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Report on Fannie Mae Regulator a Secret

HUD Inspector General Won't Release Results of OFHEO Investigation

By David S. Hilzenrath
Washington Post Staff Writer
Thursday, October 14, 2004; Page E04

The inspector general's office at the Department of Housing and Urban Development yesterday declined to release the results of an investigation of the HUD agency that regulates mortgage-funding giant Fannie Mae, saying that such disclosure could "interfere with enforcement proceedings."

Patricia E. Sanders, who handles Freedom of Information Act requests for the HUD inspector general, declined to explain the nature of any enforcement proceedings that could stem from the investigation of the Office of Federal Housing Enterprise Oversight.

Timeline: Fannie Mae (washingtonpost.com, Oct 8, 2004)
Both Sides Critical At Fannie Hearing (The Washington Post, Oct 7, 2004)
On Fannie's Board, Many Bonds (The Washington Post, Oct 6, 2004)
Fannie Executives to Defend Accounting Practices (The Washington Post, Oct 6, 2004)
Restatement Decision Deferred (The Washington Post, Sep 30, 2004)
As Fannie, Freddie Regroup, Impact May Be Minimal (The Washington Post, Sep 29, 2004)
Regulator Says Fannie Resisted (The Washington Post, Sep 25, 2004)
Regulator Has No Confidence in Fannie Leadership (The Washington Post, Sep 24, 2004)
Fannie Employee Raised Concerns (The Washington Post, Sep 24, 2004)
Report Slams Fannie Mae (The Washington Post, Sep 23, 2004)
Warnings Shadowed Firms' Rapid Growth (The Washington Post, Sep 23, 2004)
Probe Examining Fannie's Promises (The Washington Post, Sep 23, 2004)

Sen. Christopher S. Bond (R-Mo.) in April asked the inspector general to assess whether OFHEO's public statements about an ongoing examination of Fannie Mae's accounting "reflect any inappropriate or undue political influence in the examination process."

OFHEO spokeswoman Stefanie Mullin said that as far as she knew, no one at the agency has received a copy of the inspector general's report. She declined to comment further.

Leanne Boyer, a spokeswoman for Bond, said she didn't know when Bond might release the report. "The senator has not had the opportunity to review it in depth, being busy with prior commitments," Boyer said.

Bond criticized the regulators for a March statement that the review could lead to a restatement of Fannie Mae's past financial results. That March 31 warning about Fannie Mae's accounting was contained in a quarterly report that the agency is required to issue assessing the adequacy of Fannie Mae's capital, a financial cushion the company must maintain.

In the announcement that Bond criticized, OFHEO said that Fannie was adequately capitalized but that its assessment was based on accounting policies then under review. The agency said the review could result in changes to Fannie's past financial results and a new calculation of the amount of capital Fannie held.

The timing of the March statement "appears to be a cynical attempt to unfairly influence the political process" as the Senate Banking Committee was preparing to draft legislation to create a more powerful regulator for Fannie Mae, Bond wrote in a letter to the inspector general.

In requesting the inspector general's investigation, Bond also criticized OFHEO's release of a letter in February expressing concern about Fannie Mae's reliance on manual accounting systems.

OFHEO last month said in a report on its findings at Fannie Mae that the company violated accounting rules and manipulated earnings, in part so that executives could receive bonuses. At a House hearing last week on the findings, Fannie Mae chairman and chief executive Franklin D. Raines and some members of Congress criticized how OFHEO had handled the examination, especially making the report public.

As it pursues its examination of Fannie Mae, the small regulatory agency is on the defensive on other fronts. Bond has proposed legislation to withhold $10 million of OFHEO's funding until Director Armando Falcon Jr. is replaced.

In rejecting a request for the inspector general's report on the regulators, Sanders cited a legal provision that allows the government to withhold "records or information compiled for law enforcement purposes" to the extent that release of those records "could reasonably be expected to interfere with enforcement proceedings."

HUD Secretary Alphonso Jackson has a copy of the inspector general's report, spokesman Douglas P. Duvall said. "After reviewing it, we'll decide on what if any actions need to be taken," Duvall said. "We're not reviewing this report necessarily for action," he added. "We're reviewing it because the IG gave it to us for review."

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