03/18/2010 05:12 am ET Updated May 25, 2011

House Dems To Sic Watchdog On Fannie, Freddie

House Democrats are working on a rapid legislative fix that would finally put an independent watchdog in place at the agency with authority over Fannie Mae, Freddie Mac and the Federal Home Loan Banks - which collectively hold or guarantee more than $6 trillion in mortgages.

More than six months ago, officials from the Federal Housing Finance Agency challenged the authority of acting inspector general Ed Kelley to continue to serve in that role. According to memos first reported by the Huffington Post, the officials claimed that Congress hadn't intended for there to be an inspector general overseeing the agency until President Obama nominated one. The Department of Justice's Office of Legal Counsel concurred and Kelley was stripped of his power.

In the meantime, Fannie and Freddie have lost money at staggering rates and continue to ask for and receive billions in taxpayer infusions. The size of the government-backed companies' losses, in fact, are in the same league as the amount of money that Congress would spend on the fiercely debated health care reform proposal year-to-year.

Congressional Democrats said Monday that they didn't intend for those trillions of dollars to go unwatched by independent eyes. "It was never our intention to leave oversight functions unattended," Steve Adamske, spokesman for Financial Services Committee Chairman Barney Frank (D-Mass.), told HuffPost. "We're going to address this."

Rep. Dennis Moore (D-Kan.), chair of the panel's Subcommittee on Oversight and Investigations, intends to introduce legislation in short order that would remove any confusion as to whether Congress wants an acting IG, Adamske said. Brandon Naylor, a spokesman for Moore, said that the congressman was working closely with the Office of the Legislative Counsel to figure out the smoothest way to fix the situation.

That fix could move through committee quickly, as Moore's investigations subcommittee has only 15 members -- compared to, say, the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, which has 50 members, many of them first- and second-termers, put there to fill their campaign coffers with industry money.

With GOP support, the bill could even move through the full House on "suspension" -- a parliamentary process which allows bills to be expedited -- after the Thanksgiving recess.

There is already Republican backing for such a move. Rep. Darrell Issa, the top Republican on the House oversight committee, was the first member of Congress to respond to the HuffPost story -- by calling for quick placement of an IG and an investigation into his earlier removal.

On Monday, Issa posted letters to Ed Kelley; Alfred M. Pollard, general counsel at FHFA; Daniel L. Koffsky, Deputy Assistant Attorney General; and Gregory B. Craig, the outgoing counsel to the President.

Issa had different questions for each. He asked Kelley what investigations he was involved in when the agency came after his authority.

He told Pollard that it was "even more troubling... to learn that your office petitioned the Department of Justice Office of Legal Counsel (OLC) to wriggle away from the oversight authority." He told Craig he was writing "to inquire about why the President is dragging his feet in appointing a permanent inspector general" and called on him to immediately appoint one.

On Monday of last week, HuffPost spoke to Kelley, who said that the decision by his agency had deprived him of his ability to investigate with any independence. When people approach with anonymous reports of agency wrongdoing, Kelley said, he often turns them away, as he would be unable to guarantee their anonymity because he works directly under the head of the agency.

"If someone approaches me now, with an allegation, I explain to them that we're not an IG's office," said Kelley, who is still with the agency but serves as an "internal auditor."

"Theoretically, the agency head could request me to reveal information that as an IG I would never reveal. So at this point it doesn't work well in terms of those people who want to come forward and make anonymous allegations," Kelley said. "It's just not the environment for that."

A week later, a HuffPost reporter trying to reach Kelley was instead redirected to the FHFA's public relations department.

It's not the job of an agency's PR shop to answer questions intended for its auditor, even one stripped of his independence. Perhaps appropriately, the PR shop didn't return a call.