The regulator who thrust

Fannie Mae's

(FNM)

questionable accounting into the spotlight is flying the coop.

Armando Falcon Jr., the head of the Office of Federal Housing Enterprise Oversight, said in a letter to President Bush on Tuesday that he would step down to "explore new career options." Falcon set his departure for May 20, "absent extraordinary circumstances."

Falcon's term expired last October, but he stayed on as OFHEO chief to guide the agency as it demanded greater transparency from Fannie Mae. The company was forced into an embarrassing restatement late last year after Falcon alerted the

Securities and Exchange Commission

to what he said was improper bookkeeping on the company's use of so-called derivatives to reduce interest rate risk. Falcon said Fannie essentially smoothed its earnings by failing to properly account for some deals.

In December, the SEC's chief accountant agreed with Falcon's take, which Fannie had hotly contested. The finding led to the departure of CEO Franklin Raines and his top deputy.

Falcon also was at OFHEO as regulators cracked down on an earnings-smoothing scheme at Fannie sibling

Freddie Mac

(FRE)

that led to a similar management housecleaning.

Over the past two years, Falcon made sure the OFHEO took a much more challenging and robust stance toward Fannie and Freddie. His motivation seemed not to be political in a partisan sense, because both he and Raines were appointed by the Clinton administration. Instead, he appeared to have been motivated by the feeling that Fannie and Freddie had too much sway and were abusing it to get away with actions that could undermine the safety and soundness of the U.S. housing market.