As expected, the growing accounting scandal swirling around Fannie Mae claimed the careers of two of its top executives.
CEO Franklin Raines and CFO Timothy Howard were forced out Tuesday night by the mortgage finance corporation's Board of Directors. KPMG, the firm that approved the company's accounting was also fired.
Fannie Mae has been under investigation for three months by the Securities and Exchange Commission (SEC), The Department of Justice, and The Office of Federal Housing Enterprise Oversight (OFHEO), the federal office charged with oversight of both Fannie Mae and its sister corporation Freddie Mac. Last week the SEC ruled that Fannie must restate its earnings back to 2001. Experts estimated that this could result in $9 billion in lower earnings over the four year period in question and might substantially impact its ability to meet its capital requirements. Experts, however, said that this should have no impact on mortgage rates.
Since the accounting irregularities emerged, Raines had fought hard to retain his job but said in front of Congressional investigators last fall that he would hold himself accountable if the SEC said that there were significant accounting irregularities.
According to USA TODAY, OFHEO director Armando Falcon told the Board of Directors that if they did not act he would declare the company out of compliance with its capital requirements allowing him to take unilateral action against management.
Meanwhile, several Senators and Congressmen have signaled their intention to tighten federal controls on both Fannie and Freddie which enjoy certain perks not available to their competitors. In return for these privileges, both have numerous mandates from Congress and other agencies to increase home ownership, particularly among low income and minority citizens.