WASHINGTON, DC – As the Trump Administration continues to take hasty, unjustified steps that could weaken the U.S. real estate market and make it harder and more expensive for responsible, credit-worthy Americans to secure an affordable 30-year fixed mortgage, U.S. Senators Jack Reed (D-RI), Lisa Blunt Rochester (D-DE), and Elizabeth Warren (D-MA), the Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, are calling for an independent watchdog to investigate potentially unlawful administrative actions of President Trump’s newly confirmed head of the Federal Housing Finance Agency (FHFA), Bill Pulte.

“We write to urge you to open an investigation into FHFA’s apparent noncompliance with Federal laws and regulations in connection with recent corporate governance changes that Director Pulte has made at Fannie Mae and Freddie Mac,” the three U.S. Senators wrote to FHFA Inspector General Brian Tomney, whose office oversees Fannie Mae and Freddie Mac’s regulator.

Senator Reed helped create the FHFA, which was established under the Housing and Economic Recovery Act of 2008, to oversee and manage two government-sponsored enterprises (GSEs) known as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which guarantee mortgages to facilitate financing for single-family homes and for apartment buildings.  FHFA is both the conservator and regulator of Fannie Mae and Freddie Mac, both of which were at imminent risk of failing during the 2008 financial crisis, and sets affordable housing goals for the two companies while also overseeing a system of 11 federal home loan banks.

The Senators are sounding the alarm over the Trump Administration’s recent partisan and potentially unlawful administrative actions at Fannie Mae and Freddie Mac.  They warn that the Trump Administration could negatively impact lending and risk management, driving up mortgage rates and making it more difficult for families to buy a home, putting taxpayers at risk, and setting the stage for a chaotic and disorderly exit for Fannie Mae and Freddie Mac from conservatorship.

After becoming FHFA Director a few weeks ago, Mr. Pulte ousted a majority of the nonpartisan directors of both Fannie Mae and Freddie Mac, installing himself, business associates, and partisan loyalists in their place.  Director Pulte also removed critical financial expertise from the boards and stripped independent voices from overseeing these companies, which are two of the largest companies in both the United States and the entire world.  Strong and effective corporate governance arrangements at Fannie Mae and Freddie Mac are essential because taxpayers both stand behind these companies and could face higher mortgage rates if either entity is mismanaged.

In calling for independent oversight of Mr. Pulte’s actions, the Senators wrote: “Director Pulte is prohibited by law from holding any position at either company and Federal statute requires at least one board member to represent the public’s interest. The Director has no authority to waive the law. Under FHFA regulations, a majority of directors must be independent, the chairmen of the boards must be independent, the companies must have audit committees comprised of independent directors, and if there is no financial expert on an audit committee then the public is owed an explanation of why. The nominating and corporate governance committee must be composed entirely of independent directors, including an independent chair. While the Director has authority to waive regulations, he may do so only “in connection with a particular transaction or activity”—not for corporate governance matters that apply to all transactions and activities.”

The Senators’ request for a IG probe into Mr. Pulte’s questionable actions at FHFA come after the Senators sent a previous letter directly to Mr. Pulte on March 31 asking for an explanation of his governance changes to date—and asking him to reverse course for the benefit of taxpayers.  The Senators were so dissatisfied with Mr. Pulte’s response, that they quickly asked for the IG probe, noting: “Although Mr. Pulte responded in a letter dated April 8 that “U.S. Federal Housing FHFA [sic] remains committed to complying with all applicable federal laws and regulations,” he offered no evidence to show that the agency he runs, and the companies he oversees, are in actual compliance with these statutory and regulatory requirements nor did he dispute the portion of our letter noting his recent governance changes at Fannie and Freddie violate the law. If an ordinary public company had put in place such poor governance arrangements, it would be at serious risk of being delisted from a major stock exchange.”

The Senators are also asking the Inspector General to publicly announce its investigation in order to discourage any potential future noncompliance and violations of the law.

Full text of the letter follows:

Hon. Brian M. Tomney

Inspector General for the Federal Housing Finance Agency

400 7th Street SW

Washington, DC 20219

Dear Inspector General Tomney:

We write to urge you to open an investigation into FHFA’s apparent noncompliance with Federal laws and regulations in connection with recent corporate governance changes that Director Pulte has made at Fannie Mae and Freddie Mac.

Director Pulte is prohibited by law from holding any position at either company and Federal statute requires at least one board member to represent the public’s interest. The Director has no authority to waive the law. Under FHFA regulations, a majority of directors must be independent, the chairmen of the boards must be independent, the companies must have audit committees comprised of independent directors, and if there is no financial expert on an audit committee then the public is owed an explanation of why. The nominating and corporate governance committee must be composed entirely of independent directors, including an independent chair. While the Director has authority to waive regulations, he may do so only “in connection with a particular transaction or activity”—not for corporate governance matters that apply to all transactions and activities.

Director Pulte has taken actions that do not appear to be consistent with these Federal laws and regulations. Within a week of taking office, he removed a majority of the directors of Fannie and Freddie, installing himself, his business associates, and partisan loyalists in their place. He also removed Fannie’s entire audit committee. After these actions, the boards appear to lack anyone from an organization that has represented consumer or community interests, or has shown a career commitment to low-income housing. They also appear to lack a financial expert. Director Pulte has also installed himself as the chair of both companies’ boards of directors and the boards’ nominating and corporate governance committees.

On March 31, we wrote to Director Pulte to urge him to correct these apparent violations. Although Mr. Pulte responded in a letter dated April 8 that “U.S. Federal Housing FHFA [sic] remains committed to complying with all applicable federal laws and regulations,” he offered no evidence to show that the agency he runs, and the companies he oversees, are in actual compliance with these statutory and regulatory requirements nor did he dispute the portion of our letter noting his recent governance changes at Fannie and Freddie violate the law. If an ordinary public company had put in place such poor governance arrangements, it would be at serious risk of being delisted from a major stock exchange.

In light of this apparent pattern of noncompliance and inability to attest to compliance, we ask that you open an investigation into whether FHFA is in fact following Federal laws and regulations regarding the management and governance of Fannie and Freddie. To the extent permissible, we also ask you publicly announce this investigation in order to discourage any potential violations.

Thank you for your attention to this important matter.

Sincerely,