A commenter to a previous post on the foibles of Fannie Mae took the position that hard-core lobbying efforts of Fannie Mae officials prevented OFHEO officials from uncovering the accounting scandal that led to the ouster of Fannie Mae’s top management and restatement of earnings. He or she contended that lobbying by GSEs should be banned.
A story in this past weekend’s edition of National Mortgage News supports that contention.
In a last-ditch effort to distract attention from its accounting problems, Fannie Mae used its clout on Capitol Hill to “undermine” and “discredit” a special examination of its books, according to a report by the Office of Federal Housing Enterprise Oversight.
Moreover, last week former OFHEO chief Armando Falcon Jr. said Fannie’s behavior reminded him of the “Keating Five” scandal of the late 1980s when five U.S. senators pressured thrift regulators to go easy on his rogue S&L.
Speaking at a luncheon here, Mr. Falcon said he found it “particularly offensive” that Fannie instigated an inspector general probe of his agency by the Department of Housing and Urban Development. (Mr. Falcon left OFHEO on his own accord in May 2005.
As OFHEO’s special examination was getting underway in early 2004, Fannie worked with a powerful Senate appropriator to launch an investigation of OFHEO by HUD’s IG office.
The OFHEO report documents that Fannie lobbyist Duane Duncan — with the approval of higher-ups — instigated the request and drafted a letter for Sen. Christopher Bond, R-Mo., to send to HUD IG Kenneth Donohue.
The letter asked the IG to investigate several “leaks” that OFHEO allegedly had made to the press that proved damaging to Fannie.
Mr. Duncan admitted under oath that “Fannie Mae had generated the request” for the HUD IG investigation, according to OFHEO’s final report on Fannie’s accounting scandal.
“It is clear that Fannie Mae sought to use the … investigation of OFHEO by the HUD inspector general to attempt to undermine the special examination,” the OFHEO report says.
OFHEO also reported that Fannie lobbyists wanted to use the VA-HUD appropriations bill to pressure the Bush administration to replace OFHEO director Falcon, and his deputy, Stephen Blumenthal, who was leading the special investigation.
As the chairman of the VA-HUD Appropriations Subcommittee, Sen. Bond included language in OFHEO’s $60 million budget that penalized the agency if Mr. Falcon remained at the helm.
Sen. Bond’s subcommittee approved S. 2825 on Sept. 21, 2004 — the same day that Fannie Mae reported a $3,500 political action committee contribution to Sen. Bond, who was running for re-election.
A Center for Responsive Politics report prepared for NMN also shows that then-Fannie chairman and chief executive Franklin Raines made a personal $1,000 contribution to Sen. Bond in November 2003.
The current CEO and president, Daniel Mudd, contributed $1,000 to Sen. Bond in 2003.
Sen. Bond continued to call for Mr. Falcon’s removal after the HUD IG released the results of its investigation in mid-November of 2004. “Administrator Falcon’s term expired six weeks ago. He should be gone by now,” Sen. Bond said in a Nov. 19, 2004 statement.
The IG report raised serious questions about the conduct of Messrs. Falcon and Blumenthal. However, the IG concluded that OFHEO did nothing wrong.
Two weeks ago, Fannie agreed to a $400 million settlement with the SEC and OFHEO for engaging in financial fraud.
Those of us who represented savings and loans in the 1980s certainly recall the infamous Keating Five. Although Senator John McCain was one of “The Five,” he survived the scandal relatively unscathed. However, in his autobiography, he considers his participation in a group one of the worst mistakes of his career.
In this case, it appears that there was at least a “Fannie Mae One”: Senator Christopher “Kit” Bond of Missouri.
Here’s a list from Senator Bond’s biography on Wikipedia, under a section entitled “Actions as Senator”:
In 2004, Bond sent a letter asking the Department of Housing and Urban Development’s inspector general to investigate whether the Office of Federal Housing Enterprise Oversight (OFHEO) had improperly leaked confidential information about Fannie Mae, which OFHEO regulates. In 2006, OFHEO investigators found a draft of Bond’s letter seeking the probe of OFHEO on a Fannie Mae computer system nearly two weeks before the actual request was sent to HUD’s inspector general.
On October 5, 2005, Bond was one of only nine senators to vote against the Interrogation Limits bill, which strictly defines the methods of interrogation that can be used by US forces.
On March 28, 2006, Bond voted against creating the Office of Public Integrity, which would have looked into charges of corruption by lawmakers.
Not what he’d want written as his epitaph, I’m sure.
As I stated previously, this little scandal is far from played out