He said he knew of no evidence that bonus considerations influenced Fannie's disputed 1998 accounting decision, and he said he did not participate in determining that accounting.
In a sign of how tense relations have become between the management of Fannie Mae and its regulator, Raines said he did not receive a copy of the agency's report until regulators were walking into a meeting to present it to Fannie's board. Raines said he had tried unsuccessfully to get a meeting with the OFHEO director when he heard that the report was impending.
Franklin D. Raines called OFHEO's probe "the most unusual regulatory endeavor" he had seen.
(Susan Biddle -- The Washington Post)
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2 p.m. ET Lawrence J. White, professor of economics at New York University's Stern School of Business, discusses the investigation into accounting practices at Fannie Mae.
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_____Archive_____
•
On Fannie's Board, Many Bonds (The Washington Post, Oct 6, 2004)
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Fannie Executives to Defend Accounting Practices (The Washington Post, Oct 6, 2004)
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Restatement Decision Deferred (The Washington Post, Sep 30, 2004)
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As Fannie, Freddie Regroup, Impact May Be Minimal (The Washington Post, Sep 29, 2004)
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Regulator Says Fannie Resisted (The Washington Post, Sep 25, 2004)
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Regulator Has No Confidence in Fannie Leadership (The Washington Post, Sep 24, 2004)
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Fannie Employee Raised Concerns (The Washington Post, Sep 24, 2004)
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Report Slams Fannie Mae (The Washington Post, Sep 23, 2004)
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Warnings Shadowed Firms' Rapid Growth (The Washington Post, Sep 23, 2004)
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Probe Examining Fannie's Promises (The Washington Post, Sep 23, 2004)
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Falcon said he went directly to the board, bypassing management, because management had resisted the examination and because the findings were so important.
Falcon said Fannie was so slow to cooperate with the examination that his agency issued subpoenas, but Raines said the company was told that OFHEO did that simply to put interviews with Fannie Mae employees on the record. Fannie Mae provided an immense volume of records, including 966,367 pages of e-mails, Raines said.
Rep. Paul E. Kanjorski (D-Pa.) wondered aloud why regulators had not noticed six years ago that Fannie's outside accounting firm, KMPG LLP, had raised questions in an audit report about the particular accounting matter in 1998 that OFHEO linked to the executive bonuses.
Raines said Falcon's office had not raised any of the recent criticisms in earlier annual examinations of Fannie Mae.
As a result of its accounting violations, Fannie could be undercapitalized, but it is not insolvent, Falcon said. He also said that the company's business model is sound and that the problems do not pose a risk to the financial system.
Both sides agreed that the Securities and Exchange Commission will be the final arbiter of the accounting matters.
Ann McLaughlin Korologos, presiding director of the Fannie Mae board, told lawmakers it is too soon to embrace or reject OFHEO's findings. She said Fannie Mae's directors will suspend judgment until an internal inquiry requested by the board is completed.
"The report raises issues that clearly are serious," she said. "I don't want to prejudge. This board can be objective. I commit to you our objectivity."
She praised Raines as a "world-class executive."
Staff writer Kathleen Day contributed to this report.
