Though Fannie Mae said it was cooperating fully with a federal examination of its accounting, its regulator says the mortgage finance company was so reluctant that the agency had to subpoena documents and witnesses and ask the Justice Department for help enforcing subpoenas.
Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, told a member of Congress about the problems in a letter earlier this month. His spokeswoman, Corinne Russell, said yesterday, "Over the course of the special examination, we haven't been satisfied with the level of cooperation from the company." However, "since we approached the board with the findings to date of the examination, we are encouraged by the board's cooperation," Russell said.
A Fannie Mae spokeswoman, Janice Daue, declined to comment.
The agency told the Fannie board of directors this week that its accounting review has found deliberate manipulations and weak internal controls at the government-chartered mortgage company, calling into question the quality of Fannie Mae's management.
One of the nation's largest financial institutions, District-based Fannie Mae plays a major behind-the-scenes role in the housing finance system, helping provide a flow of funds for home mortgages. It borrows money from investors to buy mortgages from banks and other lenders. It also packages mortgages into securities.
Fannie's alleged resistance to some of the agency's requests for documents and interviews with employees "at the very least gives an insight into the management culture at Fannie Mae," said Michael DiResto, a spokesman for Rep. Richard H. Baker (R-La.), who chairs the House subcommittee on capital markets and has been pressing for tighter regulation of the company.
DiResto, who released part of the letter from Falcon to Baker, said Fannie seemed to be "saying one thing in public while they're doing another in private."
The regulatory agency announced in July 2003 that it would scrutinize Fannie's accounting after the company's McLean-based competitor, Freddie Mac, was found to have engineered elaborate accounting distortions to make its earnings growth appear steady to investors. That scandal cost several of Freddie's top executives their jobs, and the company paid a $125 million fine.
The agency hired accounting firm Deloitte & Touche LLP in February to aid in its examination.
Fannie Mae said in a Securities and Exchange Commission filing in March that it was "fully cooperating" with the investigation and reiterated that in May. That language changed in a filing in August, when the company said, "We have provided OFHEO, at its request, a considerable amount of information and documentation and will continue to do so. We also are making available to OFHEO a number of our employees as part of the examination."