Congress' protracted fiscal 2004 appropriations process has placed "severe constraints" on the Office of Federal Housing Enterprise Oversight's capacity to implement reforms at Freddie Mac and carry out other oversight responsibilities, OFHEO's director told the House Financial Services Capital Markets Subcommittee Wednesday.
"The short-term continuing resolutions we are operating under prevent us from hiring the additional examiners, accountants and analysts we need to strengthen our oversight," Armando Falcon said during a hearing on OFHEO's December report on its special examination of the Freddie Mac accounting scandal.
Falcon said the short-term CRs also have prevented OFHEO from hiring the forensic accounting help it needs for its review of Fannie Mae, and he made an "urgent appeal" for the committee's assistance in obtaining OFHEO's requested 2004 funding levels.
"If a long-term CR is enacted which freezes OFHEO's budget at fiscal 2003 levels, we will need to scale back oversight at the very time that greater oversight has never been more urgent," said Falcon, whose office has entered into a consent agreement with Freddie Mac that requires Freddie Mac to pay $125 million in fines and modify its corporate governance.
Financial Services Committee Chairman Michael Oxley, R-Ohio, said he believes OFHEO is under-funded and "lacks many of the necessary powers" to provide adequate oversight of Freddie Mac and Fannie Mae. "I support additional funding for OFHEO so that it can fully examine the [government-sponsored enterprises] and hire a sufficient number of examiners to monitor these complex financial institutions," Oxley said.
Oxley said he is "encouraged" by Freddie Mac's current remediation efforts, and said many of the recommendations in OFHEO's report should be implemented. But he noted that an outside auditing firm, and not OFHEO, was the first to discover improper trading practices and earnings management at Freddie Mac.
"Director Falcon has presented an in-depth review of Freddie Mac, but the question remains -- where was OFHEO when these improper trades were taking place?" Oxley said.
Financial Services Capital Markets Subcommittee ranking member Paul Kanjorski, D-Pa., said he found it "very disturbing" that OFHEO had not picked up on those irregularities. "I don't know what we do about it, short of having maybe dual auditing or ... a change of auditors periodically," Kanjorski said.