Fannie Mae seemed to put many of its problems behind it on Monday, when the company agreed to sweeping changes generated by a federal regulatory agency’s critical assessment of Fannie’s accounting policies.
Nevertheless, it became clear on Tuesday that the nation’s largest buyer of mortgages hadn’t totally steered clear of controversy.
To be sure, following the allegations of accounting mishaps and earnings manipulation leveled at Fannie last week by the Office of Federal Housing Enterprise Oversight (OFHEO), the company agreed to boost its capital cushion against risk to 30 percent, revamp its accounting, and tighten its internal controls.
The company also pledged to review its staffing and compensation policies and to hire an independent chief risk officer.
Yesterday, however, Fannie spokesman Chuck Greener had to quickly correct a statement that Daniel Mudd, the company’s chief operating officer, had made after a speech to the National Association of Federal Credit Unions.
Mudd was asked by reporters whether the company would likely need to restate earnings as a result of changes demanded by OFHEO, according to Reuters. “It is not contemplated in the discussion we’ve had to date,” he reportedly said. “As you know, there has been an informal review going on at the [Securities and Exchange Commission] and that will be a matter further down the road.”
But OFHEO actually has told Fannie Mae’s board that an earnings restatement is one of the issues it will have to consider in the process of correcting its accounting, according to a story by Reuters. Mudd misspoke, Greener reportedly said.
Meanwhile, the SEC’s investigation of Fannie could drag in a number of major Wall Street firms that have dealt with the company, according to the The New York Times.
Congress is also planning hearings on Fannie Mae. Roger Barnes, a whistle-blower who provided key information to the OFHEO, will testify before a House Financial Services subcommittee, Reuters reported.
Indeed, Congress has been threatening for years to pass legislation that would tighten regulation of Fannie Mae and its sister company, Freddie Mac. If that happens, Fannie Mae could eventually be forced to sell a large amount of its nearly $900 billion in mortgages.