Amid the financial and political meltdown of Fannie Mae, mortgage executives (as well as all financialservices executives) should take away these two important lessons: (1) A company cannot make a $9 billion accountingmistake and expect that its top executives will survive -- no matter what the excuse. (2) A financial servicescompany in trouble with its regulator should try and appease that regulator and work things out -- not battle andpublicly embarrass that regulator. Witness the Oct. 6 House subcommittee hearing held by GSE subcommittee chairmanRep. Richard Baker, R-La. At that hearing a defiant Franklin Raines (then the chairman and CEO ofFannie) vehemently denied all wrongdoing, portraying himself and his company as innocents. In short, Mr. Rainestried to make officials at the Office of Federal Housing Enterprise Oversight look like fools. Fannie Maepolitical crony Rep. William Clay, D-Mo., came to Mr. Raines' aid, decrying the hearing as the "politicallynching" of Mr. Raines. Then in November, Fannie's backers in Congress leaked to the press a HUD IG reportthat slammed OFHEO's conduct in regard to its investigation of Fannie's accounting practices. But in the end Fannielost -- it lost the game when the Securities and Exchange Commission ruled that the GSE's interpretation(not OFHEO's) of hedge accounting (FAS 133) was wrong. Who had asked the SEC to opine? Fannie Mae and Mr. Raines.Fannie has now unwound (or is about to) $9 billion in earnings dating back to 2001. Mr. Raines and CFO Tim Howardhave been shown the door. The board had to act. Why? Because OFHEO would've canned them as well. As we went topress the story was still unfolding and Christmas upon us...
One of these days some reporter (not this one) might get around to writing a book about the Fannie/Freddie "Wars."The book's hero? That would be OFHEO director Armando Falcon Jr., who deserves the Edwin Gray award.Who was Edwin Gray? He was chairman of the Federal Home Loan Bank Board during the advent of the nation'sS&L crisis, a debacle that cost taxpayers $160 billion (principal not interest.) Mr. Gray (now retired in Arizona)was an honest man who was believed to be in over his head as a regulator. A Reagan appointee, he was attackedby members of the administration, Congress and the industry he regulated. He was attacked for trying to reign inand bring to justice S&L high flyers and crooks. His enemies included S&L felon Charles Keating Jr.,who vilified him in the press and used his friends in high places (the "Keating Five") to discredit him.In the end, Mr. Gray prevailed and history will remember him as a hero. Sound familiar?
LOST IN ALL THE FANNIE HOOPLA: Stephen J. Rotella, chief executive officer of Chase Home Finance,has been named president and chief operating officer of Washington Mutual, effective Jan. 10. WaMu saidMr. Rotella will be responsible for the oversight of the thrift's retail, commercial and mortgage businesses aswell as the company's technology group and day-to-day administration. Mr. Rotella, 51, has been the CEO of ChaseHome Finance and executive vice president of J.P. Morgan Chase since 2001. He was COO of Chase Home Financefrom 1998 to 2001, and EVP of servicing at Chase Manhattan Mortgage Co. from 1991 to 1998...
EDITORIAL NOTES: Weekend Update will not publish on Dec. 31/Jan. 1. There will be no issue of NationalMortgage News on Monday Dec. 27. Happy Holidays and a Happy New Year from the staffs of all our mortgagepublications.
