Freddie Mac fires president for not fully cooperating with accounting review

Monday, June 9th 2003, 12:00 am
By: News On 6

WASHINGTON (AP) _ News that mortgage-market giant Freddie Mac had fired its president over his apparent recalcitrance in an accounting probe has jolted the stock market and raised concern about a possible impact on the housing market, one of the few bright spots in the economy.

In a surprise shakeup, Freddie Mac said it had fired the president and chief operating officer, David Glenn, because he didn't fully cooperate with an internal review of the company's accounting _ now under investigation by federal regulators.

The government-sponsored company whose stock is widely traded also said Monday that chairman and chief executive Leland Brendsel had resigned, along with Vaughn Clarke, the company's executive vice president and chief financial officer.

Some senior lawmakers expressed concern about the possible impact of Freddie Mac's troubles on the housing market, as banks could sell fewer mortgages to the company and the international stream of capital into the U.S. mortgage market could be reduced. The company boasts that it bought a mortgage every 11 seconds in 2001: $384 billion of single-family mortgages and double the rate the year before.

The new revelations ``might have systemic implications and touch even the smallest and most innocent participants in the housing market,'' said Rep. Richard Baker, R-La., chairman of a House Financial Services subcommittee.

The federal agency that oversees Freddie Mac, the Office of Federal Housing Enterprise Oversight, is investigating the company's accounting.

And the Securities and Exchange Commission has begun an investigation, a person familiar with the matter said Tuesday, confirming a report in The Wall Street Journal. The person spoke on condition of anonymity.

SEC spokesman Herb Perone declined comment.

Freddie Mac said it had dismissed Glenn ``because of serious questions as to the timeliness and completeness of his cooperation and candor'' with attorneys engaged in January by the board of directors' audit committee to review the accounting problems that span three years.

The company doesn't believe that fraud or criminal misconduct were involved, Freddie Mac's new chief executive officer and president, Gregory Parseghian, told analysts and reporters in a conference call.

In a market roiled over the past year or so by a wave of corporate accounting scandals, news of the shakeup at Freddie Mac worsened a decline on Wall Street Monday.

Freddie Mac and its larger sister Fannie Mae are major players in the multibillion-dollar home mortgage market. Created by Congress to buy home loans from banks and other lenders to supply ready cash, they buy mortgages from lenders to keep in their portfolios and package others into securities for sale on Wall Street.

Fannie Mae and Freddie Mac enjoy some special benefits, such as the ability to borrow directly from the Treasury. But they are not directly guaranteed by the government.

Earlier this year, Federal Reserve Chairman Alan Greenspan expressed concern that Freddie Mac and Fannie Mae may not have adequate capital and that many investors have the misperception that they are backed by the government.

In January, Freddie Mac restated its earnings for 2000-2002, after its new auditor recommended changes to its accounting policies to reflect higher earnings from the complex financial instruments called derivatives. The company fired Arthur Andersen LLP as its auditor in March 2002, replacing it with PricewaterhouseCoopers.

The company, with 3,900 employees based in McLean, Va., had $5.8 billion in revenue and assets of $617 billion in 2001.