential information, and Freddie agreed not to seek it.
The situation is "unusually sensitive" between Fannie and Freddie, because there are only two major players in the industry, said David M. deWilde, managing director of Chartwell Partners in San Francisco. The executive search firm recruits for Fannie Mae.
Executives at each develop skills and knowledge that they can easily take from one to the other, Mr. deWilde said.
Freddie may be trying to "scare off" Fannie from luring other staffers, speculated an executive at a large lender.
"Fannie Mae is awesome when they want something," the executive added. "I liken them to a 1,000-pound gorilla when it decides to become amorous. If Fannie Mae wants Mr. Allen, it would be impossible for him to resist." Fannie Mae, the lender said, is sure to gain from hiring Mr. Allen. "Price is definitely the key item on which the agencies compete. When you work for somebody, your loyalty is there. Sooner or later, [Mr. Allen's] knowledge benefits Fannie Mae."
