Reply #23: Assessing What Will Now Happen to Fannie Mae

[54anickel]

http://www.nytimes.com/2004/12/17/business/17fallout.html?adxnnl=1&oref=login&adxnnlx=1103283589-kWv5ijpf1V8PNqX3g9Juxg

WASHINGTON, Dec. 16 - Fannie Mae, the housing-finance giant, for years has fended off critics who contend that the company is too big, too powerful and too risky. But the Securities and Exchange Commission's Wednesday ruling, that Fannie Mae had seriously breached accounting rules, could touch off a chain reaction that results in stricter government controls, legislation limiting its growth and possibly even a change in top management.

Democratic and Republican lawmakers alike demanded on Thursday that senior executives, including the chief executive, Franklin D. Raines, return tens of millions of dollars in bonuses and other compensation that they had earned based on inaccurate financial statements that the company issued from 2001 until this year.

Fannie Mae's board also met on Thursday to be briefed on the S.E.C.'s order that it restate earnings and declare losses of as much as $9 billion as a result of the accounting violations. On Capitol Hill, lawmakers vowed to swiftly overhaul the oversight of the federally chartered company.

The board members concluded their unscheduled meeting early Thursday evening without deciding whether to keep or remove Mr. Raines after the announcement by the S.E.C.'s top accountant that the company had violated two rules. That decision will now force the company to restate its earnings and take steps to significantly raise its capital level. Three board members, joined by Mr. Raines and other regulators, had attended a briefing at the commission by its chief accountant on Wednesday shortly before he announced his decision, people at the meeting said.

But people involved in the inquiry said that board members know that they cannot let the uncertainty hanging over Mr. Raines linger, for the sake of both the company and the markets, and predicted that a decision would be made soon.

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