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FANNIE MAE TAKES ACTION ON SECURITIES FIRMS' VIOLATIONS; JOHNSON SAYS STEPS RESTORE INTEGRITY IN SYSTEM

 FANNIE MAE TAKES ACTION ON SECURITIES FIRMS' VIOLATIONS;
 JOHNSON SAYS STEPS RESTORE INTEGRITY IN SYSTEM
 WASHINGTON, Dec. 23 /PRNewswire/ -- Federal National Mortgage Association (Fannie Mae) (NYSE: FNM) today announced steps to restore the integrity of future bond sales with its 53-member debt selling group of securities firms.
 In a letter to the CEOs of the selling group's member firms, Fannie Mae chairman and chief executive officer, James A. Johnson, announced major revisions to the company's procedures for bond sales, as defined by its selling group agreement.
 "The new selling group agreement and guidelines are designed to clarify our mutual obligations, to reflect market dynamics, and to protect the integrity of the process," Johnson wrote. "The revised agreement emphasizes the need for accurate communication between members and Fannie Mae on clearly specified terms, along with record-keeping requirements and audit program necessary to confirm it."
 Fannie Mae began in mid-September its inquiry into selling group practices over the past three years. An internal task force found widespread violations among the selling group's long-term debenture sales process.
 Fannie Mae concluded that each member firm of the selling group engaged in one or more unauthorized practices that constitute violations of their contractual agreements with Fannie Mae, according to Johnson.
 In his letter express mailed Friday and received by the securities firms' chief executives this morning, Johnson announced actions affecting the securities firms, including placing the firms on one-year probation.
 "We find these violations of the selling group agreement unacceptable," wrote Johnson. "The widespread nature of the violations requires us to take comprehensive action to restore the integrity of the securities distribution process."
 Based on information provided by selling group members for the period beginning September 1988, Fannie Mae found that each member of the debenture selling group had violated its agreement with Fannie Mae in one or more of three ways: exaggerating customer demand during the allotment process; overstating or misstating actual purchases in subsequent written reports; and purchasing debentures for their own account without Fannie Mae's permission.
 In explaining the actions Fannie Mae will take in response to these practices, Johnson told the securities firms in his letter: "Fannie Mae's funding operations are vital to fulfilling the corporation's public responsibility to provide continuous liquidity to homebuyers and to allow them to finance homeownership. These operations must have integrity and dependable efficiency."
 Based on internal and external analyses, Fannie Mae found no evidence that the practices caused economic harm to homebuyers, or Fannie Mae. However, should Fannie Mae find evidence that these practices caused economic harm, the corporation will pursue its rights to be compensated for any losses, Johnson wrote.
 In his letter, Johnson said any violation of the new agreement during the probation year will result in expulsion from all Fannie Mae selling groups in which the violating firm participates, including debentures, short-term notes, residential financing securities, and medium-term notes.
 As a condition of remaining in the selling group, each firm also must notify all customers to whom they sold Fannie Mae debt securities between September 1988 and September 1991 that Fannie Mae has placed the firm on probation due to violations of the old agreement.
 To enhance accountability, Fannie Mae's revised agreement requires that each firm's chief executive officer acknowledge acceptance of the agreement's terms. Fannie Mae requires that each CEO every year personally certify that he understands his firm's obligations, that he will protect the integrity of the sales process, and that the firm's compliance program will monitor adherence to the agreement's obligations.
 The new agreement now requires each firm to take actions to assure compliance, such as training of bond traders and the designation of a senior officer to be responsible for meeting the new obligations.
 Fannie Mae, the USA's Housing Partner, is a congressionally chartered, shareholder-owned company and the nation's largest investor in home mortgages.
 -0- 12/23/91
 /CONTACT: David Jeffers of Fannie Mae, 202-752-5962/
 (FNM) CO: Fannie Mae ST: District of Columbia IN: FIN SU: :END


DS -- DC007 -- 4761 12/23/91 10:27 EST
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Date:Dec 23, 1991
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