WASHINGTON - Office of Federal Housing Enterprise Oversight Director Armando Falcon Jr. was considered a lame duck less than a year ago, but his fortunes have improved dramatically in recent days.
The White House said Wednesday that his nominated successor, Mark Brickell, had withdrawn from consideration, and several sources said the Bush administration was not expected to offer another nomination this year.
Furthermore, Mr. Falcon has been praised for the results of the agency's investigation into Freddie Mac's accounting scandal.
The reversal of fortune is surprising; last summer lawmakers and others blamed Mr. Falcon for missing the accounting misdeeds entirely. Additionally, his agency had looked like a goner as legislation to overhaul regulation of the government-sponsored enterprises has gained momentum.
But the harsh, 185-page report last month about the Freddie scandal, the GSE's agreement to pay a $125 million fine, and a good working relationship with the administration will probably ensure that Mr. Falcon will stay at OFHEO until his term expires in October, sources said.
He also got some encouraging news Thursday on the budget front. The Senate voted 65 to 28 to approve an $820 billion catchall fiscal 2004 spending bill that includes $47.4 million to fund OFHEO. The House approved the bill last month.
Lawmakers added $7.5 million to what the administration originally requested. Of that extra $7.5 million of funding, $4.5 million is meant to help OFHEO complete an investigation into the accounting policies at Freddie and begin one at Fannie Mae; the rest is meant to strengthen the regulator's examination and legal functions.
Mr. Falcon, who had resigned pending the confirmation of a successor, would not discuss his future in an interview Thursday, saying he conducted himself as someone "still having a job to do day in and day out, regardless of my status."
He said OFHEO's stature has improved with its actions against Freddie and its former executives. The agency has also publicly threatened to raise Freddie's capital by as much as 30% (a decision is due next week) and limit its portfolio growth.
"We've demonstrated that we can deal with a crisis situation," Mr. Falcon said. "We've demonstrated we will take strong action wherever necessary. With those actions we've taken, and the report we've produced, we've demonstrated that we have a strong body of talent and expertise to regulate these two companies."
He also said he still supports legislation to strengthen oversight of the GSEs.
Not everyone says OFHEO has turned a corner, however.
In a subcommittee hearing Wednesday, House Financial Services Committee Chairman Michael G. Oxley said the in-depth review of Freddie does not resolve all the questions.
"The question remains - where was OFHEO when these improper trades were taking place?" Rep. Oxley wrote.
Mr. Falcon was also helped by a controversy surrounding his potential successor.
Mr. Brickell wrote in a letter Tuesday to the White House that he wanted to dedicate "full attention to my business and my family" and asked that his name be withdrawn from consideration for the post.
"Please know that my commitment to you, the goal of strong GSE oversight, and your successful program to foster economic growth is as strong as ever," Mr. Brickell wrote.
He did not mention that his nomination has languished in the Senate since February, when President Bush announced his intent to nominate the former J.P. Morgan & Co. executive. Several lawmakers, including Sen. Paul Sarbanes, the ranking Democrat on the Senate Banking Committee, had said that Mr. Brickell's free-market leanings and calls for less oversight of derivatives made him wrong for the job.
Some observers said the administration would have had to spend considerable political capital to get Mr. Brickell approved while it publicly supported replacing the agency with a stronger GSE supervisor.
It was unclear if Mr. Brickell was asked to drop out or acted on his own. Several sources suggested that he realized his nomination was doomed.
They said that many in the administration are confident a GSE bill could pass soon and that there was little reason to push the nomination, because OFHEO would probably be eliminated.
Additionally, sources said, there was little downside to retaining Mr. Falcon. Several sources agreed that his relationship with the administration was good and that it reaps the benefits of OFHEO's action against Freddie. But if something goes wrong, the administration could distance itself from Mr. Falcon, who was appointed by President Clinton in 1999.
"He is a great fall guy for the administration," said Bert Ely, an independent analyst in Alexandria, Va.
