Congressman Cleaver Says Fannie Mae's Accounting Practices Take on Greater Importance with Area Unemployment on the Rise

CONGRESSMAN CLEAVER SAYS FANNIE MAE'S ACCOUNTING PRACTICES TAKE ON GREATER IMPORTANCE WITH AREA UNEMPLOYMENT ON THE RISE

March 16, 2006

(Washington, DC)—Congressman Emanuel Cleaver, II questioned former Senator Warren B. Rudman during testimony this week to the House Financial Services Committee. The hearing examined the findings of the recent investigation led by former Senator Rudman into Fannie Mae's accounting and corporate governance.

"People may not understand why this hearing is important. Fannie Mae is the single largest home mortgage lender in the country. They provide loans that make it possible for low-, moderate-, and middle-income families to buy homes of their own. We are talking about the American Dream, and helping as many as possible achieve that dream," Congressman Cleaver said.

"Fannie Mae is also important because it is an economic engine. It is a critical part of the nation's housing policy. More homebuyers mean more home construction jobs. Kansas City, and the surrounding suburbs, have been buoyed through this weak economy by the housing boom. This week the Missouri Department of Economic Development said unemployment in Greater Kansas City is up a percent from a year ago to 6.4%. Homebuyers, especially first time homebuyers, build our economy. We need Fannie Mae to perform well for our economy to perform well," said Cleaver.

"Sadly, Fannie Mae has had some serious accounting trouble. When a quasi-government agency like Fannie Mae reports profits $11 billion more than what is accurate, that is an accounting error in the same category as Enron." Cleaver added.

"If the accounting practices at our nation's largest lender are not sound, it places that lender on an unstable footing. Fannie Mae holds one in five home loans in the country. It is in our national interest that the company is in good financial shape and is held to the highest accounting standards," said Cleaver.

But the Rudman report found: Fannie Mae's accounting policies in virtually all areas reviewed were inconsistent with Generally Accepted Accounting Practices (GAAP); management was motivated by an interest in showing stable earnings growth and achieving forecasted earnings; accounting systems were grossly inadequate; and corporate culture suffered from an attitude of arrogance.

However, Senator Rudman also established in his report that the accounting errors that resulted in the multibillion-dollar scandal in 2004 have already been disclosed, and no member of current management knowingly participated in improper behavior.

"I work for the American people and am here to protect their investment both in their government and in this case, in their homes. I need to be assured Fannie Mae has done everything possible to prevent another accounting scandal," said Cleaver.

Senator Rudman said he was confident that the accounting practices now in place will provide for accurate reporting, but encouraged the Committee to remain vigilant.

The Financial Services Committee, of which Cleaver is a member, has been at the forefront in reforming regulation of Fannie Mae, holding over 20 hearings and receiving testimony from over 100 witnesses since 1998. In October 2005, the House overwhelming approved legislation to create a new, world-class regulator for Fannie Mae, Freddie Mac and Federal Home Loan Banks.

"I am encouraged by the steps Fannie Mae has taken to address its accounting failures, and will continue to follow it closely," said Cleaver.

http://www.house.gov/apps/list/press/mo05_cleaver/FannieMaeAccountingPractices.html