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The Regulator

Scandal Boosts Oversight Agency's Reputation

Monday, December 20, 2004; Page E09

The Securities and Exchange Commission's order last week that Fannie Mae correct its financial statements helped restore the credibility of its federal regulator, the often-maligned Office of Federal Housing Enterprise Oversight.

It was the regulator, with the aid of accounting firm Deloitte & Touche LLP, that said Fannie Mae violated accounting rules, a stand the SEC vindicated despite denials by the company. OFHEO's relationship with the companies it regulates has been rocky since the agency's creation more than a decade ago.

Armando Falcon Jr. sought independence.

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Fannie Mae executives for years have tried to chip away at OFHEO's credibility in Congress by making agency officials seem over their heads when it comes to complex accounting issues. And OFHEO officials were criticized in hearings last year, at which they were surprised by accounting problems at the other government-chartered housing finance company it regulates, McLean-based Freddie Mac.

Sen. Christopher S. Bond (R-Mo.), chairman of the Senate Appropriations Committee subcommittee with jurisdiction over OFHEO, has sought to cut a proposed budget increase that the regulators needed to fund an in-depth accounting review of Fannie Mae. Bond, whose office didn't return calls Friday seeking comment, asked the Housing and Urban Development Department's inspector general to investigate OFHEO for possible leaks of sensitive information about Fannie Mae.

OFHEO Director Armando Falcon Jr. has told Congress that the agency's oversight of Fannie Mae and its smaller rival Freddie Mac would benefit if it were taken out of HUD and, like other federal financial regulators, given more independence from yearly political battles over its budget, which must be approved by Congress -- even though the money comes from Freddie Mac and Fannie Mae, not the government.

Each year, especially since the agency began its targeted review of Fannie Mae accounting, the District-based company has said in public that it supports a strong regulator while working behind the scenes to cut proposed budget increases for OFHEO, congressional aides said.

-- Kathleen Day

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