Remaking itself as it emerges from an accounting scandal, mortgage giant Fannie Mae said Friday it will shut down its high-profile charitable foundation this year and begin disclosing its corporate contributions.
Fannie Mae said it would continue its philanthropy and community improvement work through a new Office of Community and Charitable Giving within the government-sponsored company. It will focus notably on projects in the District of Columbia, the Gulf Coast region and touching on homelessness in several cities.
The moves by Fannie Mae were the latest in a series of actions changing its structure and the way it operates, some of them ordered by federal regulators in the wake of the scandal that erupted in September 2004. On Tuesday, Fannie Mae disclosed its decision to withhold $44.4 million in bonus money, tied to company earnings targets, from nearly 50 senior executives.
The Washington-based company, which finances one of every five home loans in the United States, agreed to pay a record $400 million civil fine in a settlement with regulators last May over the alleged accounting misconduct. It also agreed to limit the growth of its multibillion-dollar mortgage holdings and make top-to-bottom changes in its corporate culture, accounting procedures and ways of managing risk.
The Fannie Mae Foundation has been one of the largest corporate foundations in the country as well as one of the biggest charitable givers in Washington, donating more than $100 million to projects and organizations in the city over the past five years.
Company known for political contributions
The politically influential company also has been known for its prolific contributions to House and Senate lawmakers from both parties.
Fannie Mae decided in May 2005 to cut the foundation’s annual budget from around $92 million to some $72 million and close its offices in Atlanta and Chicago.
In a transition this year, Fannie Mae’s charitable grants will be funded by money from both the foundation and company revenues as the foundation winds down its activities, Fannie Mae said in its announcement Friday. The foundation will cease day-to-day operations by April 30 and terminate the remaining activities over the course of the year.
“This effort is part of the overall re-evaluation and restructuring the company is undertaking, and embraces our core principles of service, reliability and value,” President and CEO Daniel Mudd said in a statement.
Fannie Mae also said it will voluntarily begin to disclose the names of organizations that receive money from the company and the dollar amounts.
That move won praise from Rep. Paul Gillmor, R-Ohio, who has proposed legislation that would require all public companies to disclose their charitable contributions.
Given Fannie Mae’s government-sponsored status, “It should be the right of their shareholders and the American public to know how profits are being spent,” Gillmor said. “If charitable contributions are legitimate, public companies should have nothing to hide.”
Foundation CEO to head new office
Fannie Mae named Stacey Stewart, former president and CEO of the foundation, as a senior vice president to head the new philanthropy office.
In December, Fannie Mae announced a long-awaited restatement for 2001 through mid-2004 that erased $6.3 billion in previously reported profit.
The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and its smaller government-sponsored sibling, Freddie Mac, issued a blistering report last May alleging a six-year accounting fraud at Fannie Mae. The regulators said the scheme included manipulations to reach quarterly earnings targets so that company executives could pocket hundreds of millions in bonuses from 1998 to 2004.
Fannie Mae and Freddie Mac were created by Congress to pump money into the $8 trillion home-mortgage market to keep interest rates low and make home ownership affordable for low- and moderate-income people. Freddie Mac has been emerging from its own accounting scandal, which surfaced in mid-2003.