The board of housing finance company Fannie Mae yesterday unanimously chose interim chief executive Daniel H. Mudd to be the company's president and chief executive, endorsing his efforts to repair relations with Congress and others following an embarrassing accounting scandal.
In choosing Mudd rather than an outsider, Fannie Chairman Stephen B. Ashley said, board members were impressed by his "ability to work cooperatively and collaboratively" and to "recalibrate" the company's relationships with its customers, regulators and congressional overseers.
Mudd, 46, is a former executive for GE Capital and a decorated Marine. He does not have the political connections of previous Fannie heads, such as former Clinton budget director Franklin D. Raines and former Lehman Brothers executive and Democratic Party insider James A. Johnson, said Charles A. Gabriel Jr., an analyst with Prudential Securities who follows the company.
But since taking the reins at Fannie almost six months ago, Mudd's lower profile has worked to his advantage as he strived to portray Fannie as contrite over an accounting scandal that cost Raines his job.
Whereas Raines told Congress the company had done nothing wrong, Mudd apologized to lawmakers for Fannie's accounting scandal. Whereas Raines chose not to immediately accept findings by the Office of Federal Housing Enterprise Oversight that Fannie had violated accounting rules, Mudd, as one of his first acts as chief executive, promised that Fannie would cooperate with an ongoing OFHEO probe.
Mudd has also been attentive to members of Congress, some of whom found Raines to be bullying and condescending. Mudd responded to lawmakers' questions quickly and personally and committed the company to legislation creating a new and stronger oversight agency -- a measure that Raines had once fought.
Mudd, the son of veteran journalist Roger Mudd, beat several other candidates for the job, including Robert B. Willumstad, the president and chief operating officer of Citigroup Inc., according to a source familiar with the search who spoke only on the condition of anonymity because the company wants to keep the process private.
The source said Fannie's 11 non-management directors deliberated the wisdom of elevating a high-level insider who could be perceived as linked to Fannie's problems. Ashley said the board vetted him not only with OFHEO but also with former senator Warren B. Rudman, who is leading a probe of the company's accounting practices at the board's behest.
Ultimately all the directors voted for Mudd.
"I think that by having somebody from within, it provides the kind of continuity the company needs," Gabriel said.
Nevertheless, some analysts said the selection of an insider sends the wrong signal.
"He had to have known what was going on and if he did, why didn't he blow the whistle on it?" said Bert Ely, a banking industry consultant and a longtime critic of Fannie Mae.
Ely sees parallels between Mudd's appointment and the decision by Fannie's smaller rival, Freddie Mac, to name the company's chief investment officer, Gregory J. Parseghian, as chief executive. Parseghian was forced to resign after an internal investigation revealed he was involved in accounting problems similar to those uncovered at Fannie Mae.
"If you're really going to clean things up, you have to bring in someone fresh from the outside," Ely said.
Other analysts and customers welcomed the news of Mudd's appointment.
"He pulled off a difficult tightrope walk as interim CEO -- he had to begin to change the direction of the company without overpromising," said housing industry consultant Howard Glaser.
Staff writer Jeffrey H. Birnbaum contributed to this report.