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To: Giordano Bruno who wrote (253200)	7/31/2003 8:11:45 AM
From: Pogeu Mahone	Read Replies (2) \| Respond to of 436258

Fannie Mae chief lambastes rival Calls Freddie Mac woes 'devastating' By Associated Press, 7/31/2003 WASHINGTON -- The accounting failure and management shake-up at Freddie Mac have had a "devastating" effect on the reputations of the housing finance giant and its larger rival Fannie Mae and have hurt consumers by pushing up mortgage interest rates, Fannie Mae's chairman said yesterday. Franklin Raines, in blunt comments nearly two months after Freddie Mac's turmoil came to light, also said he believed Fannie Mae had unfairly suffered "collateral damage" to its public image and business from the debacle at the other big government-sponsored company. Unfair, Raines said, "because unlike Freddie Mac, we didn't do any of these things." In a drive to smooth out volatility in earnings and meet Wall Street's forecasts, Freddie Mac breached accounting rules and manipulated internal accounts, an internal investigation found. As a result the company underreported its profits by between $1.5 billion and $4.5 billion in 2000-2002, putting it among the biggest corporate accounting failures of recent years. The internal inquiry also found that Freddie Mac's new chief executive, Gregory Parseghian, was involved in several of the questionable transactions in his former role as chief investment officer. The Justice Department and the Securities and Exchange Commission are investigating Freddie Mac, which said in early June that it had ousted three top executives. "I think it's been devastating to the reputation of these firms and I think it has caused material harm to consumers," Raines said in a meeting with reporters at Fannie Mae's headquarters in Washington. "It was a mistake. It was a management failure." The US agency that supervises the two companies, which has been investigating Freddie Mac's accounting, also plans a special accounting review of Fannie Mae. Raines drew distinctions between his company's accounting policies and techniques and those of Freddie Mac, portraying Fannie Mae as a nimble yet responsible corporation with strong internal controls. Fannie Mae recently reported a 25 percent drop in its second-quarter earnings caused by changes in the value of derivatives contracts, even though its business expanded significantly. The recent surge in mortgage interest rates was caused at least in part by uncertainty stemming from Freddie Mac's problems and concern over what the government might do in response to them, Raines said. Rates on benchmark 30-year mortgages last week rose for the fifth week in a row. Economists have cited several factors for the trend, including signs that the economy is gaining traction, concern about swelling federal budget deficits, and disappointment in financial markets that the Federal Reserve didn't make a bolder cut to short-term interest rates on June 25. Fannie Mae and Freddie Mac, two of the nation's largest companies and both publicly traded, were created by Congress to pump money into the multitrillion-dollar home mortgage market. They have grown explosively in recent years as they've bought home loans from banks and bundled them into securities for sale to investors around the globe. This story ran on page C4 of the Boston Globe on 7/31/2003. © Copyright 2003 Globe Newspaper Company.