Regulator Quits as Head of Fannie, Freddie Watchdog

Armando Falcon, director of the federal agency that regulates mortgage finance giants Fannie Mae and Freddie Mac, resigned Tuesday, saying the most critical issues facing the agency had been addressed.

In a letter to President Bush, Falcon said he would leave the Office of Federal Housing Enterprise Oversight on May 20, “absent extraordinary circumstances.”

Falcon’s resignation came as lawmakers began to consider legislation that would create a new regulatory body with more authority than the existing oversight office.

The agency was criticized by some lawmakers for failing to prevent Freddie Mac’s accounting problems, which led to a $5-billion earnings restatement in 2003. But the agency was first to identify accounting problems at Fannie Mae last year -- issues that continue to unfold and may lead to a profit restatement of more than $11 billion.

“The agency has successfully dealt with serious problems at two of the largest financial institutions in the world,” Falcon wrote. “And we did so in a manner that avoided disruption in our financial system, while allowing both companies to continue fulfilling their vital public mission.”

Fannie and Freddie are shareholder-owned companies charged by Congress with boosting the rate of homeownership by ensuring a liquid mortgage market.

Accounting problems first surfaced at Freddie Mac, which is expected to begin reporting regular financial results again later this year, a big step in moving beyond its accounting scandal.

Problems at Fannie Mae began to unfold last year, and probes of its accounting practices are underway by the oversight office and other agencies.

Under legislation due for consideration on Capitol Hill, the oversight office would be succeeded by a new, independent regulatory agency.

One bill offered Tuesday would give that new entity greater powers than the oversight office has over the companies’ business.