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Mortgage Regulator To Keep Agency Job

OFHEO Chief's Term Was to End

By David S. Hilzenrath
Washington Post Staff Writer
Thursday, September 16, 2004; Page E04

Armando Falcon Jr., director of the agency that regulates mortgage funding giants Fannie Mae and Freddie Mac, appears likely to stay on the job past the expiration of his five-year term next month, though he submitted his resignation more than a year and half ago under pressure from the White House.

The White House has not proposed a replacement for Falcon as head of the Office of Federal Housing Enterprise Oversight since it abandoned the nomination of its original candidate in January amid opposition from some Senate Democrats.

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Falcon, a former staffer at the House Committee on Financial Services, "intends to stay on until a new director is appointed and confirmed," said agency spokeswoman Corinne Russell. Falcon "is not actively seeking another job at this time," she said.

The Bush administration and some lawmakers have been trying to replace OFHEO with a new regulatory agency, but proposals have bogged down in Congress.

White House spokeswoman Erin Healy would not say what the administration plans to do when Falcon's term expires. She said that legally, the director can continue to serve until a successor has been named. "I would say that the president appreciates his service," Healy said.

Members of Congress criticized Falcon's agency last year for failing to detect massive accounting problems at Freddie Mac. In June 2003, OFHEO issued an annual report saying that Freddie Mac's auditing and internal controls were "effective," just days before the company reported that it might have understated earnings by billions of dollars over three years.

More than a year later, the company's systems remain so inadequate that it is unable to issue quarterly financial statements. Freddie's chief executive recently complained that Freddie remains dependent "on a veritable army of consultants to make up for outmoded systems and controls."

Since those problems came to light, Falcon has taken a series of steps to ratchet up his agency's pressure on Fannie and Freddie. Those include fighting a legal battle to freeze $50 million of severance payments and other compensation to ousted Freddie Mac chief executive Leland C. Brendsel, forcing out Brendsel's successor, proposing that the companies be required to separate the roles of chairman and chief executive, and hiring an accounting firm to help the agency conduct a special review, still in progress, of Fannie Mae's accounting.

Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) praised Falcon's performance since the problems at Freddie Mac came to light. Before that, "we didn't hear much from him," but subsequently, "he's shown a lot of courage" and "the capability to be a good regulator," Shelby said in an interview.

Shelby, whose committee oversees the agency, said it would be difficult to get a nominee confirmed before Congress adjourns in advance of the November election. But he added that he had heard no talk of any forthcoming nomination.

OFHEO, an agency based in the Department of Housing and Urban Development, has a staff of 183 and a budget of nearly $40 million. It oversees two of the nation's largest and most complex financial institutions, which together guarantee payment on about $3.1 trillion of mortgage-backed securities.

Chartered by the government to provide a steady flow of funds for home mortgages, Fannie and Freddie borrow money from investors to buy mortgages from lenders and package mortgages as securities for sale to investors. Although the government disavows any responsibility for the companies' debts, some government analysts and investors say taxpayers could be called upon to bail them out in a crisis.


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