Mudd Vows to Change Fannie Mae Culture
Friday, June 3, 2005
Daniel H. Mudd, the new chief executive of housing finance giant Fannie Mae, pledged yesterday to change the culture of the company in the wake of last year's accounting scandal and set the hiring of a corporate ethics officer as one of his top priorities.
Continuing a fence-mending effort that began when he became interim chief executive almost six months ago, Mudd held a town hall meeting with more than 1,000 of Fannie's approximately 5,000 employees and spoke with investment analysts on a conference call.
Mudd yesterday told analysts that Fannie would be successful again when it "regained the trust" of its investors and customers and had become "an institution you can feel confident and comfortable investing in."
To that end, he said, one of his immediate priorities is to hire a chief ethics and compliance officer -- a position required by Fannie's main regulator, the Office of Federal Housing Enterprise Oversight, in a March agreement outlining steps the company needed to take to address accounting and management problems. He will also be filling several other key positions, including chief financial officer and chief risk officer.
Mudd, who had been interim chief executive until Fannie's board voted Wednesday to let him stay on, said he wants to establish four priorities for employees, including accountability and "an attitude of service" toward Fannie's customers and investors.
Mudd also pledged that the company would be more transparent. He said that if an ongoing review of Fannie's books by former senator Warren B. Rudman uncovers another accounting violation, the company will disclose it.
In response to an analyst's question about Fannie's shrinking market share, Mudd said the company was still building its capital reserves to meet a requirement set by OFHEO. He said that until the company reaches its mandated capital target, it will continue to decrease its portfolio of mortgages, mortgage-backed securities and other assets.
The size of Fannie's portfolio is a subject of debate, as lawmakers consider legislation to create a new, powerful regulator for Fannie. The Bush administration has proposed limiting the kinds of assets Fannie can hold for investment purposes. The House Financial Services Committee recently passed a bill that would create a new regulator but would not reduce the size of Fannie's portfolio. The Senate Banking Committee is expected to take up similar legislation by the end of the month.
Mudd said Fannie had a "voice" and a "constructive role" to play in the legislative process, as compared with six months ago, when, he said, the company "didn't have a seat at the table" because of its troubles.
He added that he was not certain a provision in the House legislation that would let Fannie buy more expensive loans in high-priced housing markets would make it to the final version. Some critics of Fannie balked at the measure, saying it would increase Fannie's market share.
The conference call appeared to have had the desired effect on some analysts, including Bruce W. Harting of Lehman Brothers. "What came across in the call to me was, 'We've got to turn the culture around; we are turning the culture more in the direction of service and the client,' " Harting said.