Wednesday, May 24, 2006

Fannie Mae: Culture of Greed and Deception

Fannie Mae (FNMA) is the largest single investor in home mortgages and enjoys a quasi-Governmental status which make its securities (stock and bonds) attractive; people tend to believe that 'the Gummint will NOT let FNMA fail.'

That, alone, means one should VERY carefully evaluate its securites and stock for purchase...

But there's more. The ex-Pres/CEO of FNMA, an appointee of Bill Clinton, has some 'splainin to do:

Federal regulators issued a blistering report about mortgage giant Fannie Mae on Tuesday, alleging accounting manipulation aimed at lining executives' pockets and lying to investors about smooth growth in profits and earnings.

...OFHEO and the Securities and Exchange Commission announced a $400 million civil penalty against Fannie Mae, the largest U.S. buyer and guarantor of home mortgages, in a settlement over the alleged accounting manipulation. Of that amount, the $350 million assessed by the SEC — one of its biggest penalties ever in an accounting fraud case — will go to compensate Fannie Mae investors damaged by the alleged violations.

The company also agreed to limit the growth of its multibillion-dollar mortgage holdings, capping them at $727 billion, and to make top-to-bottom changes in its corporate culture, accounting procedures and ways of managing risk.

The part in red is suggestive, to say the least.

Twenty-nine current and former executives and employees — including former chairman and chief executive Franklin Raines and former chief financial officer Timothy Howard — will be reviewed for possible disciplinary action or termination.

S'pose the Feds might yank the pensions from these cretins? Naaaaaahhhh...

In December 2004, the SEC ordered the company to restate its earnings back to 2001 — a correction expected to reach an estimated $11 billion. The Justice Department has been pursuing a criminal investigation.

The report "shows that Fannie Mae's faults were not limited to violating accounting and corporate governance standards, but included excessive risk-taking and poor risk management as well," Randal Quarles, Treasury undersecretary for domestic finance, said in a statement. "OFHEO's findings are a clear warning about the very real risk the improperly managed investment portfolios of (Fannie Mae and Freddie Mac) pose to the greater financial system."

The accounting manipulation tied to executives' bonuses occurred from 1998 to 2004, according to the report, a much longer period than was previously known. It "made a significant contribution" to Raines' compensation, which totaled more than $90 million from 1998 to 2003, the report says, including some $52 million directly tied to the company hitting earnings targets

Uhhnnn...Mr. Raines...we want $52MM back. Now. Before you land in Club Fed.

1 comment:

Anonymous said...

Do you have the list of the Fannie Mae director who were involved in this fraud. Thank you.