Freddie Mac’s financial chief and the director of the federal regulatory agency charged with oversight of the corporation are scheduled to testify at a Congressional hearing this week.
Martin F. Baumann, CFO of Freddie Mac, and Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, appear on an updated list of witnesses who will testify tomorrow before a subcommittee of the House Committee on Financial Services chaired by Rep. Michael Oxley (R-Ohio).
The topic of the hearing will be OFHEO’s report last month on its special examination of Freddie Mac and its finances. The report said the regulator had discovered “a pattern of inappropriate conduct and improper management of earnings that led to (Freddie Mac’s) recent restatement” of its financial results.
“A government sponsored enterprise like Freddie Mac lives on a public trust that should never be violated. OFHEO will take strong action against an enterprise and responsible individuals if that trust is ever broken,” Falcon declared in a statement when OFHEO released the report.
The House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, chaired by Rep. Richard Baker (R-La.) will hold the hearing at 10 a.m. EST in room 2128 of the Rayburn Building.
Freddie Mac has said repeatedly that it is taking remedial action to cure problems in its governance, corporate culture, internal controls, accounting practices, disclosure and oversight. The corporation agreed last month to pay $125 million to settle regulatory charges of misconduct, but has not admitted any wrongdoing.
Freddie Mac disregarded accounting rules, internal controls, disclosure standards and the public trust in the pursuit of steady earnings growth, its senior executives’ incentive compensation plans contributed to its improper accounting and management practices, weaknesses existed in every aspect of Freddie Mac’s accounting process, Freddie Mac’s directors were complacent and failed to exercise adequate oversight, and former management exhibited a disdain for appropriate disclosure standards, according to OFHEO’s report.
“The report represents OFHEO’s interpretation of the facts, and Freddie Mac had no opportunity to provide input into the text of the report. There are characterizations, findings and conclusions in the report with which the company strongly disagrees,” the corporation said in a statement when OFHEO released the report.
Freddie Mac is a stockholder-owned corporation established by Congress that purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage passthrough securities and debt instruments in the capital markets.
Freddie Mac in late November released restated and revised financial statements for 2000, 2001 and 2002. The corrected financial statements revealed the corporation had failed to include a staggering $5 billion of net income in financial statement for those three years and undisclosed prior periods. The restated net income totaled $3.7 billion, $3.2 billion and $10.1 billion in 2000, 2001 and 2002, respectively. Previously reported figures for those three years were $2.5 billion, $4.1 billion and $5.7 billion.
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