Financial Regulation:

Review of Selected Operations of the Federal Housing Finance Board

GAO-03-364: Published: Feb 28, 2003. Publicly Released: Feb 28, 2003.

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The Federal Home Loan Bank System (System) faces additional risks due to the development of new products such as direct mortgage purchase programs. Responding to concern about the methods used for administrative decisionmaking, and the ability of the Federal Housing Finance Board (FHFB) to fulfill its critical mission to regulate the safety and soundness of the System, GAO was asked to (1) compare the FHFB chair's administrative authorities with those of other financial regulators and discuss the basis for that authority, (2) assess FHFB's compliance with selected statutes and regulations in connection with an August 2002 reduction-in-force (RIF) carried out as part of an agency reorganization, and (3) assess FHFB's progress in enhancing its FHLBank safety and soundness examination program.

FHFB's chair has greater authority to make key administrative decisions than the chairs at five of the six other financial regulators GAO reviewed. FHFB's chair has the authority to appoint and remove officials and reorganize the agency without a vote by the board. In contrast, statutes, regulations, and practices limit the chairs' authorities at most other regulators. In particular, the boards or commissions at these agencies approve most senior-level appointments and several boards approve major reorganizations. The basis for the FHFB chair's comparatively broad administrative authority is a delegation of authority, which the board passed in 1990 and 1993. The delegation allows the chair to make and implement key decisions without obtaining or benefiting from the views of all board members and has contributed to sometimes bitter conflicts among board members over the past 8 years. Although FHFB provided significant financial compensation to staff subject to the RIF, its procedures were not fully consistent with all applicable federal age discrimination statutes and regulations. For example, FHFB presented a settlement agreement to separated staff that offered 3 to 6 months salary in exchange for, among other things, the employees agreeing to waive their rights to file charges, complaints, or appeals with the Equal Employment Opportunity Commission (EEOC). EEOC regulations implementing the Age Discrimination in Employment Act do not permit waivers of employees' rights to file charges or complaints with EEOC. In addition, FHFB did not advise the affected employees in writing to consult an attorney prior to signing the agreements as is required. Although for several years FHFB did not take steps to correct weaknesses in its FHLBank examination program that GAO identified in a 1998 report, FHFB's current Chair has recently undertaken several steps to improve its examinations. In 1998, and again in 2002, GAO found that FHFB performed limited reviews of FHLBank functions that are critical in managing the banks' financial and operational risks. Among other changes announced in 2002, FHFB plans to increase the number of examiners from 10 to 24 and revise its examination approach to focus on the major risks and quality of controls at each FHLBank. Although these changes have the potential to improve FHFB's examination program, it is too soon to assess their effectiveness.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Since the issuance of the 2003 report, FHFB has instituted weekly meetings at which senior staff and board member staff discuss current and emerging issues. Board members report that this process helps ensure that the board has timely information to make knowledgeable decisions.

    Recommendation: To ensure full board participation in key administrative decisions that have policy implications, such as senior appointments and major reorganizations, FHFB should consider a range of options that could be implemented within the current delegation of authority. These options include the chair (1) notifying, briefing, and/or soliciting input from other board members on major administrative decisions prior to their implementation and (2) submitting key administrative decisions to the board for a vote or approval.

    Agency Affected: Federal Housing Finance Board

  2. Status: Closed - Implemented

    Comments: Since the report's issuance, FHFB has implemented weekly meetings at which senior staff and board member assistants discuss current and emerging issues. Board members report that these meetings help ensure they have timely and sufficient information to make knowledgeable decisions.

    Recommendation: FHFB members and their staffs should hold discussions on approaches--including potential revisions to the delegation of authority--that would ensure board participation in key administrative decisions while preserving the chair's authority to administer the agency on a day-to-day basis.

    Agency Affected: Federal Housing Finance Board

  3. Status: Closed - Implemented

    Comments: FHFB has agreed to comply with all federal age discrimination statutes and regulations in conducting reductions-in-force in the future.

    Recommendation: FHFB should fully comply with applicable federal age discrimination statutes and regulations in offering settlement agreements to employees subject to RIFs.

    Agency Affected: Federal Housing Finance Board

 

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