GOP Rep. demanding answers on Fannie, Freddie legal agreements

A top House Republican is concerned that former executives with Fannie Mae and Freddie Mac may have signed comprehensive legal protection agreements to guard themselves from earlier wrongdoing.

Rep. Randy Neugebauer (R-Texas), the chairman of the oversight panel of the House Financial Services Committee, is demanding documents detailing why the executives asked for and received new legal indemnity agreements months after regulators said they would delve into accounting practices that had come into question.

He sent a letter Friday to the head of the Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, asking for any documents tied to those agreements.

Neugebauer said Monday it appears that, given the timing of the agreements, executives were looking to protect themselves once it became apparent regulators would expose their misbehavior.

"The timing of their indemnity contracts is a little coincidental," he told The Hill. "I think they cut a deal."

"Just a few months before they were dismissed, all of a sudden they had these new agreements," he added. "Maybe it's just a coincidence, but it's an awful interesting coincidence."

Ever since Fannie and Freddie were brought under federal conservatorship in September of 2008, the federal government has injected more than $150 billion into the agencies. A chunk of those funds — up to $51.7 million — have gone toward defending the former executives from legal challenges, Neugebauer said in his letter.

A timeline included in his letter indicates that federal regulators announced they would look into the accounting at Fannie in July 2003, as market participants raised questions about those practices in the beginning of 2004. In May of that year, several top Fannie executives, including former Chief Executive Officer Franklin Raines, signed new indemnification agreements, which stipulated that the organization would cover their legal fees.

In September of that year, Fannie's former regulator found the agency had failed to meet accounting rules. Raines resigned as Fannie's CEO in December 2004.

A follow-up 2006 study from the Office of Federal Housing Enterprise Oversight (OFHEO) found that executives "deliberately and intentionally" manipulated accounting to hit earnings targets to maximize their bonuses. OFHEO charged several top executives at Fannie with deliberate wrongdoing, which was later settled.

Officials with Fannie and Freddie, as well as Edward DeMarco, acting FHFA director, in the past have defended the use of indemnification agreements at the organizations. Protecting executives from lawsuits is a common practice in the private sector, and helps attract and retain quality workers, DeMarco said earlier this month at a hearing exploring the fees.

An FHFA spokesperson said the agency was reviewing the requests and would respond.

This post updated at 3:31 pm.