WASHINGTON – A leading Republican lawmaker has asked federal regulators to explain why taxpayers have spent more than $160 million in legal fees to defend the giant mortgage companies Fannie Mae and Freddie Mac and their former top executives.
Rep. Darrell Issa, R-Calif., who heads the House Oversight and Government Reform Committee, asked the Federal Housing Finance Agency to provide documents backing up its decision to cover the costs.
Much of the fees cover lawsuits over activities by Fannie Mae and Freddie Mack that occurred years before the subprime lending crisis, which exploded in 2007. The government took over the two companies in September 2008.
"At a time of runaway federal deficits and 10 percent unemployment, it is extremely distasteful for the American taxpayers to be forced to pay the legal bills of former executives of Fannie Mae and Freddie Mac, companies which were central players in the financial crisis," Issa wrote in a letter his office released on Monday.
Many Republicans blame the two housing giants for the financial crisis of the last several years by backing risky loans, and Issa's letter marks the GOP's latest attempt to find fault with them. Others, including Democrats on a congressional panel that released a report last week on the meltdown, assign a lesser role to Fannie and Freddie.
Experts say it is common for companies to cover their executives' legal fees.
"It is basically universal," said finance Prof. Charles Elson of the University of Delaware, an authority on corporate governance. "Otherwise no one would ever go work for a business."
In a written statement, the Federal Housing Finance Agency's acting director, Edward J. DeMarco, said he must follow state and federal laws and believes that paying the fees is in the best interest of the government as it controls the companies.
"I understand the frustration" regarding the payment of the fees, he said.
Spokeswoman Corinne Russell said the agency would respond soon to Issa's request.
The housing companies nearly went under in 2008 but were rescued by the federal government at a cost, so far, of about $150 billion. The firms and their former executives face lawsuits accusing them of fraud.
The housing agency, which oversees the two companies, have so far covered $162 million in legal costs, according to figures it provided earlier to Rep. Randy Neugebauer, R-Texas, who has also been examining Freddie's and Fannie's activities.
The bulk of the money has been spent on Fannie Mae, which is larger than Freddie Mac. That includes $24 million spent to defend Fannie's former chief executive, Franklin Raines, and two other former top officials.
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