Why No One’s Watching Fannie and Freddie


November 19, 2009, 11:19 AM ET
By Nick Timiraos

An arcane legal matter has left the agency charged with overseeing Fannie Mae and Freddie Mac without an independent inspector general for nearly one year, setting off a storm of finger pointing and raising concerns from members of Congress over why the agency has gone without independent oversight for so long.

Both the current and former directors of the Federal Housing Finance Agency have told Congress over the past year that they’d like to see an independent inspector general named to their agency, which was created in July 2008 and merged two different regulatory agencies, one with oversight of Fannie and Freddie, and the other that oversaw the Federal Home Loan Banks.

The issue flared up again last week when the Huffington Post described how the former IG for one of FHFA’s predecessors had been told that he didn’t have legal authority to become the IG for the new agency. Rep. Darrell Issa, a California Republican, last week said he was ready to pull the plug on the government’s support for the mortgage giants if the agency didn’t have independent oversight.

Edward Kelley, who had been the IG for the Federal Housing Finance Board, initially assumed the role of acting IG for the new FHFA. But the agency’s lawyers ruled in September that Mr. Kelley didn’t have the authority to take the position under the law that created the new agency. That means that for most of 2009, the agency has been operating without an independent watchdog.

Both the current and former directors of the agency have signaled their desire to have an inspector general appointed and to have that office funded by Congress. Under questioning last month, the agency’s acting director, Edward DeMarco told a Senate panel that he was still waiting for the White House to appoint the position. “I’d like to be very clear. I want an inspector general,â€