Party Like It’s 2007: IG Blasts Fannie Mae over Risk ManagementTweet
March 12, 2015
Fannie Mae’s reckless credit risk assessment was a major factor in the 2007 housing collapse and financial crisis that followed. Apparently, however, helping the country to the brink of disaster wasn’t enough to change the housing agency’s culture.
The appointment of Fannie Mae’s top risk evaluator was “haphazard, at best” according to a new report from the Federal Housing Finance Agency Inspector General. Senior officials decided it would be inconvenient to find a qualified external candidate, and instead nominated internal candidates who failed to meet agency requirements. Not only could the selection committee not be bothered to find suitable candidates, it also did not formally discuss what nominees it did have. “There is no corporate record that the Audit Committee formally met, either in person or by phone, to discuss the qualifications of the different candidates and to make its selection,” the IG reports.
The committee’s “process” ultimately resulted in the selection of the Chief Credit Officer (CCO) of Fannie Mae’s Single-Family Business Group, despite what the IG calls “significant conflicts” of interest. The main credit officer of Fannie Mae’s largest business unit cannot be expected to objectively evaluate credit risk, because as the report points out “conflicts can occur when an internal auditor has a personal or professional involvement or association with the area that is being audited.” An expedited investigation by the Internal Audit Chief of Staff cleared the CCO of all conflicts except for two, but according to the IG, that investigation lacked either independence or objectivity.
Fannie Mae’s “haphazard, at best” behavior is yet another slap in the face of taxpayers, who paid billions to bail out the giant mortgage company at the height of the 2008 financial crisis. There is no point in improving risk management policies while agency leadership continues to give short shrift to risk auditing.
Image by FutureAtlas.com
At the time of publication Jacob Marx was a researcher for POGO.
Topics: Government Accountability
Authors: Jacob Marx
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