Lawmakers and a federal regulator criticized the ousted former chief executive of mortgage giant Fannie Mae Tuesday as a House panel aired government allegations of a six-year accounting fraud at the mortgage giant, media reports said today.
The regulator who oversees Fannie Mae blamed Franklin Raines and other senior company officials for the massive accounting failures and alleged manipulations designed to enrich executives, reports said.
And the chairman of the subcommittee holding the hearing, Rep. Richard Baker, R-La., contended that Raines probably lied to Congress when he testified about the debacle in October 2004, according to the Washington Post.
The Office of Federal Housing Enterprise Oversight, which has a federal mandate to oversee Fannie Mae, released a sharply critical report of Washington, D.C.-based Fannie Mae in May. Fannie Mae agreed to pay $400 million in fines and implement corrective measures as part of settlements with OFHEO and the Securities and Exchange Commission.
OFEO in September 2004 accused Fannie Mae of serious accounting problems. The Securities and Exchange Commission subsequently ordered the company to restate earnings back to 2001 — a correction expected to reach an estimated $11 billion.
During yesterday’s hearing, lawmakers denounced the accounting misconduct, likened the company to Enron Corp., and urged legislative action to tighten the government’s hand over Fannie Mae and its smaller government-sponsored sibling, Freddie Mac, reports said.
As a huge housing finance company chartered by Congress, “Fannie Mae has a special mandate and position of public trust. The previous management team, led by chairman and chief executive officer Franklin Raines, violated that trust,” testified James B. Lockhart, acting director of the Office of Federal Housing Enterprise Oversight, according to reports.
“By encouraging rapid growth, unconstrained by proper internal controls, risk management and other systems, they did serious harm to Fannie Mae while enriching themselves through earnings manipulation,” Lockhart said, according to reports.