Fannie Mae could face more problems
WASHINGTON – As a poker player, Armando Falcon says he usually keeps his bets low until he gets a strong hand, then fearlessly raises the stakes.
“It’s a great strategy. … It makes it very easy for you to bluff,” says the federal regulator overseeing Fannie Mae and Freddie Mac.
In his oversight of the mortgage giants, Falcon (fal-CONE) saw his hand grow stronger after accounting troubles at the government-sponsored companies came to light.
He showed no signs of bluffing as his agency, the Office of Federal Housing Enterprise Oversight, delved into the accounting scandals that have rocked the mortgage industry.
Falcon suggested in an interview Tuesday with the Associated Press that the problems at Fannie Mae may run even deeper.
Uncertainty created by the accounting scandal at the biggest U.S. buyer of home mortgages has the potential of spilling into the housing industry and making mortgages less available for homebuyers, Falcon said.
OFHEO accused Fannie Mae last fall of serious accounting problems and earnings manipulation to meet Wall Street targets.
The Securities and Exchange Commission in December ordered the company to restate earnings back to 2001, a correction that could reach an estimated $11 billion, and new revelations continue to cascade. The Justice Department is pursuing a criminal investigation.
Falcon, who is leaving next month after six years as agency director, recently told Congress that Fannie Mae employees falsified signatures on accounting transactions that helped the company meet earnings targets for 1998, allowing $27 million in bonuses to be paid to top executives.
Asked Tuesday whether further discoveries could emerge from OFHEO’s investigation, Falcon said, “We very well might find more problems as we continue to review the company’s accounting.”
If the agency hadn’t acted to identify and correct problems at Fannie Mae, Falcon said, “I think they would have eventually manifested themselves in the form of some larger problem that might have created some kind of systemic disruptions” in the housing market.
If either Fannie Mae or rival Freddie Mac, No. 2 in the $8 trillion home-mortgage market, should fail, “there would be less money for (consumers) to borrow in order to get a mortgage,” he noted.