Raines Falls at Fannie Mae

Updated from 7:52 p.m.

Under pressure from regulators, Fannie Mae's board ousted its top two executives in the midst of a deepening accounting scandal.

CEO Franklin Raines and CFO Timothy Howard were forced out Tuesday. The move came as Fannie's regulator, the Office of Federal Housing Enterprise Oversight, issued a statement indicating that the company is "significantly undercapitalized," suggesting Fannie might not have the financial wherewithal to survive a market shock or similar event.

Raines, who long defended the company's accounting despite mounting evidence that it wasn't proper, issued a statement late Tuesday conceding that "mistakes were made" and saying he would assume responsibility as he had earlier promised.

"I have advised the Board of Directors today that I am retiring as Chairman and Chief Executive Officer of Fannie Mae," said Raines, who joined the company in 1999 after a stint with the Clinton White House. "I previously stated that I would hold myself accountable if the SEC determined that significant mistakes were made in the Company's accounting. Although, to my knowledge, the Company has always made good faith efforts to get its accounting right, the SEC has determined that mistakes were made. By my early retirement, I have held myself accountable."

According to Fannie's statement, issued late Tuesday, Raines retired and Howard resigned. However, news reports indicate the company was under growing pressure from regulators to shake up its management in the wake of findings that the company's books ran afoul of generally accepted accounting principles for four years.

The Washington-based mortgage giant named Stephen B. Ashley nonexecutive chairman, Vice Chairman and Chief Operating Officer Daniel H. Mudd interim chief executive, and Executive Vice President Robert Levin interim finance chief. The company hired executive search firm Spencer Stuart and dismissed auditor KPMG, which blessed the questionable numbers, as well.

The news comes less than a week after the Securities and Exchange Commission jolted the well-connected company by ordering a massive restatement of earnings going back four years. Fannie indicated it would comply with that order, a decision the company previously indicated would cost it to the tune of $9 billion.

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