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December 18, 2006

Fannie Mae fraud and Dem dollars

Clarice Feldman
It is astonishing how little attention has been given the financial peculations at Fannie Mae in the press. The only explanation I can offer is that it was the place where Bill Clinton parked his White House budget director, Franklin Raines and the infamous "wall gal" Jamie Gorelick after they'd served him so well. So the press somehow thinks this fraud  of a government-sponsored corporation is less significant than when scandal involves purely private companies and Republican figures.

In 2002 Gorelick, a vice chairman of Fannie Mae who had previously served as Clinton's Deputy Attorney General, assured the public that Fannie Mae was being well-managed:
We believe we are managed safely. We are very pleased that Moody's gave us an A-minus in the area of bank financial strength -- without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions.

Also, we are very highly regulated. We have auditors. We have examiners here on premises every day. And we have consistently exceeded every standard that the examiners have set for us.
Four years later we received a far different picture from the SEC: that the company's top executives had overstated revenues from 1998 through 2004 to the tune of $10.6 billion
Fannie Mae engaged in "extensive financial fraud" over six years by doctoring earnings so executives could collect hundreds of millions of dollars in bonuses, federal officials said yesterday in a report that portrayed a company determined to play by its own rules. [emphasis added]
Regulators at the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight, in announcing a settlement with Fannie Mae that includes $400 million in penalties, provided the most detailed picture yet of what went wrong at They portray the District-based mortgage funding giant -- a linchpin of the nation's housing market -- as governed by a weak board of directors, which failed to install basic internal controls and instead let itself be dominated and left uninformed by chief executive Franklin Raines and Chief Financial Officer J. Timothy Howard, who both were later ousted.
That article in May of this year indicated that the Office of Federal Housing Enterprise Oversight had found not only that oversight of Fannie Mae's accounting practices were lax but that the agency had fought to keep it that way.


Fannie Mae reportedly paid $400 million to settle that matter.
 
Today, the OFHEO is seeking another $100 million plus a return of $115 million in bonuses paid to the three top officers who engaged in this scheme.
In the period of time that Gorelick and Raines served at Fannie Mae and received substantial bonuses, they both made substantial contributions to the Democrat Party.

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