B-306860, Office of Federal Housing Enterprise Oversight--Settlement Agreement with Freddie Mac, February 28, 2006

B-306860 Feb 28, 2006 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights The terms of a settlement agreement entered into between the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Home Loan Mortgage Corporation (Freddie Mac), in which Freddie Mac agreed to pay a vendor to electronically format certain documents for OFHEO, will not augment OFHEO's appropriations. Under the settlement agreement, OFHEO agreed to dismiss all administrative charges it had brought against Freddie Mac. In exchange, Freddie Mac agreed, among other things, to pay a vendor picked by OFHEO up to $1 million to electronically format and code certain documents belonging to Freddie Mac for OFHEO's use. No augmentation of OFHEO's appropriations will occur as the settlement agreement satisfies a prosecutorial objective, and no contractual relationship between OFHEO and the vendor exists with respect to the formatting of Freddie Mac's documents. View Decision B-306860, Office of Federal Housing Enterprise Oversight--Settlement Agreement with Freddie Mac, February 28, 2006 Decision Matter of: Office of Federal Housing Enterprise Oversight—Settlement Agreement with Freddie Mac File: B-306860 Date: February 28, 2006 DIGEST The terms of a settlement agreement entered into between the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Home Loan Mortgage Corporation (Freddie Mac), in which Freddie Mac agreed to pay a vendor to electronically format certain documents for OFHEO, will not augment OFHEO's appropriations. Under the settlement agreement, OFHEO agreed to dismiss all administrative charges it had brought against Freddie Mac. In exchange, Freddie Mac agreed, among other things, to pay a vendor picked by OFHEO up to $1 million to electronically format and code certain documents belonging to Freddie Mac for OFHEO's use. No augmentation of OFHEO's appropriations will occur as the settlement agreement satisfies a prosecutorial objective, and no contractual relationship between OFHEO and the vendor exists with respect to the formatting of Freddie Mac's documents. DECISION The Office of Federal Housing Enterprise Oversight (OFHEO) has requested a decision under 31 U.S.C. sect. 3529 on whether the Federal Home Loan Mortgage Corporation's (Freddie Mac) payment to a vendor to electronically format and code documents as specified by OFHEO will augment OFHEO's appropriation. OFHEO and Freddie Mac entered into a settlement agreement to resolve an administrative proceeding brought by OFHEO against Freddie Mac pursuant to OFHEO's regulatory oversight authority. As part of this settlement, Freddie Mac agreed to pay the vendor up to $1 million. After reviewing the information provided by OFHEO, we conclude that no augmentation of OFHEO's appropriations will occur. BACKGROUND OFHEO has oversight responsibility for the Federal National Mortgage Association (Fannie Mae) and for Freddie Mac.[1] Both Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs)[2] that OFHEO must ensure are financially secure and adequately capitalized. 12 U.S.C. sect. 4513(a); 12 C.F.R. sect. 1720.1 (2005). The Director of OFHEO may pursue administrative proceedings against a GSE if he determines that it is engaging in any conduct that threatens to deplete its core capital, will violate an applicable law, order or regulation, or will violate a written agreement entered into by the GSE with OFHEO. 12 U.S.C. sect. 4631; 12 C.F.R. sect. 1780.1. On December 17, 2003, OFHEO filed a notice of charges against Freddie Mac. Office of Federal Housing Enterprise Oversight, In the Matter of: Federal Home Loan Mortgage Corporation, Notice of Charges 2003-1, Dec. 17, 2003. On September 9, 2005, OFHEO and Freddie Mac agreed to settle all charges pursuant to conditions set forth in a consent order. Office of Federal Housing Enterprise Oversight, In the Matter of: Federal Home Loan Mortgage Corporation, Consent Order No. 2005-1, Sept. 9, 2005 (hereinafter Consent Order); Office of Federal Housing Enterprise Oversight, Office of General Counsel Memorandum for Gail S. Palestine, Deputy Chief Financial Officer, Settlement with Freddie Mac, Nov. 3, 2005. Paragraph 11 of the Consent Order requires Freddie Mac to provide OFHEO with compact discs (CDs) containing certain documents in a manner agreeable to both parties. With respect to paragraph 11 of the Consent Order, OFHEO and Freddie Mac entered into a production agreement on September 9, 2005, that specifies how the documents will be formatted. OFHEO, Production Agreement, Sept. 9, 2005 (hereinafter Production Agreement). Under the Production Agreement, the parties agree that –Freddie Mac shall pay a vendor (or vendors) hired by OFHEO— (1) to convert the documents to be produced to OFHEO to any different format required by OFHEO, and (2) to electronically code the documents with document fields chosen by OFHEO.