IV.

CONCLUSION

The Federal Home Loan Mortgage Corporation (FHLMC) or popularly known as Freddie
Mac is a public government sponsored enterprise in Tysons,Virginia which stabilizes the nations
nation’s mortgage markets and widen opportunities for home ownership and affordable rent
housing. As a large enterprise that serves as a conduit between mortgage lenders and investors,
its earnings play a major factor in the decision making. Based on the facts gathered, Freddie Mac
manipulated its earnings to attain steady growth. They kept stock prices high. Even though
investors are not that affected, the financial problems could create a systematic risk where
adverse effects may affect the economy as a whole. The plans of the entity to enhance
opportunities for home ownership and affordable housing for low-income and minority
populations has not been met. What they did is against the law and a breach of business ethics. In
2006, Freddie Mac was fined $ 3.8 million as a result of illegal campaign contributions using
corporate resources in 2000-2003 for 85 fundraisers. Over all, they also paid $50 million fine.

As an entity which negotiates with many industries, it is very unethical to do

manipulations in their financial records for the reason to maintain financial growth. The
overstatement of their earnings by almost $ 1 billion is a material cost which brought unreliable
information that affected minority population. The fines that they paid to correct the accounting
and governance can greatly affect the financial status of the business. Since their earnings are
also manipulated, the current standing cannot be appropriately measured that may mislead the
investors and other institutions that will rely on the information. The accounting methods used
are very complex and incomprehensible. The methods brought uncertainty that mostly affected
the taxpayers. Because of the use of false financial records, they couldn’t determine if their
forecast will be realistic.

Freddie Mac also had an inadequate oversight and regulation that greatly affected its
existence. As part of its mission, it is their responsibility to ensure the safety and soundness. It is
also their mission to expand home ownership of affordable housing primarily to those low
income populations. At the same time, it is also their mission to maximize shareholder wealth.
But based on what critics said, it would be impossible to maximize wealth and provide
affordable housing at the same time. Critics said that if they will resort to privatization,
government links will be cut that is said to be an effective way to protect the economy and
taxpayers. Through privatization, it would be beneficial for investors to gain more from what
they invest. But if they maintain to provide affordable housing for low income population, it
would be preferable if government agencies will provide that.

Based on our observation and understanding with their situation, it would be better and
appropriate to have proper delegation of authority for different areas of work. Creating a new
regulatory agency may bring positive effects to its governance. Selecting reliable and credible
authority can give proper governance to the entity. They should always maintain security and
proper custody of financial records to avoid false statements that can negatively affect the entity.
Most importantly, the entity should practice and maintain professional ethics and integrity all the
time.