The federal agency scrutinizing mortgage giant Fannie Mae's accounting and management said yesterday its work is threatened by a House budget measure that would delay a planned increase in its funding.
The House Appropriations Committee this week prepared a stopgap budget measure that would hold funding for federal agencies at current levels until lawmakers complete work on next year's budget.
For the Office of Federal Housing Enterprise Oversight, that could postpone for weeks a planned Bush administration boost in its annual funding from nearly $40 million to almost $60 million.
"It will severely curtail our efforts to continue the special examination [of Fannie Mae] because we will run out of funds for our outside specialists," OFHEO spokeswoman Corinne Russell said.
OFHEO last week reported that Fannie, a federally chartered company that plays a key role in the nation's mortgage system, manipulated its accounting to make earnings appear artificially predictable and tolerated weak internal controls, calling into question its financial safety and soundness.
John D. Scofield, a spokesman for the House Appropriations Committee, said the panel treated OFHEO the same way it treated the FBI and the Department of Homeland Security. "We made no exceptions for anyone," he said. Rep. James T. Walsh (R-N.Y.), chairman of the subcommittee that handles OFHEO's budget, said the agency's current funding is sufficient for it to continue its work until next year's budget is completed.
Reps. Michael G. Oxley (R-Ohio) and Barney Frank (D-Mass.), the chairman and ranking Democrat on the House Financial Services Committee, urged the appropriations committee to provide the regulators' full $59.2 million, noting that OFHEO's funds, though controlled by Congress, come from fees paid by the companies the agency regulates, not from taxpayers.
The agency faces another challenge when lawmakers get around to next year's budget. The Senate Appropriations Committee voted to hold back $10 million of the proposed funding increase until the agency gets a new director. In a Sept. 21 report, the committee said that "a lack of leadership and qualified staffing is at the heart of OFHEO's inability to be an effective regulator."
Lawmakers have criticized the agency for failing to sound the alarm earlier about problems at Fannie Mae and its rival, Freddie Mac, which last year disclosed that it had committed billions of dollars of accounting errors and distortions over a period of years.
The agency's director, Armando Falcon Jr., "doesn't know whether to be flattered or upset that the Senate has placed a $10 million bounty on his head," the OFHEO spokeswoman said.
Meanwhile, Fannie Mae's chief executive, Franklin D. Raines, and Chief Financial Officer J. Timothy Howard have agreed to testify at a hearing next week, according to Fannie spokesman Charles Greener. Ann McLaughlin Korologos, who heads a committee of outside directors reviewing OFHEO's findings, has also been invited, but Greener said he didn't know whether she would testify. Oxley's committee yesterday gave him authority to subpoena witnesses and documents for the hearing.
Rep. Richard H. Baker (R-La.), who will preside over the hearing as chairman of the subcommittee overseeing Fannie and Freddie, issued a statement yesterday criticizing Korologos for defending Raines's leadership and integrity.
"Rather than defending the status quo, the Board of Directors must take decisive action to change the Enterprise's corporate culture," Baker said. "A simple review or reduction of Mr. Howard's work responsibilities by the Board of Directors clearly falls short of the decisive action necessary to end the culture of corporate corruption at Fannie Mae."