Friday, June 16, 2006

Changes at Fannie Mae and looking back in time

MarketWatch has an interesting article about changes at Fannie Mae following "the company's foundation-shaking $10 billion accounting scandal."

" (CEO) Mudd has explained repeatedly to investors and lawmakers that he's trying to clean up Fannie, which is chartered by the government, but publicly traded.
On Thursday, Mudd told senators the company replaced its onsite auditors and has more than 300 auditors overseeing the firm's books. He said he and his management team are reorganizing Fannie's internal audit department. There's a new chief audit executive, with a direct line to the board's audit committee, he said.
The company will complete the massive restatement of earnings by year-end, Mudd said Thursday.

(But) James Lockhart, head of the Office of Federal Housing Enterprise Oversight, told lawmakers that Fannie Mae and Freddie Mac have a "very, very long way to go" to correct internal accounting control problems. Neither of the agencies, said Lockhart, is "even close to complying with Sarbanes-Oxley," referring to the corporate governance law passed in 2002. "

Fannie Mae's accounting scandal that recently came to light involves allegations of manipulation to hide massive losses in 2002 and 2003.
Take a look, then, at this article written in early 2003 that mentions Fannie Mae's high corporate governance score awarded by S&P at the time! Here's an excerpt:

Fannie Mae (ticker: FNM), the government-mandated mortgage broker, earned an overall CGS of 9.0 on a 10-point scale, reflecting "strong or very strong" corporate governance practices in all four of the areas analyzed.
..S&P Governance Services applauded the structure of Fannie Mae's board of directors, which meets the rules recently proposed by the New York Stock Exchange (NYSE). S&P also praised the board's independence.
"Our standard is to be a model 'glass box' company," said Mr. Raines (Fannie Mae CEO/Chair Franklin Raines). "And as the record shows, we are always willing to do more to keep our disclosures and corporate governance at the cutting-edge of best practices."

Oh, the irony !

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