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At Fannie, Tougher Tasks Lie Ahead

Transitional Leaders Have Rebuilding to Do

By Terence O'Hara
Washington Post Staff Writer
Wednesday, December 22, 2004; Page E01

Fannie Mae's board of directors may have found it hard to get rid of the company's top two executives, but a difficult job remains in navigating the transition to the next senior management team.

Few executives have experience running a company as large, unusual and complex as Fannie Mae, and any permanent replacement for former chairman and chief executive Franklin D. Raines will have to pass muster with federal regulators.

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In the meantime, Fannie took a series of interim steps, naming an insider as its temporary chief and splitting the roles formerly held by Raines.

In choosing Vice Chairman and Chief Operating Officer Daniel H. Mudd to be interim chief executive, Fannie's board acted similarly to Freddie Mac's board in June 2003. After Freddie ousted its top two executives in an accounting scandal, the board promoted Gregory J. Parseghian, then the company's chief investment officer, to chief executive. But regulators forced Freddie to oust Parseghian just two months later because of his own involvement in Freddie's accounting problems. Freddie then hired Richard F. Syron, a veteran of both the private financial and government worlds, as its chief executive in December 2003.

Fannie's board avoided a potential problem by making Mudd's appointment temporary. The board also named Robert J. Levin, executive vice president of housing and community development, to be interim chief financial officer. The two replace chief executive Raines and Chief Financial Officer J. Timothy Howard, who were ousted yesterday in the wake of criticism of Fannie's accounting by its regulator and the Securities and Exchange Commission.

The board split the jobs of chairman and chief executive, a move that had been resisted by Raines. It named Fannie director Stephen B. Ashley as the non-executive chairman. He's the former president of the Mortgage Bankers Association and founded his own real estate firm in 1997. He has been a director since 1995.

The board hired the Chicago-based executive search firm Spencer Stuart to conduct a search for a new senior management team.

Mudd's and Levin's primary task will be to begin rebuilding relations with the Office of Federal Housing Enterprise Oversight, which has had a starkly adversarial relationship with Fannie since OFHEO's investigation into the company's accounting began more than a year ago.

Second, the company will have to show Wall Street, the housing markets and members of Congress that the management shake-up won't disrupt operations.

Despite its recent problems, the company is generally considered to be well managed. Fannie's stock fell about $10 a share in the days immediately before and after OFHEO released its report about Fannie's accounting three months ago, and it has been inching upward since. It closed yesterday on the New York Stock Exchange at $70.35, up 93 cents. Wall Street analysts have been generally supportive of the company.

Fannie, like Freddie, raises billions of dollars through bond sales run by Wall Street firms. Fannie director Donald B. Marron, a former chairman of Paine Webber, is leading efforts to raise new capital to improve Fannie's financial position, which as a result of its expected accounting restatement will fall below minimum capital levels set by OFHEO.

Mudd, whose father is television journalist Roger Mudd, spent eight years with GE Capital before joining Fannie as vice chairman, a job once held by Raines, in 2000. Mudd held a variety of commercial finance jobs at GE Capital, both in Europe and Asia, rising to run the company's Asia-Pacific operations. He will be the first chief executive of Fannie Mae with no experience in politics or government, besides a brief stint at the Pentagon at the tail end of his service in the Marine Corps in the 1980s. He graduated from the University of Virginia and holds a master's degree in public administration from the John F. Kennedy School of Government at Harvard University.

Mudd was a member of Fannie's four-person Office of the Chairman, Raines's inner circle, along with Howard and Thomas E. Donilon, an executive vice president who oversaw Fannie's government relations, including its relationship with OFHEO.

Levin, the interim chief financial officer, has been with Fannie Mae since 1981. He currently runs the part of Fannie's business that buys multi-family mortgages, and he heads all of the company's community reinvestment initiatives. In the latter role, he is most responsible for making sure Fannie achieves its mission of assuring a stable source of capital for low- and middle-income home buyers.


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