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Senators Grill Fannie Mae Chief
Fannie Mae chief executive Daniel H. Mudd, left, and Chairman Stephen B. Ashley testify before the Senate Banking Committee. The hearing was convened to review OFHEO's report detailing accounting fraud at the company.
(By Carol T. Powers -- Bloomberg News)
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Ashley replied that he felt "deep disappointment and anger" that the trust the board placed in Fannie Mae's management was "not just broken but shattered."
Some committee members said the regulators' findings showed why the full Senate should take up long-stalled legislation to strengthen oversight of Fannie and its competitor Freddie Mac, which were chartered by the government to provide a steady flow of funds for home mortgages. But other committee members said the Senate should avoid overreacting and possibly harming the companies.
In prepared testimony yesterday, Mudd said the days "of arrogant, defiant, 'my way' Fannie Mae had to end." He said the company supported creation of a strong new regulator and would work with lawmakers.
Sen. Richard C. Shelby (R-Ala.), chairman of the Banking Committee, said he saw no sign of that.
"When are you going to start?" Shelby asked. "We haven't seen any evidence of any changes in tone that you talked about."
Legislation to strengthen oversight of Fannie Mae and Freddie Mac has been stalled in the Senate since last summer. Lawmakers are at loggerheads over a provision that would empower regulators to reduce the companies' investment holdings. Those mortgage-related investments have grown enormously over the past decade, becoming a major source of profit while making the companies more vulnerable to interest-rate fluctuations.
Executives for Fannie and Freddie have defended the investment portfolios, calling them essential to fulfilling the companies' mission to keep money flowing into the housing market.
The new OFHEO director yesterday provided fodder for the companies' critics, agreeing that the investments do not affect mortgage interest rates or the availability of conventional mortgages.
