Fannie Mae Fires TopExecutives

WASHINGTON - (12/22/04) -- The secondary mortgage market, theunderpinning of the nation's housing finance, was roiled againTuesday night when the board of Fannie Mae agreed to fire thecompany's CEO Franklin Raines and its Chief Financial OfficerTimothy Howard over their roles in the expanding accountingscandal. The firings come just six days after the Securities andExchange Commission found that the company had engaged inwidespread accounting violations, and 20 months after topexecutives at Fannie's sister secondary market mortgage giantFreddie Mac were fired for engaging in similar accountingpractices. The SEC found in a review of the company's books thatFannie Mae intentionally misstated the value of billions of dollarsin financial derivatives used to hedge the company's huge mortgageportfolio. As a result of the SEC's review, Fannie Mae is expectedto write-down its third quarter net income by as much as $9 billionand be forced to raise billions of dollars in new capital. The SECfindings echoed those of the Office of Federal Housing EnterpriseOversight, Fannie Mae's chief regulator, which released a report inOctober claiming the company's top executives were engaged incooking the books in order to qualify those executives for millionsof dollars in annual bonuses. Raines, a former director of theClinton White House budget office, is considered a major influencein both Washington politics and in business. Donald Mudd, thecompany's chief operating officer, will serve as interim CEO untila successor to Raines is hired.