(Washington, D.C.)  The Council for Citizens Against Government Waste (CCAGW) today called upon Congress to protect taxpayers by instituting tough new oversight rules for the nation’s largest housing government-sponsored enterprises (GSE) Fannie Mae, Freddie Mac and the Federal Home Loan Bank Systems.  The statement comes in the wake of news that the Office of Federal Housing Enterprise Oversight (OFHEO), in the course of its ongoing review of Fannie Mae, has uncovered evidence of improper accounting practices, lax corporate governance, and manipulation of earnings reports in order to maximize bonus packages for Fannie Mae executives.  Based upon those findings, the Securities and Exchange Commission has also announced that it will begin an informal inquiry into Fannie Mae’s accounting practices.

            “This should come as absolutely no surprise to anyone,” said CCAGW President Tom Schatz.  “The GSEs have been operating in the shadows for years, fighting even the most sensible reforms tooth and nail.  Fannie Mae and Freddie Mac have been engaging in increasingly risky hedging activities, pursuing excessive profits at the expense of their congressional mandate to support low and middle income homebuyers, and lining the pockets of their executives, all while putting taxpayers at greater and greater risk for a bailout.  Even in the face of an accounting scandal at Freddie Mac last year, most members of Congress have stubbornly turned a blind eye.”

            Fannie Mae’s woes appear to mimic similar accounting troubles at its sister GSE, Freddie Mac, which was forced to make a $5.3 billion earnings restatement, fire several key executives, and pay a $125 million fine to OFHEO after the company admitted it had manipulated its earnings.  However, reports indicate that Fannie Mae’s trouble may be worse.  Although Freddie was manipulating its earnings to hide profits, Fannie Mae appears to have smoothed earnings in order to mask losses it sustained in its risky derivatives portfolio and to guarantee bonus compensation levels for its executives.  “Several members of Congress have asked for a full accounting of Fannie Mae’s executive compensation packages,” said Schatz.  “Fannie Mae has consistently snubbed Congress’ requests.  It is now time to find out exactly how much Fannie Mae executives are being paid and how their compensation packages and bonuses are structured.” 

            The most comprehensive legislative reform package to date, crafted by Senate Banking Committee Chairman Richard Shelby (R-Ala.), was aimed at creating a single, independent bank-like regulator with the authority to require changes in both minimum and risk-based capital standards, providing approval authority over new home mortgage products introduced by the GSEs in order to curb their mission creep into the private sector, and establishing specific rules in case of a GSE bankruptcy.  “President Bush and Treasury Secretary John Snow have made no secret of their intent to enact strong GSE reform to protect taxpayers.  These latest revelations ought to light a fire under Congress,” concluded Schatz.  “Together, the housing giants hold $1.6 trillion worth of mortgages or mortgage-backed securities.  Without reform, taxpayers could potentially be on the hook for a massive GSE bailout.” 

            The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.