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Freddie Mac Replaces Top Executive Team

Shake-up at the giant mortgage firm comes as regulators launch an accounting probe.

June 10, 2003|Jesus Sanchez | Times Staff Writer

Freddie Mac, a pillar of the nation's home loan business, said Monday that it had fired its president and replaced most of its top executive team as a result of "serious questions" and lack of cooperation during an audit of the company's accounting practices.

Federal regulators also announced that they had launched a probe into evidence of weak accounting controls at Freddie Mac and "disclosure of misconduct" on the part of employees at the giant mortgage firm.

News of the shake-up and investigation sent shares of Freddie Mac down 16%, or $9.61, to $50.26 on the New York Stock Exchange.

McLean, Va.-based Freddie Mac and sister company Fannie Mae are federally sponsored companies that play a critical role in the mortgage industry by buying home loans from lenders, which then have the financial resources necessary to make more home loans. Both firms, which resell mortgages to investors, have come under greater scrutiny by investors and government regulators as their power and influence have grown amid a lengthy housing boom.

"They are basically financing everything," economist and housing observer G.U. Krueger said. "They are vastly important for the middle class to be able to get affordable mortgages."

Freddie Mac said President and Chief Operating Officer David Glenn was fired because of questions regarding the "timeliness and completeness of his cooperation and candor" with an independent counsel who reported to the board of directors. The counsel was hired to review accounting errors that led the company to announce this year that it would have to restate earnings.

In addition to Glenn's termination, Freddie Mac also announced the resignation of Vaughn Clarke, the company's chief financial officer, and the retirement of Chairman and Chief Executive Leland C. Brendsel, who also resigned from the company's board.

The company created a new executive staff, naming Gregory J. Parseghian as CEO and president, Paul T. Peterson as chief operating officer and Martin F. Baumann as chief financial officer.

Freddie Mac said it is fully cooperating with the Office of Federal Housing Enterprise Oversight, which oversees Freddie Mac and Fannie Mae, as well as with the Securities and Exchange Commission and the New York Stock Exchange.

The company has said it would have to restate its earnings through 2000. The revision is expected to boost profit during the years but result in lower future earnings.

In a letter to Freddie Mac's board, Armando Falcon Jr., director of the federal housing oversight agency, said the management shake-up "only goes a part of the way toward correcting serious problems" surrounding management practices.

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