WASHINGTON – Top executives of Fannie Mae (FNM) are being called before Congress to explain an accounting lapse as lawmakers delve into operations of the mortgage giant that is already under investigation by federal regulators.
Members of the Financial Services Committee (search) from both parties voted Wednesday to empower its chairman, Rep. Michael Oxley (search), R-Ohio, to issue subpoenas for testimony and documents for a hearing next week.
Fannie Mae chairman and chief executive Franklin Raines (search), and chief financial officer Timothy Howard planned to testify, according to company spokesmen. Also scheduled to appear is Armando Falcon, director of the Office of Federal Housing Enterprise Oversight (search), which last week cited serious accounting problems at Fannie Mae and accused it of pervasive earnings manipulation to meet Wall Street expectations.
Fannie Mae's board agreed this week to the regulators' demands to revamp the accounting of the government-sponsored company and boost its capital cushion against risk. The Securities and Exchange Commission (search) also is investigating Fannie Mae's accounting. The Washington-based company, which is the biggest financer and guarantor of home mortgages in the nation, might have to restate its past earnings.
The OFHEO regulators singled out Howard for blame in the accounting improprieties, charging in the report of their ongoing investigation that he "failed to provide adequate oversight."
Roger Barnes, the former Fannie Mae accountant who raised questions about the company's calculations to his supervisors last year, also has agreed to testify. According to OFHEO's report, Fannie Mae management failed to adequately investigate Barnes' concerns.
The role of Fannie Mae's management in the accounting debacle remains under examination by the housing office regulators, who recently accused Fannie Mae executives of failing to fully cooperate with their investigation and raised the possibility of a management shake-up.
The regulators cited in their report an instance in 1998 in which accounting for $200 million in expenses was put off to a future reporting period so executives could receive full bonuses.
It is up to the Fannie Mae board to decide whether top managers should be removed, HUD Secretary Alphonso Jackson said Wednesday.
"I think that the board needs to come to a concrete resolution ... That is their decision to make," Jackson said in an interview with The Associated Press.
OFHEO is an agency within HUD that oversees Fannie Mae and Freddie Mac, the other huge government-backed mortgage financer.
Jackson suggested there could be a sort of silver lining in Fannie Mae's troubles, in that they could move the two government-chartered mortgage financers to fully cooperate in meeting the goals set for them by HUD to fulfill their mandated role of making home ownership more widely available and affordable.
New targets proposed by HUD this year increase the current goals for financing mortgages for low-income and minority home buyers by between 5 percent and 10 percent a year from 2005 through 2008.
Jackson, named by President Bush earlier this year, also suggested the Fannie Mae debacle will give momentum to efforts by the administration and key Republican lawmakers to tighten the government's reins over the two mortgage financers. Previous efforts to enact such legislation — including one last year after Freddie Mac disclosed it had misstated some $4.5 billion in earnings and fired top executives — failed amid heavy lobbying against it by the two politically influential companies.
Officials of the Bush administration have previously criticized Fannie Mae and Freddie Mac for what they say is a failure to meet the housing goals. But the companies and their Democratic allies in Congress have disputed the criticism.
"The fact remains that we have never failed to meet the goals that HUD set out for us," Freddie Mac spokeswoman Sharon McHale said Wednesday.
The company supports the intent of the new targets while objecting to some specific numbers, she noted.
Fannie Mae spokesman Brian Faith, declined comment on Jackson's remarks.
Fannie Mae and Freddie Mac together stand behind some $4 trillion of home mortgages — more than three-fourths of the single-family mortgages in the country. They pump money into the home mortgage market by buying and guaranteeing repayment of billions of dollars of home loans each year from banks and other lenders, then bundling them into securities that are resold to investors.