Fannie, Freddie regulator criticizes FOIA bill
Rep. Chaffetz seeks more transparency from Fannie and Freddie
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — The regulator for government seized mortgage giants Fannie Mae and Freddie Mac on Wednesday afternoon took issue with a Republican bill that would subject the two firms to new Freedom of Information Act transparency.
The bill, introduced by Rep. Jason Chaffetz, Republican of Utah, as part of a new bundle of seven bills released on May 13 would apply FOIA to Fannie and Freddie while they are under government conservatorship.
The two companies became saddled with toxic mortgages and were nationalized at the peak of the financial crisis in 2008 to avoid losses and stem the credit contagion. As of October, Fannie and Freddie have cost taxpayers roughly $151 billion in taxpayer funds, used to cover their losses, with more losses expected on the horizon.
Chaffetz said the two firms should be subject to FOIA — which provides for the public disclosure of information held by government agencies — because they are “essentially government companies.” He said they are chartered by the government, managed by board members chosen by the federal government and for almost three years have been under government conservatorship.
However, Edward DeMarco, acting director of Fannie and Freddie regulator Federal Housing Finance Agency, told lawmakers at a hearing about the future of the embattled firms that he opposed the bill. DeMarco said Fannie and Freddie are still private companies operating in government conservatorship and should not be subject to FOIA requirements.
“They did not cease to be private legal entities when they were placed into conservatorship, nor did they become part of FHFA,” DeMarco said.
He also asserted that subjecting the firms to FOIA could cost taxpayers more money because they will incur “significant operational and compliance costs in establishing and administering a function to respond to such information requests.”
Reuters
DeMarco noted also that FOIA requests would lead to added litigation and administrative burdens on Fannie and Freddie and their regulator. He added that the measure could set a precedent that would lead to other private companies — such as banks — taken over by a government conservator becoming subject to FOIA requirements.
Chaffetz disagrees, adding that more transparency and accountability is necessary. “The American people have a right to know what activities their taxpayer dollars are bailing out,” said Chaffetz.
Anthony Sanders, a professor of finance at George Mason University, told the committee that FOIA should apply to Fannie and Freddie in conservatorship.
“An enormous problem with Fannie and Freddie is their opaqueness. In the recent crisis, it was very difficult to understand how risky they were until it was too late,” he said.
DeMarco also raised concerns with another bill introduced May 13 that would limit taxpayer funding of Fannie Mae and Freddie Mac employee legal fees. Rep. Randy Neugebauer, the Texas Republican author of the bill, said that taxpayers have spent more than $162 million defending Fannie and Freddie and their former top executives in civil lawsuits accusing them of fraud.
DeMarco said he was concerned that limiting taxpayer funding of Fannie and Freddie employee legal fees could hurt the firms ability to hire and retain top executives.
“While certain specific elements of this proposal raise issues, none I believe, is as important as the challenge to attracting and retaining employees,” DeMarco said. “An approach to clarify tests for reasonableness and for monitoring legal expenses has merit, but the implication that employees will not be indemnified nor have funds advanced for their legal protection would expose them to lawsuits that could potentially bankrupt them, even if they are found innocent of any charges.”
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