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FHFA watchdog questions housing agency's oversight of Fannie Mae's headquarters project


U.S. Capitol2

The inspector general for the Federal Housing Finance Agency (FHFA) has sharply criticized the agency’s oversight of Fannie Mae’s future headquarters that is under construction in Washington, D.C. 

Fannie Mae plans to lease nearly 700,000 square feet in Midtown Center being built on the former site of the Washington Post building. The inspector general's report alleges that FHFA has not closely monitored the headquarter project’s spiraling costs or assessed the need of some of the planned features of the building’s design, such as glass bridges between two office towers, spiral staircases and rooftop viewing areas that may not be “appropriate for an entity in conservatorship.”

Fannie Mae arguably has “little incentive to cabin its costs for the build-out” of the new headquarters space because any quarterly profits that it does not spend on itself are currently being swept up by the U.S. Treasury as part of  prior bailout agreements, the report noted.

In January 2015, FHFA approved Fannie’s plan to consolidate operations and move into the leased building once it is completed. That decision was partially based on an analysis showing the inflation-adjusted benefit for Fannie to move outweighed other alternatives.

Since the initial approval, however, the building costs have escalated from an initial estimate of $164.32 per square foot to the now-estimated $223.35 per square foot, a nearly 36 percent increase. Under the original estimate, Fannie Mae would pay $44.32 per square foot of the $164.32 per-square-foot construction cost for Fannie's leased portion of the roughly 875,000-square-foot complex. The building is owned by Carr Properties.

The inspector general's report also indicated that the FHFA official responsible for the agency’s oversight of the project was unfamiliar with basic details. For example, that official erroneously believed that the square-footage construction costs were just $120, and were borne entirely by Carr Properties. 

In a written response, FHFA Director Mel Watt said he strongly disagreed that Fannie had little incentive to control its costs. He said the inspector general report didn’t take account that costs for building projects change, and that the initial estimate was simply an “analytical tool.” Watt also defended the glass bridges, spiral staircases and other design features that were questioned in the report. He cited several reasons why these were added, among which were improving efficiency and fostering employee collaboration.  

“To assume that these decisions, especially those involving tenant uplift features, are either final or necessarily made for  purposes of extravagance without inquiry about what business objectives are being considered and balanced seems unwarranted,” Watt wrote.

The negative report was a setback for several community groups and numerous House Democrats that want the federal government to begin recapitalizing the government-sponsored enterprises and ultimately prepare them to be released from conservatorship. The blowback was swift from House Republicans. 

"It's paradoxical that an organization overseeing a huge chunk of the mortgage market can't get a simple construction project right,” said U.S. Rep. Ed Royce, R-California. “Fannie falling asleep at the wheel in this manner is a perfect representation of the GSEs' model of private gains and public losses. It's time to put aside the conversation about releasing this enterprise and instead refocus on how to wind it down."


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

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