Romantic relationship triggers second rebuke for Fannie Mae CEO (0)

English Politico 4 päeva tagasi 10

A government watchdog has rebuked the outgoing CEO of mortgage-finance giant Fannie Mae for failing to fully disclose potential conflicts arising from his romantic relationship with an executive at another company — the second such reprimand handed to him in just over a year.

Timothy Mayopoulos had recused himself broadly from any business between Fannie and the company, TransUnion, where his romantic partner, Heather Russell, serves as chief legal officer. But the watchdog faulted Mayopoulos — and Fannie — for not flagging a possible conflict involving a credit-scoring project that could benefit TransUnion, according to people familiar with the report.

The public version of the inspector general's report, which was released last month, was redacted and didn’t identify Mayopoulos, Russell or TransUnion by name. POLITICO has independently confirmed the report’s contents.

The report raises new questions about the management and oversight of Fannie Mae, the country’s biggest source of mortgage funding. Fannie and the smaller Freddie Mac, which are backed by U.S. taxpayers, have been under government conservatorship since the housing collapse and, during that time, have increased their power over the market. Their regulator, the Federal Housing Finance Agency, has been criticized for giving the two companies too much freedom to grow, amid warnings that taxpayers could be at risk.

On July 23, Fannie Mae announced that Mayopoulos would step down by the end of the year. That was three days before the watchdog released the report criticizing him, Fannie, and its regulator. The same day, FHFA Director Mel Watt dropped the credit-scoring project, which had the potential to expand homeownership to millions of Americans, including minorities, the self-employed, and lower-income borrowers.

It was the second time that Mayopoulos' relationship with Russell had gotten him in trouble with the watchdog — FHFA Inspector General Laura Wertheimer.

The first came 16 months earlier when Wertheimer reprimanded him for failing to promptly disclose his relationship with Russell when she was hired in 2015 as the chief counsel for prominent mortgage lender Fifth Third, which did business with Fannie Mae. In a March 2017 management alert, Wertheimer had recommended “disciplinary action against Mr. Mayopoulos up to and including his removal as CEO for repeated breaches of duty to Fannie Mae.”

“Mayopoulos’ deliberate and unilateral decision not to disclose” the relationship to Fannie Mae’s board “had deleterious effects on Fannie Mae’s corporate governance that transcended his disregard of his duties,” Wertheimer wrote in 2017.


Fannie and FHFA maintained that Mayopoulos had acted appropriately and concluded there had been no conflict. But Fifth Third fired Russell in July 2016 after she disclosed the relationship to the bank.

Fannie and FHFA again defended Mayopoulos against the watchdog’s latest allegations.

A Watt spokeswoman said the announcement dropping the credit-scoring project was triggered by recent legislation and not influenced by the findings of the FHFA’s inspector general. Fannie Mae said Mayopoulos’ announcement had nothing to do with the inspector general report.

“Any suggestion that the timing of Tim's decision was driven by anything other than his own personal and professional goals is entirely incorrect,” Fannie Chairman Egbert Perry said in a written statement. “We wish he would stay longer, but we respect his decision.”

Before Russell was hired by TransUnion in May of this year, Mayopoulos alerted Fannie’s board and recused himself from any business between Fannie and the credit data company.

But Wertheimer said that recusal didn’t go far enough because it failed to mention conflicts of interest that might emerge from Fannie’s ongoing discussions about alternate credit scores, a decision so sweeping that Watt once called it “the most difficult issue that I have had to deal with,” according to the report.

TransUnion is one of three credit-monitoring companies advocating the use of scoring models that would broaden the criteria used to determine creditworthiness. Fannie Mae and Freddie Mac were assessing whether those scores would lead to more defaults and foreclosures and — thus pose a risk to taxpayers — when TransUnion hired Russell.

A TransUnion spokesman and Russell both declined to comment.

Fannie and Freddie currently require mortgage lenders to use a credit-scoring model from Fair Isaac Corp., or FICO, an analytics company. At Watt’s direction, the companies spent three years analyzing the risk of allowing lenders to use a more modern version of FICO and a model from its main competitor, VantageScore, a joint venture of credit reporting companies TransUnion, Equifax and Experian.


Wertheimer sent the report to Watt on July 16, and on July 26 she released her findings, recommending that he “promptly perform a comprehensive review of the conflict of interest implications” of Mayopoulos’ romantic relationship before issuing a final decision on credit scores.

Fannie defended Mayopoulos.

“Tim proactively disclosed the potential conflict prior to his partner’s employment at TransUnion. He executed a standard blanket recusal agreement covering any business decisions related to TransUnion,” a Fannie Mae spokeswoman said Wednesday. “As a result, it included entities like VantageScore. That recusal remains in effect today. Consistent with this recusal, he has not had any involvement with business decisions related to TransUnion or VantageScore.”

In response to Wertheimer’s criticism regarding TransUnion, Watt objected to the idea that every recusal “detail every separate project, proposal, or initiative that arises.”

“Individual judgment, or lack thereof, in applying a recusal must be allowed and individuals held accountable for violations when they occur,” Watt wrote in his response, which was included in the IG’s report.

The FHFA said it pulled the credit score program because it was inconsistent with a bank deregulation bill enacted in May. The legislation, shepherded by Senate Banking Chairman Mike Crapo (R-Idaho), requires the agency to consider allowing the use of consumer credit-score models beyond those provided by FICO.

“It had everything to do with the passage of the Crapo banking bill,” FHFA spokeswoman Megan Moore said. The legislation “directs FHFA and Fannie and Freddie to start a whole new process.”

Moore said the agency had decided to abandon the current credit score project well before its July 23 public announcement and will begin a new rulemaking process as mandated by the legislation.

VantageScore Chief Executive Officer Barrett Burns said his company had no involvement in or knowledge of matters addressed in the inspector general’s report.


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