Fannie, regulator in talks over discipline for execs

By Patrick Rucker

WASHINGTON (Reuters) - Mortgage finance company Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and its chief regulator are negotiating how best to discipline current executives tied to a massive accounting scandal that forced the company to restate $6.3 billion in past earnings, the regulator said on Thursday.

The regulator and Fannie Mae are discussing "what kind of discipline should be imposed on these individuals," said James Lockhart, Director of the Office of Federal Housing Enterprise Oversight, speaking at the Reuters Regulation Summit in Washington.

OFHEO's May special exam of the accounting scandal names about two dozen current and former executives as having played a part in the flawed bookkeeping that triggered millions of dollars in bonuses for executives.

Among those named are Chief Executive Officer Dan Mudd who received roughly $22.7 million in bonuses, awards and stock options from 2000 through 2003 when the company applied flawed accounting.

In Fannie's settlement with OFHEO that accompanied the release of the May report, the company agreed to perform an internal review of what role the named executives played in the scandal. Four independent board members completed the review in October.

On Thursday, Lockhart said that requiring executives to return some of their bonuses is "certainly an issue that is on the table."

Lockhart said there is an "ongoing dialogue" between the regulator and the company board and that it would be "reasonable" to expect OFHEO to decide on disciplinary action by the end of February.

"At the bare minimum, many (executives) were not doing their jobs," Lockhart said. They were "certainly neglecting internal controls," he said.

Last month, OFHEO filed a separate suit against three former executives who led the company during years that it relied on flawed bookkeeping.

Franklin Raines, the former chief executive officer, Timothy Howard, the company's former chief financial officer, and Leanne Spencer, the former senior vice president and controller, were all named in the civil suit.

Earlier this month, OFHEO denied Reuters' Freedom of Information Act request for a copy of the report on executives and a separate report on the company's lobbying efforts.

On Thursday, Lockhart said that the two reports may never be released to the public.

"This is privacy information," Lockhart said of the review of executives. "These are individuals who are potentially being disciplined ... People more buried in the organization, I'm not sure it is appropriate to release that information."

OFHEO's May special exam says that the company used its lobbying power to interfere with the regulator's examination.

The recent report on Fannie's lobbying work does not look at past actions but is largely "a set of best practices across the board," Lockhart said. "The company is in the process of implementing these best practices and we will examine them against those practices."

Fannie Mae, like fellow housing finance company Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), is a government sponsored enterprise that operates under congressional charter and is designed to provide liquidity to the housing finance market. here)