Fannie Mae employees falsified signatures, regulator says
April 7, 2005
Falcon tells Congress of 'significant new accounting problems'
Fannie Mae's problems ranged from falsified signatures on journal entries to failure to comply with generally accepted accounting practices, its government regulator told Congress Wednesday.
Armando Falcon, director of the Office of Federal Housing Enterprise Oversight, gave details of "significant new accounting problems" at Fannie Mae in testimony Wednesday before the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises in Washington, D.C.
These problems, Falcon said, "reflect Fannie Mae's tendency toward overly aggressive interpretation of GAAP, or in certain instances – when compliance with GAAP would negatively affect the company – a willful disregard of accounting rules."
The problems also reflect situations where Fannie Mae's accounting policies actually do comply with GAAP, "but…personnel have failed to follow those policies," the regulator told Congress.
Falcon said OFHEO has directed Fannie Mae to determine the full extent to which journal entries with falsified signatures took place, and the circumstances surrounding such entries.
In addition, OFHEO told Fannie Mae to determine who falsified the signatures on journal entries, and why the falsified journal entries weren't detected at the time of entry or afterward.
"With the continued cooperation of the board and management, we expect that Fannie Mae will ultimately emerge from its troubles as a healthy, well-managed enterprise, properly focused on fulfilling its public mission," Falcon said. "That is the ultimate goal of the supervisory actions we have taken.
At the end of his prepared remarks, Falcon repeated the news of his plans to step down, saying he was proud of OFHEO's efforts in the examination.
On Monday, it was reported that OFHEO had sent the Federal Register a final corporate governance rule that amends and strengthens the existing regulation and reduces the potential for future corporate misconduct at Fannie Mae and Freddie Mac.
The rule changes stem, in part, from OFHEO's special examinations of Fannie Mae and Freddie Mac. Upon publication in the Federal Register, the rule will become final.
OFHEO issued a report in September that found accounting irregularities at Fannie Mae. The report spurred Congressional hearings, the departure of top management and an investigation by the Securities and Exchange Commission.
Copyright 2005 Inman News