Fannie to Separate CEO, Chairman Duties

It also must adopt procedures that prevent the 'falsification of signatures.'
By Matthew Goldstein ,

Fannie Mae

(FNM)

will split the duties of CEO and chairman between different people under a package of reforms agreed to with its main regulator.

The agreement with the Office of Federal Housing Enterprise Oversight also requires Fannie's general counsel to report any potential misconduct directly to Fannie's board.

Fannie, which is in the process of restating its earnings for the past four years because of accounting irregularities, also must take steps to tighten its internal controls. Most notably, the government-sponsored firm must upgrade its controls for "accounting ledger journal entries, including policies that prohibit falsification of signatures."

Neither a Fannie spokeswoman nor an OFHEO spokeswoman would comment on the agreement. The spokeswomen also declined to elaborate on the reference to "falsification of signatures."

In December, the

Securities and Exchange Commission

ordered Fannie to restate its earnings for the past four years. The SEC effectively ratified an earlier OFHEO finding that the government-sponsored entity used improper accounting methods for valuing its derivatives. The erroneous accounting could force Fannie to report after-tax losses on its derivatives transactions of as much as $9 billion.

Fannie is in the process of trying to raise capital to fix that $9 billion hole on its balance sheet. Earlier this year, Fannie sold $5 billion in preferred stock to provide some of the money.

Last week Fannie said OFHEO identified additional accounting issues at the nation's largest buyer of mortgages. The potential problems center around Fannie's accounting for securities, loan consolidations and the company's "practices to smooth certain income and expense amounts." Fannie did not put a price tag on the cost of fixing the latest accounting issues.

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