Even Fannie Mae was not immune from the Enron disease.
Federal investigators blame a “culture of corruption” for an accounting scandal that overstated the Washington-based mortgage giant’s earnings by some $6.3 billion. That’s a lot of zeroes, even in this town. No company can be off by that much — unless somebody is trying to mislead the public.
Fannie Mae, the largest buyer of American mortgages, “pools” similar loans and then sells them to pension funds, mutual funds and other investment groups. Even risky sub-prime, interest-only and adjustable-rate mortgages seemed a good bet when the real estate market was booming.
But mortgage defaults are now on the rise. Banks usually tighten lending standards in a cooling market, but only 5 percent recently reported doing so; 26 percent are actually easing standards to boost loan volume and maintain their own profit margins.
Before they were forced to resign in 2004, former CEO Franklin Raines and CFO Timothy Howard reportedly maintained their own profit margins by manipulating standard accounting principles, allowing them and other Fannie Mae executives to rake in millions of dollars in “bonuses” by artificially inflating company profits.
So what’s the punishment for telling a $6.3 billion whopper?
Not only is Fannie Mae paying legal bills for Raines and Howard, last month the company even agreed to pay Raines $2.6 million in “deferred compensation” for forcing him out — in addition to the $19 million severance package he already received.
Federal regulators say they plan to file a lawsuit by the end of the year to recover the bogus bonus money, but nobody expects Raines or Howard to join the Enron and WorldCom executives who actually wound up in jail.
The clear message here is that in the nation’s executive suites, honesty is certainly not the best policy.
