- The Washington Times - Thursday, June 15, 2006


Fannie Mae’s two top executives told lawmakers today that they are thoroughly overhauling and reforming the mortgage giant as it labors to emerge from its $11 billion accounting scandal.

The government-sponsored company pledged to complete by year’s end the restatement of its earnings back to 2001 — expected to be one of the largest restatements in U.S. corporate history.

Daniel Mudd, the president and chief executive, acknowledged that Fannie Mae had broken a public trust. But he said the company today was nearly unrecognizable from before.

“We have made changes. We are making progress. And we have much more to do,” he said in testimony prepared for delivery at a Senate Banking Committee hearing.

“There is absolutely no routine, process or control anywhere in the company that is beyond the scope of overhaul and improvement to the highest standard,” Mr. Mudd said.

Mr. Mudd and Fannie Mae Chairman Stephen Ashley are appearing before the committee as pressure mounts from government officials seeking to rein in the company’s growth.

Fannie Mae also is being told to recover bonus money from some company officials. Current and former executives of the government-sponsored company reaped hundreds of millions of dollars in bonuses in a deceptive accounting scheme over six years, federal regulators have charged.

Senators denounced the pervasive accounting fraud and unethical conduct detailed in the regulators’ assertions about Fannie Mae. Some drew parallels with failed energy giant Enron Corp. Several urged congressional action to curtail the massive mortgage holdings of Fannie Mae and its smaller government-sponsored sibling, Federal Home Loan Mortgage Corp., or Freddie Mac.

“A shocking and disturbing picture of irresponsible behavior,” said Sen. Wayne Allard, Colorado Republican.

Fannie Mae, based in the District, is the second-largest U.S. financial institution after Citigroup Inc. and the second-biggest borrower after the federal government. It finances one of every five home loans in the country. Its long-prevailing image of prestige and excellence was a sham, the Office of Federal Housing Enterprise Oversight said in a scathing report issued last month, which described what the regulators called an arrogant and unethical corporate culture.

In a settlement announced May 23, the Securities and Exchange Commission and OFHEO fined Fannie Mae $400 million — one of the largest civil penalties ever in an accounting fraud case. The company also agreed to temporarily cap its mortgage holdings at $727 billion.

Franklin D. Raines, the ousted former chief executive of Fannie Mae, declined the Senate panel’s invitation to testify at today’s hearing. So did Thomas Gerrity, chairman of the Fannie Mae board’s audit committee, whom the company recently decided to remove from that key position.

Rep. Richard H. Baker, Louisiana Republican, chairman of the House panel that oversees Fannie Mae and Freddie Mac, this week asked the Justice Department to investigate whether Mr. Raines and former chief financial officer Timothy Howard lied to Congress in sworn testimony in 2004. The Justice Department has been conducting a criminal investigation of Fannie Mae.

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