WASHINGTON - The Office of Federal Housing Enterprise Oversight is far younger and smaller than other regulatory agencies, but chief examiner G. Scott Calhoun insists it has a firm grip on the two fast-growing financial companies under its purview.

These industry giants - Fannie Mae and Freddie Mac - have been under criticism in recent years for their expansion and investment practices. Though the government-sponsored enterprises are private, shareholder-owned companies, critics complain that they enjoy an implicit government subsidy.

Many Fannie and Freddie critics have said the housing oversight office is too weak to rein in the two GSEs. Indeed, Rep. Richard Baker, chairman of House Banking's capital markets subcommittee, has championed legislation to strengthen the agency's hand by consolidating it with other regulators. Fannie Mae chairman and chief executive officer Franklin Raines blasted the bill in a letter released Tuesday, while Federal Reserve Board Chairman Alan Greenspan repeated his contention that Fannie and Freddie have an implicit subsidy and expressed concern about it. (See story on back page.)

While controversy brews, officials of the oversight office say they are taking steps to improve their supervision of Fannie and Freddie. One of the agency's key sources of credibility is Mr. Calhoun, the 46-year-old director of examination and oversight, who has revamped its exam program.

Mr. Calhoun, who spent more than 20 years at the Office of the Comptroller of the Currency - where he was examiner in charge of Chase Manhattan Bank and Citibank - said his latest job is in some ways easier.

Gathering information is the biggest challenge in examining any large financial company, he said. Unlike Chase or Citibank, Mr. Calhoun said, Fannie and Freddie are not involved in transactions worldwide, nor are any of their records in far-flung, hard-to-reach locations.

"While we do go out to some of the regional offices occasionally to test systems and processes," Fannie Mae and Freddie Mac are "extremely centralized," he said - much more so than large banks.

"The sheer access to people, information, and documentation is so much easier," Mr. Calhoun said.

With the companies' headquarters just short drives away, his team of 26 examiners drive back and forth between their main office in downtown Washington and Fannie or Freddie an average of three times a day.

"We have a luxury of only two companies, but they are two dynamic companies," Mr. Calhoun said. "We want to make certain that our program is always relevant and timely for the business they are doing, the risks they are taking, and the environment they are operating in."

Mr. Calhoun came to the housing oversight office in 1997, about the time the General Accounting Office criticized it for staffing and other problems. But under his direction the office resolved to restructure its program and build a risk-focused, state-of-the-art exam system.

To ease the enormous task of examining Fannie and Freddie, Mr. Calhoun said, his agency takes pains to inform them of examiners' objectives and strategies. While the same examination standards are used at both, the examiners customize their strategies to match each enterprise's risk profile, he said.

Nor do the examiners wait for quarterly reports to advise Fannie or Freddie of their findings. When they see a need for correction or an opportunity for improvement, they alert the enterprise by filing an examination worksheet.

Fannie and Freddie each receive hundreds of these worksheets during the course of a year, Mr. Calhoun said. "We don't wait until the end of the year or the end of the period" to disclose our findings to Fannie and Freddie in a formal report, he said. "It is done almost in a real-time fashion."

Updating the risk profiles of the enterprises is also essential to maintaining control of the two organizations, the chief examiner said. To keep up with the rapidly expanding enterprises and ongoing advances in technology, examiners review at least quarterly the risk profiles assigned to each, to determine if they need to be redefined.

In all, the examiners look at dozens of sources of risk to the enterprises. Among a slew of other things, the examiners study the firms' on- and off-balance-sheet activities, their business initiatives, and their risk management practices, Mr. Calhoun explained. They are looking to assess all types of risk, including credit risk, market risk, and operations risk.

Mr. Calhoun wins praise from bosses present and past.

"The program he has put together is state-of-the-art in terms of how to examine a large financial institution, and it is entirely due to his influence," said the agency's director, Armando Falcon. "He assembled a team of top-notch, experienced examiners."

Former Comptroller of the Currency Eugene Ludwig said that Mr. Calhoun made his mark as chief examiner of Citibank. "Scott had particularly strong skills at organizing a complex examination of a complex institution," understanding the intricacies while taking risk seriously, Mr. Ludwig said.

"He has a wonderful ability to balance the job effectively. … He is one of the most skilled examiners I know."

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