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Freddie Mac

Smaller Rival Showed Remorse, Cooperated

Monday, December 20, 2004; Page E09

When Freddie Mac uncovered accounting problems last year, its attitude was much different from that of Fannie Mae, its larger housing finance competitor, when it ran into the same kind of trouble.

Freddie's problems were found by the company's own accountants, and its board of directors immediately began working with its regulator, the Office of Federal Housing Enterprise Oversight, to correct the damage. Fannie Mae's issues were discovered by OFHEO and the company came out swinging, deriding its critics and assuring the public that it was right and the government was wrong -- until the Securities and Exchange Commission sided with the regulator.

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Freddie Mac is widely perceived to have recovered. Though it is still rebuilding its accounting systems after correcting billions of dollars in mistakes, Freddie stock closed Friday at $10 a share higher than the day before its scandal broke. Its new chief executive, Richard F. Syron, is a model of the low-profile restraint that's coming back into fashion among chief executives.

Spokesmen for Fannie Mae and Freddie Mac declined to comment.

Don Goldberg, a managing director at Qorvis Communications LLC, a Washington firm that specializes in "crisis communications," said the difference between Freddie's and Fannie Mae's posture is "diametrically opposite" from a public relations standpoint.

"Freddie Mac expressed humility," said Goldberg, who worked on communications strategy in the Clinton White House. "Raines came off as very cold. He gave off an air of arrogance."

Raines's and Fannie Mae's posture was colored by the company's adversarial relationship with its regulator. Through the investigation, from document requests right up until the days following its damning report two months ago, Fannie Mae sought to cast the agency and its chairman, Armando Falcon Jr., as the bad guys.

In short, Fannie Mae painted itself into a corner by engaging in a high-risk fight with its regulator, said Jay Cochran III, research fellow in regulatory studies at the Mercatus Center at George Mason University. "The American public and policymakers have an unbelievable capacity to forgive you as long as you admit mistakes and show that you're doing something about it," Goldberg said. "Fannie hasn't admitted to any mistakes."

-- Terence O'Hara

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