Oversight Director Reveals Fannie Mae Practices in Testimony

WASHINGTON, DC-Troubles for mortgage lender Fannie Mae have begun to mirror those of fellow government-sponsored enterprise Freddie Mac, which revealed a $4.4-billion earnings overstatement in late 2003 as a result of illegal accounting practices. Now the finger has been pointed at Fannie Mae by Federal Housing Enterprise Oversight director Armando Falcon Jr. during a recent hearing before the US House of Representatives’ Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

Falcon, who has also just announced his impending resignation in May, testified that “As with previous accounting problems we have uncovered, they 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.” He went on to testify that “they also reflect situations where Fannie Mae’s accounting policies actually do comply with GAAP, but Enterprise personnel have failed to follow those policies.”