It is hard to be sympathetic to someone who cannot, as the saying goes, get out of their own way. But Fannie Mae is beginning to seem like the hapless victim of a crowd of school yard bullies determined to bring it down.

Last week as we reported, the Rudman Commission which was charged with investigating the original charge of account irregularities that has hamstrung Fannie Mae, caused its two top executives to resign, and led to the firing of the Corporations accounting firm, issued its report, finding that Fannie had indeed played fast and loose with GAAS - Generally Accepted Accounting Standards. It also detailed what it called an arrogant corporate culture.

If Fannie were just a publicly held corporation, which it is - its stock (FNME) is traded on the New York Stock Exchange (NYSE) - the report would certainly cause problems with the Securities and Exchange Commission (SEC) and might make the Corporation subject to scrutiny by the U.S. Justice Department and/or justice departments or attorneys general in one or more states.

This would be enough to impact stock prices and give top executives and the board of directors a major case of dyspepsia. However, Fannie Mae is a nearly unique case. Along with Freddie Mac which somehow managed to emerge virtually unscathed from a very similar accounting situation about 18 months ago, Fannie is what is called a GSE, a Government Sponsored Enterprise. Thus, while it is a private corporation not unlike AT&T or Microsoft, it was originally conceived of and created by the federal government and receives perks which have made it subject to federal oversight. Therefore, not only are the SEC and the Justice Department threatening action, criminal action in the case of Justice, against Fannie which predates the Rudman Report, and the New York Stock Exchange only recently changed a whole set of rules so that Fannie's stock could continue to trade, but other government agencies have increasingly felt free to pile on as the corporation's problems have mounted. The Office of Federal Housing Enterprise Oversight (OFHEO), which is responsible for keeping an eye on Freddie and Fannie, has led the charge, instigating the Rudman study and Congress, the Bush Administration, and recently retired Federal Reserve Chairman Alan Greenspan have all demanded a pound of flesh from the corporation.

This week, with the Rudman report out there for all to see, the Treasury Department and the Bush Administration stepped up their criticism of the Corporation while Rep. Michael Oxley (R-OH), Chairman of the House Banking Committee stated that "Congress and the American people were misled", by actions of several former leaders of Fannie Mae. In fairness, the Rudman report pretty much absolved former CEO Franklin Raines of everything except poor leadership although CFO, Timothy Howard did come in for harsh criticism in the report. Oxley submitted legislation last fall to strengthen federal oversight of both Freddie and Fannie which was passed by the House but the White House has refused to endorse it, holding out for stronger legislation which would force the two GSEs to substantially reduce their mortgage portfolios.

The Treasury Department chimed in last week with Secretary John Snow advocating that Congress, particularly the Senate, move on legislation to reduce the portfolios. Speaking before a conference of bankers Snow said that the portfolios are much larger than necessary to advance Freddie and Fannie's mission of furthering affordable home ownership.

This week Fannie admitted that it had uncovered yet more errors as it slogs through a review of its accounting and financial statements back to 2001. According to a statement issued by Daniel H. Mudd, President and CEO, these errors included accounting for certain investment securities at the incorrect cost basis; accounting for some guaranty fees and obligations in connection with a "small" portion of mortgage backed securities and accounting for real estate-owned and foreclosed property expense, troubled debt restructurings, the accrual of interest on seriously delinquent loans and accounting for reverse mortgages. The review of Fannie's financial statements has been going on since September, 2004 and, it was reported last week, is costing $50 million per month.

Coincidental with the release of the Rudman Report, Fannie again announced that it would not be filing its regular financial reports with the SEC. It is this failure to file quarterly reports, now well into its second year, that nearly forced the New York Stock Exchange, before its recent rule change, to remove Fannie Mae's stock from the Exchange's listings.

Again it is hard to show a lot of sympathy for a gang that can't shoot straight. Still, the people who caused the problem have been dispatched (although in some cases with golden parachutes that should and probably will eventually be questioned) and the new team seems to be trying to comply with orders being issued right and left by a large cast of characters. While stockholders have seen the stock price slip and their dividends cut it does not seem that employees, homeowners, or the public at large have suffered any real damage and, if left alone, Fannie might have the time to straighten out the situation and get back on an even keel.

One can't help but think that it is too bad that some of this governmental attention and outrage was not being invested by these agencies both before and after the WorldCom and ENRON debacles.