- The Washington Times - Thursday, October 23, 2003

From combined dispatches

The ousted president of home mortgage giant Freddie Mac has agreed to pay a $125,000 civil penalty and cooperate with a federal investigation into the McLean company’s questionable accounting practices.

David Glenn is barred from working for Freddie Mac or larger rival Fannie Mae under the consent agreement he signed Wednesday with the Office of Federal Housing Enterprise Oversight. The two government-sponsored yet publicly traded companies are the biggest players in the multitrillion-dollar market for home mortgages.

Yesterday, the Congressional Budget Office said the two companies, the largest buyers of U.S. mortgages, don’t need a credit line and other government benefits to meet their goal of making housing more affordable.

The companies’ so-called government-sponsored enterprise status “and the benefits it conveys are no longer necessary to the functions that Fannie Mae, Freddie Mac, and the Federal Home Loan Banks perform,” Douglas Holtz-Eakin, director of the Congressional Budget Office, said in testimony before the Senate Banking, Housing and Urban Affairs Committee.

Freddie Mac and Fannie Mae were created by Congress to pump money into the home mortgage market. They buy mortgages from banks and other lenders and package them into securities for sale to investors worldwide.

Freddie Mac has disclosed that accounting errors and manipulations of internal accounts resulted in its underreporting of earnings for 2000-2002 by at least $4.5 billion.

Its president since 1990, Mr. Glenn was removed in June for failing to cooperate with an internal review. The company’s oversight agency said that while he was president, there were “serious and substantial issues regarding the management, operations and business practices of Freddie Mac.”

The head of the companies’ oversight agency said yesterday he expected it would complete its investigation of the accounting problems at the $40 billion-a-year company by month’s end.

“Given the fact that we will have new information available to us … I wouldn’t want to produce an incomplete report,” Armando Falcon said at a Senate hearing on legislative proposals for overhauling regulation of Freddie Mac and Fannie Mae.

The agency, part of the Department of Housing and Urban Development, also has been conducting a review of Fannie Mae’s accounting.

It restructured Mr. Glenn’s compensation in September, denying him $13 million in salary, bonuses and options.

In the agreement, he did not admit or deny any wrongdoing.

“David Glenn is not an accountant or a derivatives expert. He relied at all times upon those who are,” said Mr. Glenn’s attorney, Thomas Vartanian. “He is a businessman that, in the 15 years he devoted to Freddie Mac, helped to build a remarkably strong company that has put more than 10 million American families in new homes.”

An investigation ordered by Freddie Mac’s board, made public in July, found that a missing page from Mr. Glenn’s diaries contained material related to a meeting in which the company’s auditors from Arthur Andersen raised concerns to executives about some questionable transactions. Freddie Mac fired the now-fallen Andersen as its auditing firm in March 2002 and replaced it with PricewaterhouseCoopers.

Freddie Mac has agreed to cooperate with investigations by the housing oversight agency, the Justice Department and the Securities and Exchange Commission, as well as a tax audit by the Internal Revenue Service involving a potential liability of $750 million plus interest.

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