There are no awards for moxie in regulating, but if such a program is ever established, supporters of Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, would probably nominate him. The tiny agency was created in 1992 to oversee Fannie Mae and Freddie Mac, two government-backed housing financiers with assets and mortgage guarantees adding up to more than $3 trillion.
"Courage is something any good regulator needs," said Cary Coglianese, chairman of Harvard University's Kennedy School of Government Regulatory Policy Program. "Because they get delegated the tasks that Congress can't muster the courage to do itself."
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In the pantheon of federal regulators with the courage gene, Coglianese also includes David Kessler, former head of the Food and Drug Administration, who tried to regulate tobacco and smoking; Jane Garvey, former head of the Federal Aviation Administration, who shut down the nation's air traffic after Sept. 11, 2001; and William D. Ruckelshaus, who did a tour of duty in the Reagan administration and brought credibility back to the Environmental Protection Agency after a period of scandal.
At a time when regulators sometimes are more noticeable for not exercising their authority -- witness recent howling about FDA regulators dropping the ball on the flu vaccine supply and allowing dangerous drugs on the market -- the case of OFHEO vs. Fannie Mae is notable.
It has David and Goliath features: a tiny agency taking on a gigantic company; Falcon, an unknown regulator paid $158,100 annually, going up against Fannie Mae chief executive Franklin D. Raines, who received $16.8 million in cash compensation in 2003.
"It may be that he doesn't succeed in carrying through, but he put Fannie and Freddie on the political agenda, and that may lead to the reform people have called for. It will change the dynamics for these organizations and the politics surrounding them," Coglianese said.
Three months ago, Falcon and his agency dropped a bombshell: a report that concluded Fannie Mae committed numerous accounting and earnings mistakes. The investigation began after members of Congress blamed OFHEO for missing similar problems at Freddie Mac.
Then the Securities and Exchange Commission's chief accountant agreed with OFHEO, directing Fannie Mae to correct its financial statements, a move that could erase $9 billion in reported profit. The SEC and the Justice Department are investigating further, the company's board has ordered an independent outside review, and shareholders have filed numerous lawsuits. Last week Raines and Fannie Mae's chief financial officer were forced out by the company's board, under pressure from OFHEO.
When Falcon's regulators first showed up on Fannie's Mae's doorstep, Raines insisted his company did not have the problems that resulted in two chief executives being swept out of their jobs at Freddie Mac.
"They agreed to fix it, but they still appealed to the SEC. They thought we didn't understand what we were doing," Falcon said in an interview.