1 minute ago 2009-12-02T02:29:03-08:00
Nov. 12 (Bloomberg) -- Filling a 15-month vacancy for inspector general of the agency overseeing Fannie Mae, Freddie Mac and the Federal Home Loan Banks will take more time and be done “as soon as possible,” the Obama administration said.
“The process of announcing nominees does take some time given the rigor of the process to ensure that important positions like this one are filled by the highest quality people,” Jennifer Psaki, a White House spokeswoman, said in an e-mail yesterday.
Taxpayer support for the government-chartered companies may need to be reconsidered until an inspector general is place, Representative Darrell Issa of California, the ranking Republican on the House Oversight and Government Reform Committee, said in a statement.
“It is absolutely unconscionable that Fannie Mae and Freddie Mac, which were at the heart of the subprime housing collapse last fall that sent our economy into a tailspin, should be without independent oversight at a time when the federal government now owns over half of all the mortgages,” Issa said.
The companies own or guarantee more than $5 trillion in U.S. residential debt, while the 12 Federal Home Loan Banks have $1.1 trillion in obligations.
Fannie Mae and Freddie Mac were seized in September 2008 after regulators determined they had inadequate capital to deal with a rise in mortgage defaults. The Federal Housing Finance Agency that took them over had been created just a little over a month before, when Congress passed legislation in July 2008 merging the regulator of Fannie Mae and Freddie Mac with the Federal Housing Finance Board that oversaw the regional Federal Home Loan Bank cooperatives.
Legal Clarity
Ed Kelley, who was the inspector general for the Federal Housing Finance Board, lobbied the newly created Federal Housing Finance Agency to assume the same role with that agency, according to a July 7 memo to then-FHFA Deputy Director Ed DeMarco.
The agency sought the advice of the Justice Department and then denied the request and appointed Kelley to head up internal audits at FHFA instead, according to a Sept. 8 Justice Department memo to FHFA General Counsel Alfred Pollard.
The Justice Department agreed with FHFA that the agency didn’t have the legal authority to fill the vacancy without a presidential appointment and congressional approval.
“We’ve sought congressional appropriations to fund an office of inspector general,” DeMarco said in an interview yesterday. “Upon receiving legal clarity of the role of Mr. Kelley, we established an office of internal audit with him heading it up.”
The memos were reported by the Huffington Post yesterday.
President George Bush nominated Justice Department prosecutor Steve Linick for the inspector general post last year. Linick wasn’t confirmed by the Senate before Bush left office in January, and President Barack Obama didn’t reappoint him.
Mopping Up Losses
Washington-based Fannie Mae, the largest U.S. mortgage- finance company, has posted $120.5 billion in net losses in the past nine quarters and requested $59.9 billion in Treasury aid to remain solvent. McLean, Virginia-based Freddie Mac has lost $67.9 billion and requested $50.7 billion in aid.
The companies, which own or guarantee more than 40 percent of all residential mortgages, are an integral part of Obama’s foreclosure prevention efforts. Both companies said in separate earnings reports last week that the cost of those programs will likely erode future profits.
Josh Rosner, an analyst with Graham Fisher & Co. in New York, said a new inspector general may find that the Obama administration isn’t using the companies properly.
“The role of the conservator is to restore Fannie and Freddie to financial health, but they are instead using them to mop up losses in the system,” Rosner said in an interview. “They are using them to transfer losses from other private companies and under-water homeowners to taxpayers and shareholders.”
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.com .
