Federal Watchdog Criticizes Building Costs of Fannie Mae Headquarters
Federal Housing Finance Agency’s inspector general says expenses a ‘significant financial and reputation risk’ to the government mortgage lender
By Gabriel T. Rubin
June 16, 2016 12:01 a.m. ET
A federal watchdog sharply criticized the ballooning construction costs of Fannie Mae’s headquarters, saying the expenses pose a “significant financial and reputation risk” to the government mortgage lender.
The report by the Federal Housing Finance Agency’s inspector general states that no one at the FHFA was aware of rising cost estimates for Fannie Mae’s new headquarters in downtown Washington, D.C. Between January 2015 and March 2016, the estimated cost jumped 53% to $253 a square foot from $164. An FHFA employee said he was made aware of a May 2016 revised estimate of $223 a square foot, representing a $36 million increase from the initial estimate.
Those costs are for the building’s construction, initially calculated at about $115 million. Fannie Mae’s 15-year lease of the property was valued at $770 million at the project’s outset.
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The OIG report also takes issue with the building’s design, questioning whether certain features like spiral staircases and three enclosed glass bridges linking two towers are “appropriate for an entity in conservatorship.”
As the conservator of Fannie Mae, the FHFA is responsible for overseeing its move from several buildings in Northwest Washington to a single downtown location, on the site of the former Washington Post building.
FHFA Director Melvin Watt rebutted the report’s main claims, saying that Fannie’s planned move shouldn’t be seen as anything but “a sound business decision” and that the process has been fully vetted by his agency. A rise in construction costs should also not be seen as surprising, he wrote, given that “the cost of any construction project is inherently dynamic.”
He also took issue with assertions that the building was extravagant, arguing that spiral staircases “take up significantly less space than regular staircases” and that the glass bridges “facilitate employee collaboration.”
Under terms of the conservatorship, all of Fannie Mae’s profits go to the Treasury Department. Given that arrangement, the OIG report states, “unnecessary spending by Fannie Mae may be seen as moneys that out to have been swept to the U.S. Treasury as a dividend for the $116.1 billion investment by U.S. taxpayers.”
Mr. Watt strongly rejected that claim. “This assertion is based on a faulty assumption…that the Enterprises lack motivation to control their expenses,” he wrote. Nonetheless, he promised to accept the OIG’s recommendations to review the project and “implement them to the extent that we are not already doing so.”
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