OFHEO Director Lockhart to Testify on OFHEO Report
May 23, 2006
Capital Markets Subcommittee Chairman Richard H. Baker (LA) will convene his panel to review the Office of Federal Housing Enterprise Oversight’s (OFHEO) recent report on accounting irregularities at Fannie Mae on Tuesday, June 6, at 2 p.m. in room 2128 of the Rayburn Building.
Rep. Baker said, "Despite all the years this committee has been digging into these issues, OFHEO's examination of Fannie Mae revealed breaches of propriety and judgment so deplorable in nature and pervasive in reach that it's almost as if we were barely scratching the surface. My hope is that such a thorough examination of the problems at Fannie Mae will help point the way toward both the necessity for and enactment of equally thorough reforms."
At the hearing, entitled OFHEO’s Final Report on Fannie Mae, the Subcommittee will receive testimony from James B. Lockhart III, Acting Director of OFHEO. It will be Lockhart’s first appearance before Congress in his new capacity.
The special investigation by OFHEO found that: Fannie Mae violated Generally Accepted Accounting Principles to manipulate earnings and hit targets in order to maximize executive bonuses; its image as a best-in-class financial institution was a façade; its board failed to stay informed and act independently; its senior management systematically withheld information; and its lobbyists influenced Congress to request an investigation of OFHEO and a reduction in the agency’s appropriations.
Financial Services Committee Chairman Michael G. Oxley (OH) said, “The OFHEO report reminds us how imperative it is for Congress to approve legislation to strengthen regulation of the GSEs. This is a strong report that I hope will encourage my colleagues in the Senate to act on legislation. Only then will we be able to work together to send the President a GSE bill this Congress.”
Fannie Mae’s accounting irregularities were first detailed in a report issued by OFHEO in September 2004. OFHEO, an agency within the Department of Housing and Urban Development, regulates Fannie Mae and Freddie Mac for safety and soundness. OFHEO ensures that Fannie and Freddie meet capital standards, conduct annual risk-based examinations to assess the management practices and financial conditions of the enterprises, and take enforcement action as necessary.
The Financial Services Committee has worked vigorously to overhaul the regulation of the Government Sponsored Enterprises, holding over 20 hearings and receiving testimony from over 100 witnesses since the 106th Congress. In March, the Committee received testimony from former Senator Warren Rudman regarding his report on accounting irregularities at Fannie Mae.
Capital Markets Subcommittee Chairman Baker introduced H.R. 1461, the Federal Housing Finance Reform Act of 2005, to create a new, world-class regulator for Fannie, Freddie, and the Federal Home Loan Banks. The legislation was overwhelmingly approved by the Financial Services Committee on May 25, 2005 and by the House of Representatives on October 26, 2005.
Congress created Fannie Mae and Freddie Mac to establish and maintain a secondary mortgage market for the U.S. housing finance system. Fannie and Freddie provide liquidity to the primary mortgage markets by purchasing mortgages from lenders and financing those purchases by issuing debt securities. They also package mortgages into mortgage-backed securities on which the enterprises guarantee payment for a fee.
Scheduled to testify:
- James B. Lockhart III, Acting Director, Office of Federal Housing Enterprise Oversight
Source: House Financial Services Committee