Contact: Leanne Boyer 202- 224-5721
Friday, November 19, 2004

WASHINGTON – In testimony obtained by federal investigators, top OFHEO officials employed extraordinary measures and ignored staff recommendations as part of a publicity-driven quest to embarrass Fannie Mae officials, according to a HUD Inspector General report released today.

"This report reveals that top OFHEO officials have misused their agency and abused the public trust," said Senator Kit Bond, who requested the investigation. "OFHEO leadership put their personal agenda above the public good and have permanently damaged the integrity of the agency."

The report focuses on the creation, release and publication of a February 24 letter from OFHEO to Fannie Mae chief Franklin Raines criticizing the company's accounting techniques.

Staff testimony reveals that OFHEO staff opposed issuing the letter, particularly since the examination of Fannie was not complete. Staff was also unsuccessful in their attempts to modify the letter's contents and conclusions, facing objections by top OFHEO leadership.

OFHEO's own public affairs consultant Corinne Russell testified that the agency's top administrator, Armando Falcon directed her to release the letter to the Wall Street Journal. Under questioning by investigators, Falcon denied giving such an order.

The HUD IG report goes on to describe how OFHEO Director Armando Falcon and Deputy Director Stephen Blumenthal pushed to have the Feb. 24 letter completed before Fannie Mae Director Franklin Raines testified before Congress in order to ensure that Raines would face questions about the Fannie accounting practices criticized in the letter.

The HUD IG report reveals how Falcon and Blumenthal pushed staff to overstate the case against Fannie Mae.

A Confidential Witness testified that OFHEO leadership was "blowing out of proportion the underlying problem" at Fannie (p.32), adding that Falcon has "a very strong intent to embarrass Fannie Mae." (p.9)

Wanda DeLeo, the OFHEO Chief Examiner who examined Fannie Mae practices, told investigators that Falcon's insistence on issuing the Raines letter was "unethical behavior". (p. 29)

"Safety and soundness does not appear to be on the agenda. Press timing seems to be the driving force for action," said DeLeo. (p. 24)

Senator Bond requested the investigation in April following leaks to the media to determine whether OFHEO's actions surrounding Fannie Mae reflect inappropriate or undue influence in the examination process.