Under scrutiny for questionable accounting practices beginning in 2004, mortgage giant Fannie Mae quietly tried to turn the tables on its federal watchdog by flexing its lobbying muscle and enlisting congressional allies to fire back at investigators, according to a report released Tuesday.
In particular, the lending giant won help from Sen. Kit Bond (R-Mo.). Twice in 2004, Bond did the company’s bidding by asking the Department of Housing and Urban Development’s inspector general to investigate the Office of Federal Housing Enterprise Oversight — the HUD agency that was investigating Fannie Mae at the time.
The lobbying effort was revealed in an oversight report released Tuesday by OFHEO.
Staffers for the Missouri Republican, who chairs the Senate Appropriations subcommittee that handles HUD’s budget, worked with Fannie Mae lobbyists to lay the groundwork in the 2004 HUD spending bill for one investigation, the report said.
Another inquiry was launched after Bond sent a letter, apparently drafted by Fannie Mae lobbyists, to the HUD inspector general. In it, he asked the office to investigate whether OFHEO had improperly leaked confidential information about Fannie Mae to the media.
The revelations about Bond’s involvement in the issue were tucked into a 340-page report Fannie Mae’s federal regulator released Tuesday before announcing that the lending giant would pay $400 million in fines as part of a settlement with the federal government.
In announcing the deal, federal regulators blasted Fannie Mae for “unprincipled corporate behavior” that included manipulating earnings to enrich senior executives. Fannie Mae, however, said it neither admitted nor denied wrongdoing in signing on to the agreement.
Bond’s office said Tuesday that the Senator was pushing the housing department only to make sure that OFHEO was doing an adequate job policing Fannie Mae.
“Sen. Bond’s primary concern has always been to have a strong GSE regulator,” Bond spokesman Robert Ostrander said. “The HUD IG report uncovered serious issues concerning OFHEO’s conduct and effectiveness. As a result of the HUD IG report, we learned that OFHEO, at a critical time, was not doing its job and nothing was being done about it. OFHEO was simply ineffective.”
A spokesman for Fannie Mae referred reporters to the company’s statement. In it, Fannie Mae President Daniel Mudd said that the company has “learned some powerful lessons here about getting things right and about hubris and humility.”
“We are a much different company than before. But we also recognize we have a long road ahead of us,” Mudd added.
The report details a corporate culture at Fannie Mae that was acutely attuned to machinations on Capitol Hill and the need to be heavily engaged there. Prior to the accounting scandals, Fannie bankrolled one of the most extensive and best-funded platoons of in-house and outside lobbyists anywhere in Washington. The company has often been on the defensive about its quasi-federal status, which its fully private-sector competitors have long alleged gives the company a financial leg up.
Senior officials’ involvement with the company’s lobbying operation intensified after OFHEO initiated its investigation, according to the report. And after Bond’s request sparked an investigation of the watchdog itself by the HUD inspector general, Fannie Mae executives pushed to make the report public.
“I think the company at the highest levels thought that the HUD Inspector General’s report would discredit or show the lack of objectivity in the OFHEO report in September or at least the preliminary report,” Duane Duncan, Fannie Mae’s top lobbyist, told investigators, the report said.
OFHEO investigators found on Fannie Mae computers a draft that was nearly identical to the Bond letter but was dated two weeks before the actual letter was sent, according to the report. Duncan confirmed in testimony that Bond’s letter was sent at Fannie Mae’s request.
The Senator’s spokesman said that the regulators needed a wake-up call.
“It’s not surprising OFHEO would find oversight by the HUD IG painful, but Sen. Bond hopes that OFHEO has learned important lessons from the report which will help it become a true watchdog,” Ostrander said.
Fannie Mae’s eye-popping settlement with the federal government comes as lawmakers face an impasse over legislation to bring the company — and Freddie Mac, its cousin in the mortgage-backing business — under tighter control by regulators.
The House approved a bill last year, but so far the Senate Banking Committee has been unable to move its tougher version to the floor due to Democratic objections.
Senate Banking, Housing, and Urban Affairs Chairman Richard Shelby (R-Ala.) said in a statement that he hoped the report proved conclusively that Fannie Mae and other companies like it need stronger federal oversight.