Washington, DC - James B. Lockhart, Acting Director of the Office of Federal Housing Enterprise Oversight (OFHEO), today released its Report of the Special Examination of Fannie Mae. The report details an arrogant and unethical corporate culture where Fannie Mae employees manipulated accounting and earnings to trigger bonuses for senior executives from 1998 to 2004. The report also prescribes corrective actions to ensure the safety and soundness of the company.
“The image of Fannie Mae as one of the lowest-risk and 'best in class' ’ institutions was a facade," said Lockhart. “Our examination found an environment where the ends justified the means. Senior management manipulated accounting; reaped maximum, undeserved bonuses; and prevented the rest of the world from knowing. They co-opted their internal auditors. They stonewalled OFHEO" Lockhart said.
“Fannie Mae's executives were precisely managing earnings to the one-hundredth of a penny to maximize their bonuses while neglecting investments in systems internal controls and risk management," Lockhart said. “The combination of earnings manipulation, mismanagement and unconstrained growth resulted in an estimated $10.6 billion of losses, well over a billion dollars in expenses to fix the problems, and ill-gotten bonuses in the hundreds of millions of dollars."
OFHEO's report on Fannie Mae's accounting procedures is chilling. Larger parts of the housing industrial complex iceberg have now been uncovered.
As we posted this morning, Mortgage giant Fannie Mae will announce today that it has agreed to pay more than $400 million as part of a settlement with the government to resolve allegations of accounting misdeeds. (WSJ Law Blog)It is encouraging to see the government beggining to reign in the housing industrial complex. However, it is too little, too late. :-(