November 1, 2011

U.S. Inspector General Investigates Fannie Mae! Staffers Placed On Leave Pending Probe!

The Wall Street Journal
written by Nick Timiraos
Tuesday November 1, 2011

At least four Fannie Mae employees have been placed on administrative leave as part of an investigation by federal authorities into a transaction involving distressed debt on multifamily property, according to people familiar with the matter.

Federal law enforcement officials arrived unannounced at several Fannie employees' homes late last week, according to people familiar with the matter. It wasn't clear if federal deputies had executed search warrants.

The investigation is being carried out by the inspector general of the Federal Housing Finance Agency, the regulator that oversees Fannie Mae and Freddie Mac. Officials from the U.S. Attorney's Office for the Eastern District of Virginia also are involved, according to people familiar with the matter.

It isn't clear what, if any, wrongdoing is being examined by the inspector general. The investigation appears to be focusing on a single transaction involving distressed apartments that were being delivered to an existing joint venture between Fannie Mae and Related Cos., a closely held New York developer, according to people familiar with the matter.

The investigation doesn't involve the issuance of any Fannie Mae debt or securities, according to these people. A spokeswoman for Related declined to comment.

One of the most senior executives being looked at by investigators is David S. Worley III, a Fannie senior vice president who serves as chief risk officer for the multifamily business unit, according to people familiar with the matter. Mr. Worley, who joined Fannie Mae in 2005, declined to comment when reached by phone on Monday.

"The investigation is limited in scope and we are cooperating fully," said Kelli Parsons, a Fannie spokeswoman. "Consistent with our usual practice, we placed employees on administrative leave pending the outcome of the review."

Representatives for the U.S. Attorney's Office, the Federal Housing Finance Agency and the agency's Office of Inspector General declined to comment on the investigation.

Earlier this year, Fannie sold a stake in scores of foreclosed apartment buildings to Related, which is maintaining and managing the properties as part of the deal. The deal gives Fannie the option to deliver newly foreclosed properties into the Related management joint venture.

Last year, Fannie acquired 232 properties through foreclosure—more than double the amount in 2009—and loans backing another 481 properties were seriously delinquent. Fannie recorded net income of $216 million from its multifamily business last year, up from a $9 billion net loss in 2009, about half of which stemmed from write-downs on low-income-housing tax credits.

The investigation comes as officials at Fannie Mae and the Federal Housing Finance Agency consider similar joint ventures for foreclosed single-family property. Fannie and Freddie must dispose of hundreds of thousands of foreclosed homes over the coming years. The Federal Housing Finance Agency last month received 4,000 public comments after soliciting feedback on how to structure potential bulk sales of homes that could be rented out with private investors.

Fannie and Freddie were taken over by the U.S. three years ago through a legal process known as conservatorship. Their rescues have cost taxpayers $141 billion.

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