MICHAEL BILIRAKIS. FLORIDA JOE BARTON, TEXAS FRED UPTON MICHIGAN CLIFF STEARNS FLORIDA PAUL E GILLMOR OHIO JAMES C GREENWOOD PENNSYLVANIA CHRISTOPHER COX. CALIFORNIA NATHAN DEAL GEORGIA RICHARD BURR, NORTH CAROLINA ED WHITFIELD KENTUCKY CHARLIE NORWOOD GEORGIA BARBARA CUBIN WYOMING JOHN SHIMKUS ILLINOIS HEATHER WILSON NEW MEXICO JOHN 8 SHADEGG ARIZONA CHARLES W CHIP PICKERING MISSISSIPPI VITO FOSSELLA. NEW YORK ROY BLUNT, MISSOURI STEVE BUYER. INDIANA GEORGE RADANOVICH, CALIFORNIA MARY BONC, CALIFORNIA GREG WALDEN OREGON LEE TERRY, NEBRASKA EAME FLETCHER KENTUCKY MIKE FERGUSON NEW JERSEY MIKE ROGERS, MICHIGAN CL. BUTCH OTTER, IDAHO Mr. Armando Falcon Jr. Director Office of Federal Housing Enterprise Oversight 1700 G Street, N. W., 4th Floor Washington, D.C. 20552 Dear Mr. Falcon: Thank you for your testimony at this morning's hearing entitled "Freddie Mac's Accounting Restatement: Are Accounting Standards Working?" We commend and appreciate your organization's ongoing efforts to improve regulatory oversight of the housing governmentsponsored enterprises and to implement needed reforms at Freddie Mac. This Subcommittee's focus is what went wrong under applicable accounting standards, and we are appalled at the magnitude of the problems revealed in OFHEO's December 2003 Report of the Special Examination of Freddie Mac. Your written testimony stated at page 9: "The compensation of senior executives of Freddie Mac. particularly To assist the Subcommittee in its efforts to evaluate the scope and magnitude of this set of perverse incentives, we are following up on your commitment at today's hearing to submit for the hearing record a copy of OFHEO's recent report on executive compensation at Fannie Mae and Freddie Mac. We request a copy of the compensation of covered executives reviewed by OFHEO pursuant to OFHEO`s statute. We ask that you provide us with this document by close of business on Monday, February 2, 2004. If you have any questions about this request, please contact David Cavicke, Senior Majority Counsel, at 225-2927, or Consuela Washington, Senior Minority Counsel, at 225-3641. OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT 1700 G STREET NW WASHINGTON DC 20552 (202) 414-3800 Office of the Director February 2, 2004 Honorable Cliff Stearns Subcommittee on Commerce, Trade, Committee on Energy and Commerce Honorable Janice D. Schakowsky Subcommittee on Commerce, Trade, Dear Chairman Stearns and Ranking Member Schakowsky: Thank you again for the opportunity to testify on OFHEO's report of its special examination of Freddie Mac. As requested at the hearing and, more specifically, pursuant to your joint written request of January 28, 2004, enclosed is information pertaining to compensation at Fannie Mae and Freddie Mac. In particular, the enclosed information delineates executive compensation of "covered individuals" at Fannie Mae and Freddie Mac (the Enterprises), major components of Freddie Mac's employment agreement with Richard Syron, as well as information on severance, retirement, and other compensation for the executive officers at both Enterprises. Please note that this information is confidential and proprietary. If you have any questions about these materials or matters related to your request, please do not hesitate to contact me. Sincerely Armando Falcon, Jr. Enclosures WJCKLY TAUZIN LOUISIANA RALPH M HALL TEXAS MICHAEL BLIRAKIS FLORIDA FRED UPTON, MICHIGAN CLIFF STEARNS FLORIDA PAULE GILLMOR OMID JAMES GREENWOOD PENNSYLVANIA CHRISTOPHER COX CALIFORNI NATHAN DEAL GEORGIA RICHARD BURR NORTH CAROLINA ED WHITEFLD KENTUCKY CHAPLE NORV.000 GEORG BARBAR-CUSIN WYORING JOHN SHIMKUS KLINOS MEATHER WILSON NEW MEXICO JOHN SHADEGO ARIZON CHARLES CHIP PICKERING ANSSISSIPP VITO FOSSE LA NEW YORK STEVE BUYER INDIAN GEORGE RADANOVICH CALIFORNIA CHARLES F BASS NEW HAMPS HE! JOSEPH A PITTS PENNSLAN A1ARY BOND CALIFOPILA GREG WALDEN OREGO LEE TEAR NEBRASKA LAIKE FERGUSON NEV JERSEY MIKE POGERS ICHIGEN DARRELL ISSA CALIFORNIA CL BUTCH OTTER IDAHO JOHN SULLIVAN, OKLAHON BUD ALBRIGHT STAFF DIRECTOR Mr. Armando Falcon, Jr. Director Office of Federal Housing Enterprise Oversight 1700 G Street NW, 4th Floor Washington, DC 20552 Dear Mr. Falcon: We are writing with reference to your letter of February 2, 2004, and enclosures, which you submitted in response to our request for targeted executive-compensation information at Freddie Mac and Fannie Mae. Thank you for your cooperation with the work of the Subcommittee. Your transmittal letter notes that the enclosed information is "confidential and proprietary." The focus of the Subcommittee's January 28, 2004 hearing was Freddie Mac's accounting restatement, and, with that context as a case study, whether the accounting standards developed by the Financial Accounting Standards Board are working, and if not, why not. In that regard, your written testimony stated: "The compensation of senior executives of Freddie Mac, particularly compensation tied to earnings per share, also contributed to the improper accounting and management practices of the Enterprise." We have reviewed your submission and find that it is not directly responsive to the Subcommittee's inquiry or the above-quoted allegation, and we request your assistance in better focusing your response. For example, you provided compensation information for 20 names at Freddie Mac and 23 names at Fannie Mae. These individuals are not identified. Please provide titles and job descriptions for these individuals. Without that information, we are unable in all cases to ascertain who had/has responsibility for the relevant management and accounting practices. Your testimony explained: "The size of the bonus pool for senior executives was tied, in part, to meeting or exceeding annual specified earnings for share targets. While not tied directly to smoothing earnings growth, actions shifting earnings from one quarter to future periods helped endure that earnings per share goals, and consequently the bonuses based upon them, would be achieved in the future." For the individuals referenced in the preceding paragraph, you provided Mr. Armando Falcon, Jr. the Subcommittee with dollar amounts for nine compensation categories, including salary, bonus, and total compensation, without an explanation of the terms of the plans, where necessary, and identification of any compensation categories, other than the already noted bonus pool, that you believe posed or continue to pose an actual or potential conflict of interest. Also you only provided information for 2002 while the accounting problems at Freddie Mac spanned several years. We request that you provide the necessary explanation and analysis, and that you cover compensation for the years 2000, 2001, and 2002. This request extends to both Fannie Mae and Freddie Mac. We note that Fannie Mae has been an SEC-registered company for over a year, and, at this time, we are not aware of any problems with their disclosure or accounting practices. Nonetheless, we believe that it is appropriate and necessary to look at these issues as a prophylactic matter. Please also advise us of the status of OFHEO's review of Fannie's accounting practices, and whether, given Fannie's SEC-registered status, that review is being coordinated with the SEC. We ask that you provide us with the requested information by the close of business on Friday, June 4, 2004. We would like to close the Subcommittee's hearing record and make decisions about the need for additional Congressional action as soon as reasonably possible. Pending receipt and review of the requested clarifications and additional information, we will respect the confidentiality of your original submission. |