From the Washington Post, October 15, 2004 . Read the whole thing. It’s a mixture of fraud, inadequate oversight (love that lobbying, Fannie) and the use of funky loans from now-imperiled Washington Mutual to meet HUD goals of supporting affordable housing.
The SEC’s enforcement division has been examining Fannie Mae
since early this year, after accounting problems were uncovered at
rival mortgage financier Freddie Mac. Sources spoke on the condition of
anonymity because of the sensitive nature of the investigation and the
secrecy surrounding enforcement issues.
action marks a natural evolution from one preliminary stage of the
agency’s investigation to the next. It does not necessarily mean that
the commission will find wrongdoing at Fannie Mae but gives
investigators more authority to seek evidence, legal experts said.
"We have no comment at all," said Janis Smith, a Fannie Mae spokeswoman, of the SEC move.
announcement of the delayed financial statement comes as the company
grapples with allegations by its regulator, the Office of Federal
Housing Enterprise Oversight, that it manipulated its earnings, in part
to boost bonuses for top executives.
typically issues a news release announcing its quarterly results weeks
before it files a more extensive quarterly report with the SEC.
However, for the quarter ended Sept. 30, Fannie will announce the
results when it submits the SEC filing, Fannie Mae Senior Vice
President Jayne Shontell said in a statement.
filing is due Nov. 15, and Fannie Mae "will actively seek to file
within this time frame," Shontell said, apparently leaving open the
possibility that it could miss the deadline.
think this is the right course of action . . . the prudent course of
action," said spokesman Charles Greener. He declined to elaborate as to
Fannie’s rival, Freddie Mac, which last
year admitted to billions of dollars of accounting errors and
distortions, is still upgrading its accounting systems and has yet to
resume the timely reporting of its quarterly results.
another development, the Department of Housing and Urban Development
announced yesterday that Fannie Mae and Freddie Mac met federal quotas
last year requiring them to aid low- and moderate-income families. In
reviewing Freddie Mac’s past performance, however, HUD found that the
McLean-based company counted some of the same loans in 2001 and 2002.
eliminating the double-counting, Freddie fell short of the goal in
2002, HUD said. But the margin was so slight the department imposed no
Freddie Mac spokeswoman Sharon McHale said
the company believed it had "a very good faith basis" for counting some
of the same loans toward the housing goals in 2001 and 2002, but McHale
said the company accepted HUD’s decision that those loans should not
count toward the 2002 target.
Fannie and Freddie,
because of their government sponsorship, can borrow at preferential
rates to buy loans. They also package mortgages into securities for
sale to investors. Congress set the affordable housing mandate in the
early 1990s to get the companies to use their advantage in the
marketplace to help underserved communities.
companies met their 2003 housing goals with help from some unusual
transactions whose validity HUD had questioned. Yesterday, Assistant
Secretary for Housing John C. Weicher said HUD concluded that the
transactions legally qualified for credit toward reaching the
affordable housing goals. But he added that he didn’t think those deals
were what policymakers had in mind when they established the standards.
The deals that HUD had questioned and then approved
involved purchases by Fannie and Freddie of loans from Washington
Mutual Inc. and Citibank in which the sellers retained the right to
reverse the sales. When the law was drafted, "nobody was talking in
terms of this kind of activity," Weicher said in a conference call with