The leadership of one of the nation's largest holders of home mortgages was abruptly replaced yesterday after its regulator accused the company of a string of problems including employee "misconduct" as well as weakness in controls, personnel and accounting.
Freddie Mac fired its president and chief operating officer, David Glenn, after questioning the "timeliness and completeness of his cooperation and candor" with the board of directors' counsel concerning accounting errors.
It also announced the retirement of its longtime chairman and chief executive, Leland C. Brendsel, and the resignation of Vaughn Clarke, the chief financial officer.
"It is quite significant," said Bert Ely, a financial consultant in Alexandria, Va. "I was surprised by the magnitude of it. It is possible it is going to get uglier."
Shares of Freddie Mac, which trade on the New York Stock Exchange, plunged $9.61, or 16.05 percent, to $50.26, with more than 60 million shares changing hands.
Freddie Mac is one of two giant financial institutions that buy billions of dollars in home loans each year from banks and savings institutions, bundle them and sell them as securities. The resales play a crucial role in maintaining the flow of money into the mortgage market.
But Federal Reserve Chairman Alan Greenspan and some members of Congress have publicly worried in recent months about the risks associated with Freddie Mac and its larger sister institution, Fannie Mae, both of which are backed by the federal government.
Between them, the two companies hold as much as 45 percent of the nation's home mortgages. Freddie Mac alone claims to have financed one of every six American homes.
Regulators' concerns were made clear over the weekend when Armando Falcon Jr., chief of Freddie Mac's primary overseer, stated in a letter to the company's board that his agency had uncovered serious problems with the company on June 4 after reviewing its financial statements.
"During this review, I have become increasingly concerned about evidence that has come to light of weakness in controls and personnel expertise in accounting areas and the disclosure of misconduct on the part of Freddie Mac employees," Falcon, director of the Office of Federal Housing Enterprise Oversight, wrote June 7. "The removal of members of the management team only goes a part of the way toward correcting serious problems - concerns surrounding management practices and controls remain."
