New Documents Uncovered by Judicial Watch Show Congress Ignored Corruption at Fannie Mae and Freddie Mac for Years

WASHINGTON, DC--(Marketwire - April 2, 2009) - Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that as part of its ongoing investigation of the government's role in the financial crisis it has uncovered new documents. The documents show that members of Congress for years were aware that Fannie Mae and Freddie Mac were playing fast and loose with accounting issues, risk assessment issues and executive compensation issues, even while liberals in Congress continued to block attempts to regulate the two Government Sponsored Enterprises (GSEs).

Judicial Watch obtained the documents from the Federal Housing Finance Agency (FHFA) in response to a Freedom of Information Act (FOIA) request dated December 4, 2008. Judicial Watch requested records related to members of Congress activity regarding the policy of Fannie Mae and Freddie Mac to increase lending to individuals with poor credit risk, as well as correspondence and records about contacts between FHFA and Fannie and Freddie. Among the important documents:

--  FHFA letter, dated March 26, 2007, from the director of the Office of
    Federal Housing Enterprise Oversight (OFHEO), James B. Lockhart, to U.S.
    Senators Elizabeth Dole, Chuck Hagel, Mel Martinez and John Sununu:  "This
    is a very serious issue.  Freddie Mac's inadequate systems and controls
    make it a significant supervisory concern.  Furthermore, its lack of timely
    public disclosures deny market participants the essential financial
    information made available by all other publicly traded companies so that
    investors may make informed judgments."  The letter also mentions, "...
    Fannie Mae still has not filed financial statements for 2005 and 2006 and
    thus, they are not timely filers either."
    
--  FHFA letter, dated December 3, 2004, to Congressman Barney Frank:  "On
    November 15, 2004 Fannie Mae filed a Form 12b-25 with the Securities and
    Exchange Commission (SEC).  Fannie Mae indicated that its external auditors
    could not complete their reviews of its financial statements and noted the
    possibility of up to a $9 billion loss dating back to 2001.  As a result,
    OFHEO has determined it will not provide a monthly capital classification
    at this time."
    
--  Letter dated June 16, 2006, from OFHEO Director Lockhart to Senator
    Chuck Hagel:  "... In January 1999, Chairman and CEO Franklin Raines
    approved a recommendation made by the Chief Financial Officer (CFO) (Tom
    Howard) and the Controller (Leanne Spencer) to defer recognition of $200
    million in amortization expense.  This deferral, along with other
    accounting decisions made at that time relating to provisions for loan
    losses and the recognition of low-income housing tax credits, allowed
    management to meet the EPS threshold for maximum bonuses."
    

Overall, these documents show that Congress was made aware of the massive problems at Fannie Mae and Freddie Mac over the last six years. Yet liberals, led by Congressman Barney Frank, repeatedly blocked attempts to rein in Fannie Mae and Freddie Mac.

For example, during a hearing on September 10, 2003, before the House Committee on Financial Services considering a Bush administration proposal to further regulate Fannie and Freddie, Rep. Frank stated: "I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury."

"These new documents show that liberals in Congress were reckless when it came to the massive taxpayer liabilities related to Fannie Mae and Fannie Mac," said Judicial Watch President Tom Fitton. "Government officials at FHFA repeatedly sounded the alarm regarding fraud, abuse and corruption at these two GSEs while liberals in Congress, led by Barney Frank, blocked attempts to address the situation in a meaningful way."

Visit www.JudicialWatch.org to view the documents uncovered by Judicial Watch from the FHFA.

Contact Information: Contact: Jill Farrell 202-646-5188