“More transparency is needed before disaster strikes,” says Paige

(Washington, D.C.)  The Council for Citizens Against Government Waste (CCAGW) commended the Senate Committee on Banking, Housing and Urban Affairs for working to address Freddie Mac’s recent accounting problems and calling for increased scrutiny.  Earlier today, the committee held an oversight hearing about the effectiveness of the Office of Federal Housing Enterprise Oversight (OFHEO), which regulates Freddie Mac’s financial safety and soundness.   This follows Freddie Mac’s recent disclosure of management failures and accounting deficiencies in upwards of $4.5 billion in understated earnings.    

“Over the last two years, this country has seen the collapse of reputedly well-run companies like Enron and WorldCom.  Freddie Mac and Fannie Mae are much larger and their activities are more systematically integrated into our economy,” CCAGW Director of Special Projects Leslie Paige said.  “During a time of $455 billion deficits and economic hardship, this carelessness is inexcusable.”

Fannie Mae and Freddie Mac benefit from federal subsidies amounting to $10.6 billion annually, and either own or guarantee more than 40 percent of the U.S. mortgage market.   Both institutions are exempt from the taxes and regulations that hamper most private corporations, giving the government sponsored enterprises (GSEs) an undue advantage in the marketplace.

“GSEs are exempt from Securities and Exchange Commission registration and disclosure rules and, therefore, do not require the same transparency that is crucial to maintaining confidence in our capital markets,” Paige continued.  “Enron and WorldCom could end up looking like a cakewalk if there is more trouble ahead.”

OFHEO, which failed to identify Freddie Mac’s most recent financial misadventure before it was disclosed, is currently investigating the corporation’s accounting practices.  Director of OFHOE Armando Falcon, Jr. claims that the organization lacks the resources to be effective, and has requested $4.5 million from the House and Senate appropriations committees to better undertake this special investigation and to start an additional one of Freddie Mac’s sister company, Fannie Mae. 

“Congress should not reward failure by giving OFHEO more money,” Paige concluded.  “Rather, senators and representatives should move OFHEO from the Department of Housing and Urban Development to the Department of the Treasury, as proposed in H.R. 2575, introduced by House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises Chairman Richard Baker (R-La.).

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.