Fannie Mae Accounting Practices Questioned

Fannie Mae is not a relative of former President Clinton, but rather is a “government-sponsored enterprise” chartered by Congress to help Americans buy their own homes. However, it is not a federal agency. It’s a publicly held company; its stock trades on the New York Stock Exchange. And the Office of Federal Housing Enterprise Oversight, which has examined the books, says that Fannie Mae may have been cooking its books to make things look better than they are.

Last year, Freddie Mac, another GSE with a stupid name given it by Wall Street and Washington, got socked with a $125 million civil fine and restated its earnings by $5 billion. The charge was much the same as the one facing Fannie Mae. Between them, they own or guarantee about half of the $7.8 trillion of outstanding residential mortgage debt in the US.

Although it does have the sponsor-ship of the US government, it appears that the top managers at Fannie Mae have acted like those at a few of the less reputable companies in the country. Regulators claim that management racked up 7-figure bonuses in 1998 for meeting financial targets while deferring $200 million in unexpected costs – which would certainly help meet those targets. Former CEO James Johnson got $1.9 million in bonus payments, and current CEO Franklin Raines pulled in $1.11 million while CEO designate. The SEC is launching in investigation as well according to a Fannie Mae statement.

What makes this more than just another Wall Street scandal is the role that GSEs play in the American economy. According to the Department of Housing and Urban Development,

Their Congressional charters require each corporation to achieve public purposes that include providing stability and liquidity in the secondary mortgage market, providing secondary market assistance relating to mortgages for low-and moderate-income families, and promoting access to mortgage credit throughout the Nation, including underserved areas.