- The Washington Times - Tuesday, June 10, 2003


Lawmakers raised questions yesterday about pay deals that Freddie Mac is giving top executives it ousted in a shakeup over accounting problems.

The mortgage-market giant was not making terms of the executives’ packages public as ripples continued to fan out from the surprise leadership coup at the company, which is government sponsored.

Federal Reserve Chairman Alan Greenspan insisted that Freddie Mac and its larger sister, Fannie Mae, major players in the multibillion-dollar home-mortgage market, shouldn’t be exempt from the public-disclosure requirements that apply to nearly all other publicly traded companies. And leaders of the House Financial Services Committee called hearings into Freddie Mac’s accounting troubles during the past three years.

“There’s no reason to differentiate Fannie and Freddie from the rest of the securities industry as far as I’m concerned,” Mr. Greenspan told lawmakers at a hearing on an unrelated matter.

With $39.7 billion in revenue, Freddie Mac is No. 32 on the Fortune 500 list and now has its accounting under investigation by the Securities and Exchange Commission, and the federal agency that supervises it and Fannie Mae.

In a surprise move that jolted Wall Street, the company said Monday that it fired its president and chief operating officer, David Glenn, because he didn’t fully cooperate with an internal review of the company’s books. Freddie Mac’s chairman and chief executive, Leland Brendsel, resigned, along with Vaughn Clarke, the company’s executive vice president and chief financial officer.

Mr. Glenn will not receive special compensation benefits because he was fired, Freddie Mac officials said yesterday.

Terms of the deals with Mr. Brendsel and Mr. Clarke were not disclosed.

The executives signed the agreements with the company in September 1990, long before Freddie Mac voluntarily agreed last summer amid the wave of corporate scandals to begin filing audited annual and quarterly financial reports to the SEC. It had been exempt from the disclosure requirements that apply to most publicly traded companies.

“Freddie Mac’s failure to disclose this information illustrates why voluntary disclosure, without the force of law, is meaningless,” said Rep. Christopher Shays, Connecticut Republican.

Freddie Mac spokesman Douglas Robinson responded, “We provide an array of documents to the public about our financial situation, and we file annual proxy statements about the compensation of our senior management.” He declined further comment.

Some senior lawmakers expressed concern about the effect of Freddie Mac’s troubles on the housing market, one of the economy’s few bright spots. Banks could sell fewer mortgages to the company, and the international stream of capital into the U.S. mortgage market could be reduced.

Congress created Freddie Mac and Fannie Mae to buy home loans from banks and other lenders to supply ready cash to the home-mortgage market. They buy mortgages from lenders to keep in their portfolios and package others into securities for sale on Wall Street.

Investors from around the globe buy the securities, with a large chunk of them held by Japanese and other Asian investors.

Fannie Mae and Freddie Mac enjoy some special benefits, such as the ability to borrow directly from the Treasury. But they are not directly guaranteed by the government.

Earlier this year, Mr. Greenspan expressed concern that Freddie Mac and Fannie Mae might not have adequate capital and that many investors have the misperception that they are backed by the government.

“This news may drive home the point that there’s no federal guarantee,” said Rep. Barney Frank of Massachusetts, senior Democrat on the House Financial Services Committee.

In January, McLean-based Freddie Mac restated its earnings for 2000-2002 after its new auditor recommended changes to its accounting policies to reflect higher earnings from the complex financial instruments called derivatives.

The company fired now-fallen Arthur Andersen LLP as its auditor in March 2002, replacing it with PricewaterhouseCoopers.



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