CCAGW Reacts to OFHEO Report on Fannie Mae | Council For Citizens Against Government Waste

CCAGW Reacts to OFHEO Report on Fannie Mae

Press Release

For Immediate ReleaseContact:  Tom Finnigan
May 23, 2006:   (202) 467-5309

 

(Washington, D.C.) – Tom Schatz, President of the Council for Citizens Against Government Waste (CCAGW), today released the following statement in response to today’s Office of Federal Housing Enterprise Oversight’s (OFHEO) Report of the Special Examination of Fannie Mae:

            “Contrary to several advance media reports claiming that the OFHEO Report on Fannie Mae’s accounting debacle would contain ‘nothing new,’ the OFHEO report is not only much more aggressive in tone, it also dramatically expands our knowledge of what went on inside Fannie Mae.  It is a much more detailed account of the extent to which Fannie Mae executives manipulated and distorted the company’s accounting practices in order to enrich themselves, publicly misrepresented and downplayed the risks they were taking in order to keep the gravy train running, played cat and mouse with its federal regulator, and made a mockery of congressional oversight. 

In the 1980s and 1990s, Fannie Mae executives recognized that Congress would look the other way as the company ran rings around its federal regulator, kept its operations largely in the dark, and wrote its own rules.  Congress’ lax attitude allowed the accounting scandal to fester undetected for years, all the time putting taxpayers at a growing risk for a GSE bailout.  When OFHEO finally presented credible allegations of corporate wrongdoing and accounting transgressions at Fannie Mae, members of Congress pilloried the messengers, shielded Fannie Mae executives from scrutiny and accountability, and dragged their feet on taking any meaningful action.  Many of those who buried their heads in the sand were among the most vocal critics of the executives at Enron and WorldCom when their accounting crimes were revealed. 

One of the most critical points of the OFHEO report is that Fannie Mae’s ability to finance its massive ‘take no prisoners’ political and public relations operation grew simultaneously with its decision to grow its mortgage-backed security portfolio (MBS).  The MBS portfolio did nothing to help low and middle-income families purchase homes, but it enabled the company to deflect scrutiny and keep its congressional allies in line.  Therefore, the OFHEO Report recommends that Congress limit the size of the GSEs’ portfolios.  The best legislative remedy is S. 190, which contains the strongest statutory language on portfolio limitations for both Fannie Mae and Freddie Mac. 

Former Fannie Mae Chief Operating Officer Daniel Mudd observed that, ‘by virtue of its peculiarity,’ Fannie Mae ‘faced little organized political opposition.’  Company executives, flush with the proceeds of its MBS activities, were able to systematically hamper its regulator’s ability to engage in oversight by using the GSEs’ ambiguous provenance as a legal rationale.  It worked then, and I would submit that it is still at work.  To date, and in spite of a continual barrage of damaging revelations, Congress has failed to pass comprehensive legislation establishing some control over these housing giants.  If Congress cannot summon the political will to transform Fannie Mae and Freddie Mac from the duopolies they are into fully private, competitive corporations, then it must enact the toughest, most comprehensive oversight regime it can in order to protect taxpayers and consumers and ensure the GSEs are no longer able to ‘write their own rules.’  And that regulatory structure must include clear statutory language shrinking the GSEs’ huge MBS portfolios.  Congress must move S. 190 to the floor and pass it this year.” 

The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.

 

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