This is the second of three evaluation reports released by the Federal Housing Finance Agency's (FHFA) Office of Inspector General (OIG) regarding the oversight of activities of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac by FHFA. This evaluation concerns the GSEs charitable activities after they were placed into government conservatorship under FHFA.
Prior to the beginning of the GSE conservatorships the GSE's were making substantial contributions to charitable organizations. In 2008 the combined charitable giving of the two companies was $73 million. Fannie Mae's contributions consisted of those channeled through the Fannie Mae Foundation and Freddie Mac's contributions consisted of those channeled through the Freddie Mac Foundation, in-kind corporate support (employee salaries and office space) of the Foundation, and contributions through the Freddie Mac Donor Advised Fund (DAF) program. In addition, both corporations made direct corporate contributions and matching donations for employees personal charitable giving.
The OIG said that funding charitable activities may have been appropriate for the GSEs acting as private businesses but questions have arisen concerning whether it is still appropriate now that both have substantial annual losses covered by taxpayer funds. That prompted the OIG review of FHFA's oversight of,
- Current and planned funding of Enterprise-sponsored charitable spending;
- The nature of the charities supported by such spending; and
- The policies and procedures established to control spending.
Charitable giving has continued since the conservatorships were established, totaling $147 million from 2009 through 2011. OIG found, however, that within months of becoming the GSE conservator, FHFA established controls to ensure that charitable giving would be consistent with the GSE's housing missions, well managed and monitored and not politically motivated. In early 2010 FHFA issued directions to phase out all of the GSE charitable giving and established target dates for doing so. By 2011 the GSE's combined annual donations leveled off at $50 million and corporate donations are scheduled to end in 2013.
The Fannie Mae Foundation was dissolved in 2009; however the legal structure of Freddie Mac's operations made it more difficult to terminate its charitable activities. In 2009 the Freddie Mac Foundation submitted a plan to wind down operations in approximately eight years but the Board was subsequently directed to reevaluate that timetable. According to Virginia Law and the IRS Code the Foundation cannot be shut down until the funds in its trust are spent or transferred to another qualifying foundation. Consequently the Foundation has accelerated its giving in 2011 and will be terminated by 2014 or 2015.
Because FHFA's controls over charitable giving appear to be adequate and due to the planned phase out of the charitable activities, OIG has decided there is no need to conduct additional evaluations in this area. However OIG will continue to monitor FHFA oversight of the GSE's charitable giving and will revisit the subject if necessary.
OIG recommends that FHFA (1) continue to monitor the GSE's progress; and (2) continue to require the GSE's to issue quarterly reports on their charitable activities via their websites. FHFA has concurred with these recommendations.