Will it be the end of an era or just business as usual when James A. Johnson steps down as chairman of Fannie Mae?

Certainly some challenges lie ahead. Fannie Mae, despite the size and power that is part of the Johnson legacy, is not insulated from market turmoil and from the changes facing the United States housing market.

With the number and diversity of lower-income people who are seeking to buy homes expected to grow into the 21st century, Fannie Mae will have to shift some gears in accordance with demographic and social changes.

And it will fall on Frank Raines, Mr. Johnson's successor, to lead Fannie Mae through these changes. But Mr. Johnson, for one, believes he has left a mechanism in place to help Mr. Raines steer the company through this next phase.

"I think we've demonstrated now in the course of the 1990s that we have the management capacity and organizational capacity to adjust to very substantial market change," Mr. Johnson said in a recent interview.

He noted that in this decade, Fannie Mae has seen the reengineering of the mortgage process, major changes in the way technology is used in the mortgage business, and a dramatic increase in the company's ability to reach out more effectively to potential homebuyers.

"We've also seen that the company is very well able to deliver stable, predictable earnings in a very broad range of market and interest rate environments," he said. "We have an extremely solid foundation on which to build as we go into the 21st century. "

Analysts have no quarrel with Mr. Johnson's view. "Under Jim Johnson's management, Fannie Mae has emerged as a colossus among the world's financial institutions," with more than a trillion dollars in total assets on and off the balance sheet, said Jonathan E. Gray, an analyst at Sanford C. Bernstein & Co., New York. Fannie Mae has also played a role in helping homeownership rise to the highest level in history, he said.

Lenders, though, have frequently complained that Fannie Mae's financial success, along with that of Freddie Mac, has come at their expense. During the 1990s, Fannie Mae has experienced double-digit earnings growth and as a shareholder-owned company has undoubtedly felt what some lenders call the pressure to earn.

The "extraordinary profits" of the two companies create a "potential conflict with the earnings of the mortgage banking industry," said Patrick S. Flood, president of HomeBanc Mortgage Corp., Atlanta.

"I would hope that a concern for the profitability of the mortgage banking industry is part of a dialogue that takes place" in the near future, he said.

This fall marks Fannie's 30th anniversary as a private company. But with mortgage originations and refinancing roaring ahead, there may be little time for reflection on the past.

In 1938, Fannie Mae was chartered as the Federal National Mortgage Association. The transition from government ownership to private enterprise took place on Sept. 30, 1968. Over the last 30 years, the company says, it has served 31 million families by providing $2.5 trillion in financing. Today, the company says it provides funding for one out of every five residential mortgages originated in the United States.

In many ways, Fannie Mae has used the 1990s to build muscle for the future.

The 1990s have been the "most significant decade of change in the history of mortgage making," said Mr. Johnson.

While no one imagined a year with $1.4 trillion in originations without significant dislocation, Mr. Johnson said that volume may be reached this year because of technological changes and the maturation of the mortgage market.

Financially, Fannie Mae has weathered some of the market volatility in terms of its stock's performance. The company's ability to tap into overseas and domestic markets for Treasury-surrogate securities through its issuance of noncallable debt has been an element in its stability.

"We've made a very important priority of being able to tap international capital markets," Mr. Johnson said when asked about whether Fannie expects to play an even bigger role in the capital markets with the coming of the euro.

"We've just seen time after time that as we develop new structures that we have the kind of liquidity and credit quality that is very, very attractive to international investors," he said.

Fannie Mae's capital now stands at $15 billion and its market capitalization has increased to about $66 billion, up from $8 billion in 1990. And the company has had double-digit earnings growth for 12 years.

Mr. Johnson's finest moment, according to Mr. Gray of Sanford C. Bernstein & Co., was his role in formulating legislation in 1992 and 1993 that set capital standards for Fannie Mae. That legislation "really created Fannie Mae as a growth stock," he said.

During Mr. Johnson's tenure, he strengthened the company's financial standing through "a real in-depth understanding of the business dynamics of the company" and aggressive management techniques, said Mr. Gray. Mr. Gray also praised Mr. Johnson's ability to both identify and attract "top-rate talent" to augment the "superb depth" of talent built by retired chairman and chief executive officer David O. Maxwell.

Mr. Johnson also has kept analysts comfortable with Fannie's exposure to political risk. "He combined tremendous acumen in terms of reading the political environment and optimizing Fannie Mae's relationship with the Congress," Mr. Gray said.

Mr. Johnson also noted this as one of his management accomplishments. He said he helped to "foster a very stable political and regulatory environment, where there is a very broad acceptance of the significant role that Fannie Mae plays and very broad bipartisan support."

Mr. Raines is no stranger to politics, having served as the director of the Office of Management and Budget and as a member of President Clinton's cabinet just before his return to Fannie Mae. But mortgage lenders know him for his deep immersion in technological issues in his years as the No. 2 at Fannie Mae.

While Mr. Raines has been in a quiet period since he returned to Fannie Mae earlier this year, he has been involved in a lengthy transition process not unlike Mr. Johnson's acclimatization to Fannie Mae in 1990 when he arrived from Wall Street. Mr. Raines declined to be interviewed for this article.

When Mr. Raines takes over the ship, Mr. Johnson said, "there will be a broad continuity of our core commitments and an orientation of continuing to have the company evolve and change in order to serve the market more effectively."

Fannie Mae has been paving the path for Mr. Raines' transition internally and on the road, and most expect a smooth changeover.

Mr. Raines is a "very known commodity," said Peter T. Paul, president of Headlands Mortgage Co., Larkspur, Calif.

Mr. Paul credits Mr. Maxwell with establishing a 10-year window for the top officer at Fannie Mae. Just as Mr. Maxwell brought in Mr. Johnson after a decade, Mr. Johnson has followed suit by bringing in Mr. Raines.

The transition will be "as seamless as you can conceive of," noted Mr. Paul. "We're very comfortable with this."

Fannie Mae has more constituencies than perhaps any other corporation in America, noted Mr. Maxwell.

"There's a lot of folks that need to feel comfortable with succession when it occurs," he said. While Mr. Raines "does know the company and its constituencies very well," Mr. Maxwell said, "still it is wise just to have somebody feel comfortable in the role of leadership."

Mr. Johnson will continue at Fannie Mae through 1999 as an adviser to Mr. Raines and to management. He will be chairman of Fannie's executive committee of the board of director.

When asked about plans and whether he would return to public service or remain in the private sector, Mr. Johnson said he would begin to consider his options in January.

While Mr. Maxwell is quick to point out many achievements of Mr. Johnson, he said the one thing that stands out about Mr. Johnson's era is his focus on "the housing initiatives for low income housing and for people who have not had access to homeownership in the past."

"It has been very exciting and very gratifying for me to watch how Jim has emphasized that role of Fannie Mae in the housing market and he's done it so creatively," Mr. Maxwell added.

Mr. Johnson set a $1 trillion affordable housing initiative into motion and has vocalized the need to make affordable housing a priority in many of his public speeches and appearances.

Some in the industry observe that Mr. Johnson was personally driven to combat discrimination in housing and to increase the company's efforts in affordable housing. Some wonder whether Mr. Raines' will share this passion or whether he will be more inclined to spend his time maintaining Fannie Mae's business prowess.

"There's certainly more to be done to extend the benefits of homeownership even more widely in the United States," noted Mr. Maxwell.

The Department of Housing and Urban Development will be going through a rulemaking process over the next year for setting up affordable housing goals for the year-2000. This will be "a key watermark for how the secondary market agencies respond to affordable housing and underserved needs," said Allen J. Fishbein, general counsel for the Center for Community Change, Washington.

Affordable housing advocates will certainly join mortgage bankers in keeping a close watch on Fannie Mae as the baton is passed to Mr. Raines in January.

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