Leaders of the Federal Housing Finance Agency and Fannie Mae will testify before a House subcommittee Tuesday defending more than $410 million in legal fees spent at Fannie and Freddie Mac since entering conservatorship in September 2008. In January, Rep. Randy Neugebauer (R-TX) released data detailing legal fees spent for officials who led Fannie and Freddie before, during and after the financial crisis. Since conservatorship, Fannie paid $24 million in legal fees in defense for former CEO Frank Raines ($7.9 million), former Chief Financial Officer Tim Howard ($4.5 million) and former Controller Leanne Spencer ($11.8 million), according to the data. Combined, both companies spent more than $57 million in legal fees for executives since conservatorship. Fannie’s share was $51.7 million, and Freddie’s was $5.7 million. But FHFA Acting Director Edward DeMarco, who cleared the spending, said idemnification of these funds “greatly assists” with the company’s ability to attract and retain personnel by protecting them from lawsuits, according to his written testimony submitted to the subcommittee on oversight and investigations, chaired by Neugebauer. DeMarco said an idemnification can be denied if the lawsuit brings up violations that do not fit the company’s bylaws or if the defendant admits to wrong doing during administrative or regulatory proceedings. “For its part, FHFA has reminded the enterprises operating in conservatorship that they need to manage legal expenses effectively and where possible seek to reduce such expenses as they operate with the support of the federal government,” DeMarco said. Fannie Mae CEO Michael Williams also explained the complexities and sheer volume of lawsuits facing his company in his written testimony. But Williams also said the company is “obligated” under its bylaws to pay certain legal expenses to current and former officers. “Where they apply, the company’s obligation to advance legal expenses is always mandatory. If Fannie Mae were to refuse to honor this obligation, we would undoubtedly be sued and likely be subject to additional costs,” Williams said. “Corporations throughout America make provisions similar to ours in order to attract and retain strong and experienced officers and directors.” One of these lawsuits is brought on by Ohio Attorney General Mike DeWine, who is suing Fannie in a class-action lawsuit on behalf of the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, and other investors claiming fraud. “Fannie Mae continues to deny liability, dragging out the current litigation – billable hour by billable hour – and bleeding Americans so far, by Fannie Mae’s own admission, of at least $132 million for its legal fees,” DeWine said in his testimony. The Obama administration released a white paper on Feb. 11 to provide options to Congress on how it would wind down Fannie Mae and Freddie Mac, but in his budget for the 2012 fiscal year, the administration estimates the two companies will cost taxpayers $73 billion by 2021. “This drain on the American taxpayer must be plugged as quickly as possible,” Neugebauer said. Write to Jon Prior. Follow him on Twitter: @JonAPrior
Most Popular Articles
The National Association of Realtors board of directors voted 729-70 on Monday to ban the controversial practice of “pocket listings.”
For the first time since 1850, the average size of the U.S. household is on the rise, RealPage says. And it’s not just the kids or Millennials, either. Households are becoming multi-generational.