Failure Of Internal Controls, Or The Board Itself? FNM
Reuters reports on Fannie Mae’s portfolio. “Fannie Mae, the largest U.S. home funding company, on Monday said that its mortgage portfolio fell by an annualized 3.1 percent in January after expanding 21.4 percent in December. The retained mortgage holdings ended last month at $725.3 billion, as the portfolio resumed the shrinking pattern seen in every month last year except December.”
“Congress continues to battle over the size of the combined $1.4 trillion portfolios of these two federally chartered companies, which buy mortgages from lenders and repackage them to sell as securities or keep for themselves. Last week a long-awaited investigatory report spearheaded by former Republican New Hampshire Sen. Warren Rudman found no major new accounting problems at Fannie Mae. Industry experts said the report nonetheless kept the focus on the company’s activities.”
USA Today takes a look at the bigger picture. “The internal report, commissioned by Fannie Mae and conducted by former senator Warren Rudman and the Huron Consulting Group, sketches a positive portrait of Fannie Mae’s board, clearing them of direct responsibility for the company’s accounting troubles.”
“However, independent consultants contacted by USA TODAY say Fannie Mae directors were let off too easily by the report. In the post-Enron era, with stricter anti-fraud, governance and pay practices, the board should have been more aggressive in its watchdog role, they say. ‘In today’s world, it’s very, very hard to comprehend that the board didn’t know anything, that they felt misled,’ said Frank Glassner.”
“Greg Taxin, CEO of (a) corporate-governance research firm, contends the directors are guilty of ‘tolerating a corporate culture and an organizational structure’ that harmed investors. ‘The first responsibility of a board is to protect shareholder capital,’ Taxin wrote. ‘This board, in my view, failed to do that adequately.’”
“There might have been conflicts and close ties among directors and corporate officers ‘that blinded the board from what was going on,’ said Charles Elson, head of the University of Delaware’s Weinberg Center for Corporate Governance. ‘The big question is: Was this a failure of internal controls, or a failure of the board itself?’ Elson said. ‘How did something this large escape their notice?’”
“Among other governance issues, the report questioned Fannie Mae’s pay practices in recent years. The investigators found Fannie Mae set corporate earnings targets ‘at achievable levels’ it knew executives could reach. Once they hit those targets, they received higher salaries and bonuses from a bonus pool of millions of dollars.”
Anyone who wants to see exactly what some of the allegations about what Fannie Mae was up to can find it covered in the spring posts of my original housing blog, which can be found in the links section. Things like falsifying journal entries. I’m glad the USA Today piece mentioned that Fannie paid Rudman, which was ignored by most of the press.
It would be worth also checking to see how much in campaign contributions was made by Fannie to Rudman and other politicians, as I would guess this is another big factor in such a benign report on activity which would probably have led to a court trial if it had occurred in the private sector.
it’s funny when Enron is in the news and you know Fannie is a bigger deal and gets 1/10 the press. this is because there are stories of regular folks losing money. when/if fannie has that effect on regular joes it will become a bigger story, maybe THE story.
Cuff em and stuff em!!!!!!!
it’s no surprise that nothing big came of it. if there were any problems, they would just fix it quietly rather than broadcasting it and cause a panic in the RE market. I don’t know why people find it surprising that there is no big surprise from these so-call investigation. it’s a no brainer.
I was. I guess FNM is too big of a problem to make it known public that it’s a problem.
I b gettin 100k mohfly fo life
tx whitey
F Raines (aa)
White trash moron.
Has anybody noticed that we are increasingly becoming dependant on the homebuilders? I don’t hear of many people building there own homes anymore. The state of az auctions off land but the prices are so high and parcels large only the big boys can play.
Something no one is talking about with regards to FNM and FRE: Their delinquency rates are ballooning rapidly — to 0.79% at FNM in December from as low as 0.57% earlier in 2005. That December reading is the worst going back to at least the late 1980s, according to my work.
So far, people are buying FNM’s “the hurricanes ate my borrowers” excuse. But the fact is, more and more of their portfolio is being paid late every month. We’re coming off extremely low levels, of course. Yet it’s the trend that matters. I expect to see much higher delinquency rates as housing slows rapidly.
Latest monthly report (PDF link):
http://www.fanniemae.com/ir/pdf/monthly/2006/013106.pdf;jsessionid=PJIEGWIV33DLJJ2FQSISFGI
Fannie Mae’s fraud and deception got it special treatment from the NYSE. It would be DELISTED now because it did not file the 2004 and 2005 earnings report. This conspirarcy hides in plain sight.
OT, but Kudlow & Company is going to be tackling the “Housing Bubble” today (2pm PST).
If anyone happens to catch the show, can you post a quick overview?
Thx
What a waste. Three bulls (not including Kudlow himself) and one bear. The bulls all dismissed housing as a factor and predicted Wall Street was ready to soar higher. What maroons!!! The one bear made a good case with the short time he had, but was roundly dismissed. Oh well.
From my foreclosure blog:
‘Katherine Ben-Ami closed on 11 homes a minute Wednesday. If she were the world’s fastest real estate agent, that would be good news, but the sad fact is Ben-Ami is an attorney for the Wayne County Sheriff’s Office, and in 35 minutes she supervised the auction of 379 foreclosed Wayne County homes. ‘Wednesday’s always been a big day,’ she said, ‘but not this big.’
In December 2004, the Securities and Exchange Commission ordered Washington-based Fannie Mae to restate earnings back to 2001, a correction expected to reach some $11 billion. The company has been unable to file a financial report since mid-2004. The Office of Federal Housing Enterprise Oversight, which initially discovered the problems, continues its review and the Justice Department is pursuing a criminal investigation.
I think today was a special day for the bubble. It was nice seeing the CEO of Home Depot on CNBC saying that “we planned for the backside of the boom” and that their competitors “might not have prepared as well.” I watch KBH, CTX, BZH, MTH, and TOL every day…I think this week is going to be bad for housing stocks and I want Jim Cramer to eat it and admit that housing is FUBARed. The cement industry was one of today’s worst performers, too. On the other hand…I think apartment home REITs are where it’s at. AIV did +1% today but I think it’s because they have “Apartment” in their company name. The others will come around I think. Has anyone noticed a new boom in apartment rentals in their area? When I first moved into this place I have now (last june) it was 2 months free with a 1 year lease. Now there are no free offers, the place is packed, and the prices have gone up. My apartment went from $960 in june to $1225 today. The parking lot is full of luxury cars…I think these might be speculators that were able to sell their properties before the crash. Are we headed for an apartment bubble? I suspect it. I think the apartment industry is going to clean up!
if you listen to his show closely, you’ll find he’s a bear.
I think you are right about apartment reits. What reits do you like?
I’m watching Camden (CPT), United Dominion (UDR) and AIMCO (AIV) but haven’t even scratched the surface on this industry, yet.
Anyone want to bet Kudlow is bullish on housing?
“The investigators found Fannie Mae set corporate earnings targets ‘at achievable levels’ it knew executives could reach. Once they hit those targets, they received higher salaries and bonuses from a bonus pool of millions of dollars.”
And where do I sign up for a job like that? Not only the big salary and bonuses during the tenure, but fat ($100K/mo for life) buyouts when the smell hits the press, and an employer-paid whitewash job ($40Mil) to make it all go away when the regulators get interested.
Too good to be true.
If only Ken Lay had it so good!
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This just in…
Big Bad Wolf cleared of wrong-doing in Wolf vs. Three Little Pigs incident
“Touted as a model citizen before the Three Little Pigs incident, Mr. Big Bad Wolf was in no way responsible for any wrong-doing, according to lung-power and construction experts who reviewed the investigative report released Thursday.
The internal report, which was commissioned by Mr. Wolf and conducted by Mr. Wolf’s relatives and close business associates, sketches a positive portrait of Mr. Wolf, clearing him of direct responsibility for the pig’s housing troubles.”
LOL!
Anybody know who is writing the “thereisnohousingbubble” blog? It is really a hoot.
So if Enron had commissioned an investigation of themselves, I think Ken Lay would have looked good too.