Skip to comments.HUD Review: Fannie Mae Offices Misused
Posted on 10/17/2005 8:57:33 PM PDT by AdamSelene235
WASHINGTON (AP) -- Mortgage giant Fannie Mae has used its regional partnership offices over the years primarily to lobby Congress instead of promoting affordable housing, the Department of Housing and Urban Development concluded after a yearlong review.
HUD opened a formal inquiry into the political activities of Fannie Mae's regional offices in July 2004 following a Wall Street Journal story that said the company used its partnership offices to funnel money into key congressional districts.
HUD, which refused to release its report to the public, said in a statement Monday that Fannie's congressional charter allows it to set up regional offices to promote affordable housing.
"However, the department also concluded from its review that the activities of the partnership offices were not confined to affordable housing initiatives," HUD said. "Rather, a central purpose of the Partnership Offices was to engage in activities that were primarily designed to obtain access to or influence members of Congress."
HUD spokesman Lemar Wooley wouldn't say why the agency won't publicly release its findings and told reporters to file formal requests for the report under the Freedom of Information Act.
National Mortgage News reported HUD's conclusions Monday.
Congress created Fannie Mae and Freddie Mac, its smaller rival, to pump money into the $8 trillion home-mortgage market. They buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bundle them into securities that are resold to investors worldwide.
HUD said it notified Fannie that it will monitor the company's partnership activities going forward "to ensure that the offices are being operated in a manner that is consistent with Fannie Mae's charter authorities."
Fannie Mae spokesman Brian Faith said the company is refocusing its partnership offices under a new name, community business centers, "to better align our business with the needs and focus of our customers and partners. The purpose of the community business centers is to expand affordable housing opportunities and to work with our customers to get more people into homes and help them remain in those homes."
Fannie recently laid off 20 lobbyists and publicists located at its 55 partnership offices outside Washington and is dismantling its grass-roots lobbying network, which has aggressively and efficiently worked House and Senate lawmakers over the years from their home districts.
The Wall Street Journal reported in May 2004 that Fannie used its partnership offices to finance a disproportionate amount of projects in prime congressional districts through its American Communities Fund.
About half of the ACF projects reviewed by the Journal were in the home districts of House and Senate lawmakers who sat on the banking committees that directly oversee Fannie or the appropriations housing subcommittees that fund its federal regulator. Only 22 percent of the members of the House and Senate sit on those panels.
Clinton Legacy ping
Say it ain't so......next thing you know, they are going to say that the Corporation for Public Broadcasting is slightly left-leaning...
You can't dismantle a grass-roots system. Its astroturf not grass.
p.s. Look over the list of Jamie Gorelicker's political contributions only if you have a strong "barf alert" protection mode (would like to know the dirty details of all that lobbying that Fannie Mae dollars were paying for):
Well Fannie Mae was/is noted for working both sides of the aisle hard in order to maintain its unique position and forestall regulatory oversight, etc. Still, her overall contributions are extremely liberal, not surprising....
The WaPo article refers to her as having aspirations to be a future Sec'y of Defense!!!!! THAT is another reason no Democrat should be elected president in our lifetimes!!! People like Sandy Burglar and Jamie Gorelick should never, ever have been allowed anywhere near national security matters and must never again be placed in such positions.
Fannie is a evil machine which turns special privileges and huge socialized risks into cash and then converts the cash into political influence.
Rinse, wash, repeat.
Both the Pubbies and Dems will be implicated in this one.
YUP, it's definitely a rank bi-partisan scandal that goes way back.... but still I'd like to see Jamie Gorelick's role examined aggressively, especially in relation to this HUD report since that seems to go to the heart of some of her principal responsibilities there. Here's one (relatively rare) time when I definitely do agree with Ralph Nader and I hope he pursues this hard:
Its all a matter of know-who, not know-how, complains Ralph Nader about Fannies higher ranks. Theyve perfected all the techniques of lobbying and pay massive salaries for Rolodex hiring to ensure against any change. Naders favorite example: Fannie Mae vice chair Jamie Gorelick, a well-connected Washington lawyer who earned almost $1 million in her first eight months on the job after serving as counsel to the Defense Department and deputy to former attorney general Janet Reno.
Besides Gorelick, Raines, and former Gingrich aide Arne Christenson, other politicos have cashed in at Fannies executive suites. Running political campaigns is invaluable: Rainess predecessor Jim Johnson ran Walter Mondales 1984 campaign after decades as a Democratic kingpin. Coaching debates is worth something, too: Executive vice president Tom Donilon prepared Michael Dukakis and Bill Clinton for their campaign face-offs, and former general counsel Robert Zoellick prepped George W. Bush for his.
Gorelick is closely linked to the intelligence community, currently serving on the Central Intelligence Agencys (CIA) National Security Advisory Panel, as well as President Bushs Review of Intelligence -- affording the current Fannie Mae vice-chairman access to the inner-workings of the CIA while providing the Agency with an ally on the Commission.
Freddie Mac and Fannie Mae: Corporate Welfare King & Queen
by Vern McKinley
McKinley has worked as a financial analyst and attorney in Washington, D.C. This article is based on a policy analysis published by the Cato Institute.
They are two of the largest financial institutions in the nation, with more than half a trillion dollars in assets between them: Freddie Mac and Fannie Mae. But few people can explain exactly what function those financial giants serve.
Freddie Mac and Fannie Mae indirectly assist homebuyers by purchasing mortgages from lenders, such as commercial banks, savings and loans and mortgage banks. Freddie and Fannie, in turn, generally get those loans off their books by creating securities that are eventually paid off as the underlying mortgages are paid off. Homeowners are happy because they are aided in borrowing money for a home. Lenders are happy because they don't have to hold mortgages for several years. Investors in the securities are happy because they have a reliable investment, and Freddie Mac and Fannie Mae are happy because they make a handsome profit. Sound like capitalism at its finest? Not exactly.
Although Freddie and Fannie are privately owned, they are what is known as government-sponsored enterprises (GSEs). GSEs don't have to follow all the rules that true privately owned companies do: they don't have to register their securities with the government, their securities receive special treatment for investment purposes, they don't have to pay state and local income taxes and--most important--their government sponsorship gives them the aura of a fully guaranteed government entity. That final benefit means they save billions in borrowing costs, just as lenders are willing to offer low-interest student loans that are guaranteed by the government. That savings alone allows the GSEs to pocket about $2 billion per year, according to estimates by the Congressional Budget Office and the Treasury Department.
Allowing Congress to grant such special privileges is a bad idea. Those privileges, which are granted solely to Freddie and Fannie, crowd out other potential competitors in their market. Privately owned companies should not receive such preferred borrowing status, because it redirects investor funds into the middle- and upper-income housing market at the expense of other potential investments. Finally, the failure of either Freddie or Fannie could saddle taxpayers with a huge liability.
Throughout 1996, a number of reports mandated by recent legislation were issued by the General Accounting Office, the Congressional Budget Office, the Department of Housing and the Treasury Department. Those reports scrutinized the system under which Freddie and Fannie operate. Congressional hearings were also held on the subject. Critical commentators argued that the $2 billion in benefits received by the GSEs is a blatant form of corporate welfare. They further argued that Freddie and Fannie constitute a duopoly, a fancy term to indicate that the two GSEs share above-average profits in a noncompetitive market. It's no wonder that with the many benefits of their special status, Freddie and Fannie have no direct competition. They have even begun to move into new markets.
A clear sign of how much Freddie and Fannie value their government sponsorship is the great effort they expend to maintain it. They have used a portion of their billions of dollars in benefits to fund a high-powered public relations and lobbying machine with the sole purpose of maintaining their current status. Their efforts have involved spending millions on full-time lobbyists, paying millions to politically connected executive officers, and making "soft money" political contributions of three-quarters of a billion dollars, evenly split between Democrats and Republicans, during the last election cycle.
One would think that the scrutiny of last year's reports and hearings would have prompted the GSEs to lie low for a while, but that has not been the case. They have continued to squeeze competitors who do not enjoy their borrowing and tax advantages by entering or increasing their presence in the insurance, reverse mortgage, home equity and subprime mortgage markets. They have contributed nearly $400,000 in soft money in just the first six months of this year. Finally, Fannie Mae brought on board a new political hired gun: Jamie Gorelick, Janet Reno's second-in-command at the Justice Department. She will be compensated millions to, as the American Banker put it, "fight for Fannie Mae on Capitol Hill."(sounds like a lobbyist to me)
The GSE structure is a classic case of a special legislative benefit that its recipients will fight to the death to maintain. Congress should immediately revoke all the benefits of government sponsorship: clearly, Freddie and Fannie can be profitable without them. Eliminating special privileges will force mortgage markets to be truly competitive and will eliminate the possibility that the current system of government sponsorship will someday lead to yet another taxpayer-funded bailout.
Thanks for the ping!
Too good to be true, a scandal linking Jamie Gorelick and Henry Cisneros (former Sec'y of HUD)??? This PR seems like it could point the way toward a link between HUD and Gorelick turning the "social activism" of the Fannie Mae program into political outreach???
What did Gorelick know and when did she know it??? This article is from just six months ago and it sounds like the Fannie Mae scandal could be huge -- anyone know if there's a further update on this? I'm trying to find something more recent....
False Signatures Aided Fannie Mae Bonuses, Falcon Says
By Kathleen Day and Terence O'Hara
Washington Post Staff Writers
Thursday, April 7, 2005; Page E01
Fannie Mae employees falsified signatures on accounting transactions that helped the company meet earnings targets for 1998, a "manipulation" that triggered multimillion-dollar bonuses for top executives, a federal regulator said yesterday.
Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, said the entries were related to the movement of $200 million in expenses from 1998 to later periods. The result of the changes was an increase in Fannie Mae's 1998 earnings per share and the release of a $27.1 million bonus pool for senior executives.
From Aug. 2005: this says Fannie Mae anticipates spending 6-8 MILLION labor-hours for the coming year to try to complete the re-statement of their fraudulent financial statements!! Expected release of re-statement is in "2nd half" of 2006. This is a scandal of far greater magnitude than the corporate scandals the MSM loves..... but with all these high-profile 'Rats (and also too many Republicans, alas) involved the MSM doesn't seem to want to keep this on the front burner.
What did Jamie Gorelick know and when did she know it??
Posted on: Thursday, August 11, 2005
The Potential Crisis at Fannie Mae
We have no proprietary information about Fannie Mae, but what is publicly known is scary enough. As you may recall, last December the SEC required Fannie to restate prior financial statements while the Office of Federal Oversight (OFHEO) accused the company of widespread accounting regularities that resulted in false and misleading statements. Significantly, the questionable practices included the way Fannie accounted for their huge amount of derivatives. On Tuesday, a company press release gave some alarming hints on how extensive the problem may be.
The press release stated that in order to accomplish the restatements, we have to obtain and validate market values for a large volume of transactions including all of our derivatives, commitments and securities at multiple points in time over the restatement period. To illustrate the breadth of this undertaking, we estimate we will need to record over one million lines of journal entries, determine hundreds of thousands of commitment prices and securities values, and verify some 20,000 derivative prices
This year we expect that over 30 percent of our employees will spend over half their time on it, and many more are involved. In addition we are bringing some 1,500 consultants on board by years end to help with the restatement Altogether, we project devoting six to eight million labor hours to the restatement. We are also investing over $100 million in technology projects to enhance or create new systems related to accounting and reporting we do not believe the restatement will be completed until sometime during the second half of 2006
It seems to us that anybody reading that press release should be shocked by what appears to be the paucity of knowledge about what is going on at a company of such great size and importance to the U.S. economy. About 18 months ago Fed Chairman Greenspan stated that problems at both Fannie Mae and Freddie Mac had the potential to bring down the financial system. He stated at the time that, Most of the concerns associated with systemic risks stem from the size of the balance sheets that these GSEs (government-sponsored enterprises) maintain . He added that the immense size of their holdings and the need to keep growing to satisfy their shareholders made them increasingly vulnerable.
The White House, too, in its 2003 budget report, expressed their concerns. They stated that although both GSEs tries to limit their risks through various risk-management methods, these techniques do not eliminate all the risk associated with funding long-term, mostly fixed-rate assets that have uncertain payment streams Furthermore, the hedging transactions transform credit or interest rate risk into counterparty risk (the risk that a counterparty of a hedging transaction fails to honor the contract). Thus the GSEs management of counterparty risk is of increasing importance.
Now it appears that Fannie Maes internal controls have been so weak that no one actually knows what the risks are or what the auditors will findand we wont know for at least another year. For a company as important to the U.S. as Fannie Mae, this is a national problem with widespread potential for developing into a dangerous financial crisis.
Given the direction in which the nation is headed, I wonder what will finally push us over the edge: the corruption, the invasion, or just plain ignorance.