ARTICLES

HIGHLIGHTS OF CONGRESSIONAL TESTIMONY IN FANNIE MAE RE LCC

MORTGAGE ASSOCIATION

Since 2005, Fannie Mae’s general council has used the services of a third-party vendor to review all legal bills for individuals entitled to advancement. Currently, we use a legal invoice audit firm that has provided services for some of the largest corporations in America and various government entities. The vendor negotiates billing rates and determines reasonableness and necessity of all charges.

Note: The invoice audit firm is LCC

DEMARCO – ACTING DIRECTOR OF THE FEDERAL HOUSING FINANCE AGENCY

Yes, sir. I’ll begin but others may want to contribute. As you noted, the first line of defense here, the first test of reasonableness, the first level of review is the outside firm retained by Fannie Mae with expertise in this area to review line by line the submissions that are made for advancement of these. The next line of review is the Fannie Mae legal department itself overseeing the activities and the expenses that are involved. The next line of review is FHFA’s legal department that is monitoring this activity and is

doing so with the benefit of our own outside counsel who’s aware of the ongoing major litigation activities. So those are the various reviews that are in place.

Note: the outside firm is LCC

TIMOTHY MAYOPOULOS, GENERAL COUNSEL OF FEDERAL NATIONAL MORTGAGE ASSOCIATION

Congressman, we retain a company called Legal Cost Control which is frankly the leader in this space. It’s

certainly one of the most respected invoice and audit firms in the country with over 20 years of experience. They were selected by the bankruptcy courts in some of the largest matters in history, including Enron, WorldCom, and Adelphia to review the legal fee applications of lawyers in those cases. They analyze over $60 million in monthly billings for corporations such as Microsoft and Pfizer and Walmart.

And so they are very experienced to this.

They have a set of guidelines that they’ve developed with us that are 13 pages long and quite detailed. They distribute those to all the law firms involved, require them to acknowledge that they have received them and read them and that they will abide by them. And then they review each one of these invoices line by line and raise questions where they think that the fees are not appropriate; that is, in

line with what similar lawyers charge for similar matters.

I think in the context of this matter, the question of reasonableness doesn’t mean that we always end up with a small number, okay? We clearly are spending quite large amounts of money on this matter, but this is a case that involves billions of dollars of potential liability, billions of dollars, and I have been doing this kind of work myself for 25 years now in my career. And when you look at what it costs to defend a case such as a WorldCom or an Enron or an Adelphia or this matter, the amounts of money we’re talking about are comparable in terms of what you see.

These are enormously expensive, time-consuming matters with very complex, legal issues. The lawyers who get paid, get paid a lot of money for their skills and experience and expertise in these matters, and so I don’t mean to suggest by saying that while we think that the fees that had been paid are reasonable, that we’re happy to pay them. We clearly prefer not to. But they are consistent with what lawyers who do this kind of work in this kind of matter, get paid. And that’s really the test that Legal Cost Control is applying as it goes through this process.

Note: Legal Cost Control is LCC