The days of big spending on conferences and charity are over at Fannie Mae and Freddie Mac and the companies’ regulator should make sure it stays that way, the auditor of the Federal Housing Finance Agency said in two reports released today.
The FHFA Inspector General opened an investigation into travel spending at the government-owned mortgage companies last year after U.S. lawmakers complained that Fannie Mae and Freddie Mac spent over $600,000 to send more than 90 employees to a Mortgage Bankers Association conference in October.
About half those expenditures -- which went toward sponsoring the convention and hosting dinners and other meals -- was “of questionable value,” according to a report written by George Grob, deputy inspector general for evaluations.
“There is no indication that any business conducted by the Enterprises with their clientele at the convention could not have been conducted as well without this largesse,” the audit said.
After the conference, the FHFA instituted new restrictions on travel spending at Fannie Mae and Freddie Mac and barred conference sponsorships without prior approval. The Inspector General is satisfied with those measures, the report said.
The companies, which own or guarantee most U.S. mortgages, have faced spending restrictions since they were seized by the government in 2008 after investments in risky loans pushed them to the brink of insolvency. Together, they have drawn almost $190 billion in taxpayer aid so far.
Among those restrictions is a wind-down of the companies’ charitable spending. A separate audit released today noted that the enterprises spent $147 million on charitable contributions while on taxpayer aid from 2009 to 2011.
Corporate donations are scheduled to end in 2013 and payouts from the Freddie Mac Foundation will end in 2015.
A third audit released today said the FHFA should strengthen its oversight of underwriting standards at Fannie Mae and Freddie Mac.
The two companies set underwriting standards for the loans they purchase, but will sometimes issue variances for loans that don’t meet those standards. The number of variances issued by Fannie Mae has dropped from 11,000 in 2005 to 600 in the first nine months of 2011, the report said, indicating a tightening of standards.
FHFA needs to set up a formal process for reviewing underwriting, the report said. FHFA officials, in a written response, said the agency believes its current approach “has been effective.”