A federal watchdog faulted Fannie Mae and Freddie Mac, the mortgage finance companies propped up with taxpayer funds, for questionable spending on a mortgage industry conference last year, in a report released on Thursday.

Almost half of the $600,000 that the two companies spent for a conference held by the Mortgage Bankers Association in October was of questionable value, the inspector general for the companies' federal regulator said.

The inspector general cited $140,000 spent to help sponsor the conference, saying it did not find sufficient justification for the sponsorship. It also cited the $140,415 spent to host dinners and business meals, saying the companies could have accomplished the same amount of business at a substantially lower cost.

The inspector general at the Federal Housing Finance Agency also faulted the companies, the two largest sources of U.S. housing finance, for acting without FHFA's approval.

In January, the FHFA directed Fannie Mae and Freddie Mac to stop spending money on conference sponsorships and said coverage of employees' food expenses should be reined in, according to the report.

FHFA has tightened its scrutiny of Fannie Mae and Freddie Mac's expenditures, which have been criticized by lawmakers.

Fannie Mae and Freddie Mac defended their spending on the conference. They told the inspector general that they scheduled more than 200 meetings with customers, including small lenders and financial institutions involved in mortgage lending, as well as mortgage service providers.

The annual Mortgage Bankers Association event attracts thousands of industry executives and others who work in the mortgage industry. Ninety Fannie Mae and Freddie Mac employees attended last year, the report said.

Both Fannie Mae and Freddie Mac said it was entirely within the authorities delegated to each of them by the FHFA to make the decision to attend the conference and sponsor it. FHFA had a similar view at the time, the report stated.

The watchdog did say, however, that the $256,458 in travel-related costs and registration fees was comparable to expenses that would be allowable for federal employees.

The inspector general said FHFA still needs to look more closely at how much Fannie Mae and Freddie Mac spend on travel and entertainment, and look for ways to curtail future spending.

FHFA should ensure that (Fannie Mae and Freddie Mac) conduct a comprehensive review of their travel and entertainment policies, and revise them, FHFA Deputy Inspector General George Grob said in a memo accompanying the report.

An FHFA official said in a written response to the report that the agency agreed with its recommendations and is taking steps to change the way it monitors spending at the two firms.

(Reporting By Margaret Chadbourn; Editing by Leslie Adler)

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