The government agency that regulates

Freddie Mac

(FRE)

has fined and reached a cooperation agreement with the mortgage finance firm's former president.

The Office of Federal Housing Enterprise Oversight announced Thursday that it ordered David Glenn to pay a $125,000 fine over his role in the accounting irregularities at the government-sponsored mortgage firm. Glenn was fired in June in the wake of Freddie's accounting blowup.

More importantly, Glenn has agreed to cooperate with the regulatory agency's investigation into the bookkeeping scandal. OFHEO had been expected to issue a report on its findings by the end of the month. But the agreement with Glenn, in which he "neither confirms nor denies" the allegations against him, may delay the release of that report.

The deal with Glenn, who was fired by Freddie's board on June 6, comes on the same day that OFHEO Director Armando Falcon is scheduled to testify before Congress.

Many in Congress have accused OFHEO of being a weak regulator and failing to adequately supervise the operations at Freddie and its bigger competitor,

Fannie Mae

(FNM)

. The agency's critics are trying to rally support for a bill that essentially would disband OFEHO and instead authorize the Treasury Department to regulate the two giant mortgage finance firms.

Freddie and Fannie were chartered by the U.S. government to spur homeownership by making secondary markets in mortgages and mortgage bonds. Both companies have become highly profitable, but critics contend the mortgage giants have taken on too much debt and risk, and they want the businesses to be reined in.

Some see the accounting crisis at Freddie as example of that kind of risk run amok.

Baker & Botts, a law firm hired by Freddie to investigate the matter, found that the company's top executives used a series of sophisticated derivative transaction to massage the company's quarterly earnings and defer the recognition of profits until future years. The earnings manipulations could result in Freddie being ordered by the Internal Revenue Service to pay up to $750 million in back taxes.

The accounting firm PricewaterhouseCoopers is working on a major restatement of Freddie's financial filings for the past three years, as the result of the scandal. Freddie said the restatement could inflate past earnings by as much as $4 billion but reduce future earnings and cause more quarter-to-quarter volatility. The restatement, which was supposed to have been released this month, is now expected to be completed in November.

It's not immediately clear what Glenn's cooperation agreement will mean for the

Securities and Exchange Commission

and the Department of Justice, the other federal agencies that are investigating the accounting irregularities at Freddie.

But legal sources said it's unlikely Glenn would agree to such a deal if he faced potential criminal charges. The deal with OFHEO also makes it likely that Glenn would be willing to cooperate with the SEC investigation.

"David Glenn has settled all matters with OFHEO, and in doing so and providing his full cooperation, continues to demonstrate his strong belief that at all times he acted properly and in the best interests of Freddie Mac and its shareholders," said Glenn's lawyer, Tom Vartanian, in a prepared statement.

David Palombi, a Freddie spokesman, said the company has been "cooperating completely and fully" with OFEHO and "made available to OFHEO all documents they requested."

The U.S. Attorney's Office in Virginia had opened a criminal investigation into the Freddie accounting scandal after Freddie's board revealed that it was firing Glenn because he had altered some of his personal diaries. But Baker & Botts found that the Glenn diaries and the alleged missing pages were not critical to its investigation.

In June, Freddie's board had tried to limit the damage done by the mortgage outfit's accounting scandal by moving quickly to oust Glenn and two other top executives, including former CEO Leland Brendsel.

This is not the first time OFHEO has tried to show it can be a tough regulator. In August, OFHEO ordered Freddie's board to remove Gregory Parseghian, the longtime Freddie executive who had been brought in ostensibly to put out the bookkeeping fire. Regulators took the action because the Baker & Botts investigation found that Parseghian had approved some of the accounting maneuvers used by Freddie to shift its earnings into future time periods.

OFEHO also instructed Freddie to remove its longtime general counsel, Maud Mater.

The deal with Glenn may also mean he will have to forfeit some $13 million in restricted stock grants that had been awarded to him during his tenure at Freddie.