Mortgage Daily

Published On: July 17, 2003
Freddie Regulator Criticizes CandorOFHEO letter to Senate says company less than fully forthcoming

July 17, 2003

By SAM GARCIA

Freddie Mac’s regulator has issued a statement indicating that the company has been less than “fully forthcoming.”

In a letter to the Senate Committee on Banking, Housing and Urban Affairs, Armando Falcon Jr., outgoing director of the Office of Federal Housing Enterprise Oversight (OFHEO), noted that the law firm of Baker Botts, which was retained by Freddie’s audit committee “to perform diagnostic and forensic work associated with the restatement process,” briefed the agency in May.The law firm “expressed no concerns regarding the management team of inappropriate or improper management behavior,” the letter said. But sweeping management changes the next month indicated “the Board’s counsel had not been fully forthcoming,” Falcon said.

In a story published today, the Wall Street Journal noted that a draft of the director’s said Freddie’s problems also include accounting related to many of the mortgage-backed securities (MBS) the company issues as well as “erroneous” accounting for the company’s big in-house securities sales-and-trading operation. The story went on to say that Falcon’s testimony said about half of the Freddie’s MBS business could be affected.

Armando Falcon Jr.

Falcon defended the agency’s annual report to congress in which Freddie’s “overall internal control framework” and the “management of the internal control framework” were reported as “effective” just days prior to Freddie’s revelations.

The director went on in his letter to say that while the investigation of Freddie is a serious matter, it is not a crisis. “Freddie Mac remains safe and sound.”

Falcon also asked Congress for $4.5 million in funding for the agency.

Freddie recently reported mortgage participation certificates of $1 trillion and a retained portfolio of $573 billion. Fannie Mae’s book of business was reported at just over $2 trillion.


Sam Garcia has been in mortgage lending since 1980, and is publisher of MortgageDaily.com. He also owns and operates CloseNow.com, a real estate portal site.

email: [email protected]

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