Treasury Secretary John Snow urged tighter regulation of Freddie Mac, the home mortgage company under criminal investigation by federal prosecutors, and its larger sister in the mortgage market, Fannie Mae.
Amid rising concern about Freddie Mac's accounting problems and criticism by lawmakers of special pay packages being given to top executives ousted in a surprise shakeup, the government-sponsored company took out full-page ads in major newspapers Friday assuring that it is safe and strong and outlining actions it has taken in recent days.
The shakeup announced Monday also raised concern about a possible impact on the housing market.
"Our business fundamentals are as powerful as ever," said the open letter signed by Freddie Mac's new chief executive, Gregory Parseghian. The "skilled, energetic" new management team installed by the board of directors is working with outside auditors to quickly complete the company's restatement of financial results for 2000-2002, it said.
The diaries of Freddie Mac president David Glenn, who was fired over his role in an accounting review, are drawing interest — as is his pay. Freddie Mac's chairman and chief executive, Leland Brendsel, left with a special package worth some $24 million. Glenn is keeping company stock options worth $5.3 million.
"We are deeply concerned that these individuals would be granted these types of severance packages before their roles in the current troubles of Freddie Mac are clearly understood," Rep. Richard Baker, R-La., told the company's regulator, the Office of Federal Housing Enterprise Oversight.
The regulatory agency, which is investigating Freddie Mac's accounting, reminded the company in a letter Thursday that it must still approve the special pay deals.
Freddie Mac, one of the biggest U.S. corporations with its stock widely traded, also is being investigated by the Securities and Exchange Commission.
President Bush, meanwhile, nominated financial executive and free-market advocate Mark Brickell to head the housing oversight agency, which also supervises Fannie Mae. The choice is generating more controversy.
Brickell is a trader in derivatives, the complex financial instruments that Freddie Mac and Fannie Mae have increasingly used in recent years to hedge interest-rate risk, and that have been widely criticized.
Billionaire investor Warren Buffett recently called them "financial weapons of mass destruction," saying they posed a threat to the nation's financial system. Derivatives played a role in the stunning collapse of Enron in late 2001.
Administration officials in February asked for the resignation of the current director of the oversight agency, Clinton appointee Armando Falcon, who had more than a year remaining in his term.
Snow, speaking to reporters Thursday in Mexico City, was the first member of the Bush administration to comment on Freddie Mac since the company shook up its top leadership.
"These are huge entities making huge markets, so we better make sure we have the appropriate level of oversight and disclosure," Snow said, referring to Freddie Mac and Fannie Mae. "I would like to make sure that the oversight authority is commensurate with the importance of these institutions and appropriate to the circumstances they find themselves in."
The Treasury chief said he was not endorsing any particular legislative or regulatory remedy. Congressional critics of the two companies have circulated proposals to toughen federal oversight and curtail the privileges that come from their status as congressionally chartered enterprises in the multitrillion-dollar home mortgage market.
For example, they are free of Securities and Exchange Commission oversight.
Freddie Mac restated its earnings for 2000-2002 in January, after its new auditor recommended changes to its accounting policies to reflect higher earnings from derivatives.
Congress created Freddie Mac and Fannie Mae to buy home loans from banks and other lenders to supply ready cash to the home mortgage market. The companies buy mortgages from lenders to keep in their portfolios and package others into securities for sale on Wall Street.
The two are major forces on the housing market — one of the few bright sports in the slowed economy. As of the end of 2002, Freddie Mac has $583 billion in mortgages in its portfolio and had $742 billion in mortgage-backed securities. Fannie Mae reported $1.029 trillion in securities outstanding and $797 billion in its portfolio.