Freddie Mac Finance Chief Resigns With Accounting 'Blueprint' in Place

The chief architect of Freddie Mac's effort to fix its accounting is stepping down after three years, saying he has created a "blueprint" and that "it's time for someone else to finish the job."

Martin F. Baumann, 58, announced yesterday his resignation as chief financial officer of the nation's second-largest financier of home loans, which remains under investigation by federal authorities for manipulating earnings.

His departure is not related to the company's recent announcement that it would have to postpone until May the release of its full-year 2005 financial results, a company spokeswoman said.

As finance chief, Baumann oversaw the company's $5 billion accounting restatement, which followed disclosure of widespread accounting problems.

Baumann in an interview cited the restatement, the release of revised results for the first half of 2005, and the addition of new accounting policies and key personnel as the major accomplishments of his tenure.

The remaining work -- chiefly the installation of new accounting systems -- is more suited to a technology expert, not a CPA such as himself, he said.

"That's not really what I like to do or what I was hired to do," he said.

Baumann joined the McLean mortgage finance company in 2003 after serving as partner at PricewaterhouseCoopers LLP, the accounting and consulting firm that first uncovered Freddie Mac's accounting problems. He survived the management shuffle that followed the release of an independent probe of the accounting scandal.

During that year, Baumann, who oversaw audits of Chase Manhattan and other large financial institutions, discovered that the company's accounting systems were in far worse shape than he had anticipated.

"As we dug into things during 2003 . . . the number of the accounting errors surprised me and the state of the infrastructure surprised me," he said.

In some cases, programs worked fine but used the wrong accounting rules. In other cases, programs had glitches that had gone undetected, such as the one discovered in November that forced the company to revise its earnings for the first half of 2005 downward by $220 million, to $1.4 billion.

Baumann attributed the inadequacy of Freddie Mac's internal controls in part to its longtime exemption from registering its common stock with the Securities and Exchange Commission. Chartered by the federal government to keep money flowing into the housing market, Freddie Mac is exempt from SEC registration and from paying federal, state and local taxes. Under pressure from lawmakers, the company volunteered to register beginning in 2002 but has yet to file due to the accounting scandal.

As the value of its assets grew rapidly in the 1990s, the company invested in systems to manage interest rate and credit risk, but "not being an SEC registrant" led to the company "not having devoted the same resources to the infrastructure that supports accounting," Baumann said.

Baumann, who does not have another job lined up, plans to stay on through the end of May and then serve as a consultant to assist the company with its SEC registration.

Chief Operating Officer Eugene McQuade will assume Baumann's duties until a replacement is found.

In 2005, Baumann was paid $1.3 million in salary and bonus, in addition to shares of restricted stock and stock options. He is to receive a severance package of $1.5 million in cash and $1 million worth of restricted stock.