Federal authorities examining Fannie Mae’s books have found falsified signatures on journal entries that ultimately enabled the company to meet earnings targets in 1998, reported The Washington Post. Meeting those targets, in turn, led the mortgage company to pay more than $27 million in bonuses to top executives, added the newspaper.
According to the Post, Armando Falcon Jr. — who resigned earlier this week as director of the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac — testified to a House subcommittee that the entries were related to the movement of $200 million in expenses from 1998. Those expenses were then booked to later periods.
According to Falcon’s testimony, a Fannie employee admitted that his name and signature are attached to financial records from 1999 to 2002, but the employee maintained that he did not prepare the reports.
“We have identified several problems involving procedures for preparing, reviewing, authorizing, and recording” Fannie Mae’s accounting, Falcon reportedly said. The OFHEO is reportedly also looking into whether any of the recipients of the bonuses knew about the questionable signatures. According to the Post, the oversight agency is sharing its information with the Securities and Exchange Commission and the Department of Justice.
Manipulating signatures wasn’t the only practice under fire, the Post reported. In his testimony, Falcon also criticized Fannie’s practice of retaining some mortgage-backed securities for a month or so before deciding whether to unload them or keep them as part of its own portfolio. “This practice appears to stand in stark contrast to the company’s denials of engaging in ‘cherry picking’ when the matter was reviewed by a 2003 Task Force on Mortgage-Backed Securities Disclosure,” Falcon told the legislators.