More upheaval at Freddie Mac

Another round of management changes has been announced by mortgage agency Freddie Mac, with recently installed CEO Greg Parseghian paying the price for a summer of troubles at the beleaguered company.

Freddie Mac’s board, which had already replaced its chief executive and other top managers in June over an accounting scandal, was forced to ask Parseghian to step down as chief executive just two months after taking up the job . The board was responding to demands from the Office of Federal Housing Enterprise Oversight (OFHEO), Freddie Mac’s regulator. The board also decided to replace its general counsel, Maud Mater.

According to the OFHEO, the appointment of Parseghian was inappropriate in view of his proximity to accounting irregularities at the agency, as revealed by an internal Freddie report prepared by law firm Baker & Botts. The report brings to light that Parseghian, in his role as chief investment officer at Freddie, had approved many of the accounting tactics now under investigation.

The revelations were greeted with surprise on Wall Street, as many analysts had felt confident that the accounting problems were largely down to the three executives forced out at the start of the summer. In fact, Parseghian’s appointment had been widely welcomed, given his wealth of experience as a bond analyst and investment manager.

But now Freddie is faced with finding new blood for the job in the midst of growing political pressure in US Congress for increased regulatory oversight of the agencies, Freddie Mac and Fannie Mae. The Bush administration recently backed proposals to transfer regulatory oversight of the mortgage agencies to the Treasury. According to mortgage market participants, Freddie’s new CEO will need to live up to higher standards.

“Freddie Mac needs to find someone who is squeaky clean vis-à-vis corporate governance issues, politically able to win back the trust of Congress, and at the same time, credible on Wall Street,” says one mortgage analyst. “But we’re still confident of continued government support for the agencies, and of the stability of agency debt.”