Dispute Emerges Over Absence of Watchdog for Fannie, Freddie

Nov. 12, 2009 -- The government agency in charge of mortgage giants Fannie Mae and Freddie Mac is currently without a watchdog, but officials argue that the vacancy isn't an attempt to avoid oversight, but rather a legal issue that they have handled openly and transparently.

The Federal Housing Finance Agency, which has jurisdiction over Fannie Mae, Freddie Mac, and federal home loan banks, has been without an inspector general since September when the Justice Department ruled that Ed Kelley, the watchdog up until that point, did not have legal authority to serve in the position.

But since the ailing mortgage giants have received tens of billions of taxpayer dollars and currently back trillions of dollars in home mortgages, the absence of a watchdog raised the ire this week of a key lawmaker on Capitol Hill.

Rep. Darrell Issa, the ranking Republican on the House Oversight and Government Reform Committee, said Congress should consider cutting off federal funds for the agency until Kelley is allowed to operate again or a permanent replacement is put in place.

"It is absolutely unconscionable that Fannie Mae and Freddie Mac, which were at the heart of the subprime housing collapse last fall that sent our economy into a tailspin, should be without independent oversight at a time when the federal government now owns over half of all the mortgages in the United States," Issa said in a statement Wednesday.

"Until this issue is resolved, Congress should question the wisdom of continuing to provide taxpayer support to Fannie and Freddie until proper oversight is in place," he demanded.

But FHFA officials point out that the current lack of a watchdog stems from legal issues. When the agency was created by Congress in July of 2008, the law stipulated that the agency's watchdog would have to be nominated by the president and confirmed by the Senate.