Fannie Mae, the federally chartered housing finance company, violated accounting requirements that are "clear" and "not overly complex," the chief accountant of the Securities and Exchange Commission told a House subcommittee yesterday.
Donald T. Nicolaisen, who in December directed Fannie Mae to correct its financial statements back to 2001, said, "I have reason to believe that the standards are workable and are being followed" by other companies. District-based Fannie Mae has estimated that the corrections could erase $9 billion of previously reported profit.
Nicolaisen declined to say why Fannie Mae did not follow the rules, noting that the SEC is investigating.
The SEC official's comments contrasted with the defense that former Fannie Mae chairman and chief executive Franklin D. Raines made before the same panel last fall, when he argued that the accounting rules at issue "are highly complex and require determinations over which experts often disagree."
Rep. Richard H. Baker (R-La.), chairman of the House Financial Services Committee's subcommittee on capital markets, insurance and government sponsored enterprises, said Nicolaisen's ruling was a vindication for Armando Falcon Jr., director of Fannie Mae's primary regulator, the Office of Federal Housing Enterprise Oversight, who was "verbally assaulted" by committee members from both parties at last October's hearing.
"The unfortunate finding of the SEC is that the accounting practices of Fannie Mae were not just an exercise of bad judgment, or a one-time aberrant act, but a consistent misapplication, at best, or at the worst, an intentional act of accounting misrepresentation," said Baker, a longtime Fannie Mae critic. He said he plans to introduce a bill next month to create a stronger regulator for Fannie Mae and rival Freddie Mac.
Rep. Joe Baca (D-Calif.) questioned whether Fannie Mae was being singled out. "Don't we want a fair process to hold other companies accountable for the same thing that we're asking Fannie Mae to be accountable" for, Baca said.