Something was wrong at Freddie Mac, the mortgage giant that lost $50 billion last year. Something was wrong there for a long time.
Which is why it was not a complete surprise that one of its accounting chiefs would feel hopelessly cornered. On April 22, David Kellermann, Freddie Mac’s acting chief financial officer, hanged himself at his Vienna, Virginia, home.
But exactly why?
Pressure years. Kellermann, 41, had been a leading accountant at Freddie Mac for 16 years. Those years just happen to have been exactly when certain key members of Congress exerted enormous pressure on Freddie Mac and its big sister, Fannie Mae, to back increasingly higher-risk home loans for lower-income families.
Step by step, from the early 1990s, Freddie Mac and Fannie Mae gave in to the reckless congressional coaxing, while experts warned publicly that those risky loans would bring much higher rates of default. And today, with the nation’s economy in ruins, and Freddie and Fannie taken over by the government, many of us wonder what the bean counters at Freddie and Fannie were thinking.
Kellermann knew. He was one of the bean counters.
Key witness. He knew how far Freddie Mac had strayed from safe and sound lending practices. He knew how much Freddie Mac had altered its numbers to assure high bonuses to its top executives. He knew how often Freddie Mac ignored expert warnings of pending collapse. He knew who was twisting arms to cook the books and go reckless.
But now he can’t tell us. Kellerman, who by all accounts was a good husband and father, is gone.
Search for clues. We’ve heard that he left no suicide note, but that he had considered resigning for months.
And we’ve also heard that Freddie Mac’s regulator, the Federal Housing Finance Agency, last month told Freddie Mac’s executives, including Kellermann, to hide unsettling financial information from a pending filing with the Securities and Exchange Commission.
As The Washington Post explained it, the Federal Housing Finance Agency’s executives feared that Freddie Mac’s accounting methods would unnecessarily cost Freddie Mac $30 billion over bad loans, and might raise doubts about Fannie Mae’s (the other giant’s) differing accounting methods.
In any case, that controversy was resolved when the SEC was given all the facts, but decided that Freddie Mac would not lose the $30 billion at stake. So Kellermann should not have been upset over the outcome in this case (though The Post says someone who knew Kellermann said he still was upset).
Full inquiry. What Freddie Mac needs right now is a team of independent accountants and investigators to go over that company’s books and Kellermann’s correspondence and notes.
Banker David Moffett, who had been Freddie Mac’s CEO for six months before stepping down in March, was hired back last week to help with the accounting work Kellermann was doing. Let’s hope Moffett is independent enough to do it right.
Let’s hope, too, that the FBI, the regulators and the county detectives ask the right questions and look in the right places. Kellermann’s death is a loss that must be explained.
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