Fannie Mae has run up enough excessive spending on its new downtown D.C. headquarters to incur “significant financial and reputational risks,” a government watchdog warned Thursday.
The mortgage giant, currently in the middle of a move from Northwest D.C. to a new single building to be built downtown, has seen the budget for its new headquarters rise by 50 percent since the project was approved, accompanied by a few eye-catching expensive items, such as glass bridges, “town centers,” and spiral staircases.
The cost overruns could present a political nuisance for Fannie. The mortgage giant remains in the hands of the federal government, which has oversight of its operations through the Federal Housing Finance Agency, and its ultimate fate remains to be determined, making its every move a topic for political debate.
Moreover, because all of Fannie’s profits are currently swept up by the Treasury, a controversial arrangement, the company has an incentive to spend lavishly on its own office space rather than send the money to the government.
That was the conclusion reached by the FHFA’s inspector general in a report published Thursday.
The report, based on a tip provided to the inspector general’s hotline, highlighted the cost overruns on Fannie’s planned new headquarters on the site of the old Washington Post building in downtown D.C., which was originally budgeted for nearly $800 million over the course of 10 years. This spring, the construction company presented a budget projecting building costs of more than 50 percent higher.
The IG noted that apparently Fannie Mae agreed to pay the costs of some pricey features of the new space, including three glass bridges connecting different parts of the building, spiral stair cases, rooftop desks, and “town centers,” even though the company will be a renter, not an owner, of the new building.
For Fannie Mae, which remains in the care of the federal government going on eight years since it was bailed out during the financial crisis, such missteps are politically sensitive.
Scott Garrett, the conservative New Jersey Republican who chairs the House subcommittee with oversight over Fannie Mae and Freddie Mac, wasted no time in criticizing Fannie for the excessive spending.
“Like a child with a credit card in a toy store, the bureaucrats at Fannie Mae just couldn’t help themselves,” Garrett said. “After being forced to bail out the [government sponsored enterprises] to the tune of nearly $200 billion, American taxpayers now get the news that they are underwriting lavish spending at Fannie Mae’s new downtown Washington, D.C.”
Garrett is among the House Republicans who have sought to reform the housing finance system to wind down Fannie and Freddie and scale back the government’s involvement in guaranteeing mortgage-backed securities.
Other members of Congress, however, have recommended recapitalizing the two mortgage giants and releasing them back into the private sector.
That approach is opposed by the Obama White House, which is concerned about the system of private profits and public risks that held before Fannie and Freddie ran into trouble in the subprime mortgage crisis.
Yet the White House and like-minded legislators in both parties have been unable to muster support for a reform bill in the past seven years, meaning that it will be up to future administrations to determine the course of housing finance policy.
