May 23, 2006
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Under Secretary Randal K. Quarles Statement On Treasury Reaction to OFHEO Report

Treasury Under Secretary for Domestic Finance Randal K. Quarles issued the following statement today on the Treasury Department's reaction to the Office of Federal Housing Enterprise Oversight report on Fannie Mae.

"The OFHEO report released today substantially amplifies previous findings of misconduct and mismanagement at Fannie Mae over many years.  Significantly, the OFHEO report shows that Fannie Mae's faults were not limited to violating accounting and corporate governance standards, but included excessive risk-taking and poor risk management as well.  The report demonstrates that Fannie Mae mismanaged the interest rate risk of its ballooning investment portfolios, leading to billions of dollars in economic loss.  Its leadership manipulated earnings to reach compensation targets and to mislead investors as to the real condition of the company.  The report reveals that Fannie Mae's carefully crafted image of being low-risk and well-managed was an illusion.

"OFHEO's findings are a clear warning about the very real risk the improperly managed investment portfolios of the GSEs pose to the greater financial system.  The report demonstrates that a legislative mandate limiting these portfolios, as proposed in legislation pending before the Senate, is crucial to reducing systemic risk and refocusing the GSEs on their fundamental mission. Treasury remains committed to working with Congress to pass reform that establishes a GSE regulator of the highest standards with both the authority and the mandate to address these critical issues."

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