Daniel H. Mudd roams the halls of Fannie Mae's Wisconsin Avenue headquarters in his shirt sleeves. He has set aside several hours every month when employees can talk to him on a first-come, first-served basis. He eschewed the lavish second-floor executive office in favor of more modest space downstairs without wood paneling or a fireplace.
Mudd's main job as Fannie's chief executive may be to repair the company's relationships with its regulators, customers and shareholders, steer it through a $10.8 billion restatement, and overhaul its accounting systems.
But the toughest part of his assignment may be changing the culture of Fannie Mae. Mudd, 47, has vowed that the company that emerges from the crisis will no longer be known as an imperious bully that relied on a vast lobbying network to battle critics and keep its regulatory oversight weak.
Mudd sees accessibility as an antidote to the years of insular thinking that many inside and outside the company point to as a major reason for Fannie Mae's troubles.
It is a strategy of small gestures, such as visiting the company's federal regulators and apologizing to Congress for Fannie's accounting manipulations. Mudd engaged the company's harshest critics, recently lunching with Peter J. Wallison, co-author of a book on the benefits of taking away Fannie Mae's government charter. Mudd even persuaded Rep. Richard H. Baker (R-La.), who has led a five-year crusade to bring the company under tighter government scrutiny, to speak at a dinner for the Fannie Mae national advisory council last month. In his introduction, Mudd likened Baker's appearance to President Richard M. Nixon visiting China, Baker recalled.
The detente with Baker, who says Fannie had threatened to sue him just a year earlier, was the culmination of a goodwill tour Mudd embarked on when he became interim chief executive in December. The company's chief operating officer for the prior five years, he said the accounting scandal "meant internally we didn't have a clear and realistic picture of where the company was with our customers or our regulators or our stakeholders or employees or Congress."
"The right place to find that answer was not through shutting the doors and huddling and navel-gazing," Mudd said last week in his most extensive interview since taking the company's top job. "It was to open the doors and get out and ask people bluntly, right up front . . . 'What have we gotten wrong?' "
To right itself, Fannie Mae needed "facts rather than a set of beliefs about who we thought we were," said Mudd, a former Marine and a son of noted television journalist Roger Mudd.
Facing up to facts has been a painful exercise. Just last week, the company disclosed additional accounting errors, this time related to how it accounted for a mortgage insurance policy, investments in low-income housing and investments in synthetic fuel partnerships.
More bad news is on the horizon. Fannie's board has hired the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP to produce an independent report on its accounting problems, expected out in January. It will be followed by a report from the company's chief regulator, the Office of Federal Housing Enterprise Oversight. The Securities and Exchange Commission and federal prosecutors are also investigating accounting practices that regulators allege were used to conceal losses and shuffle earnings to boost financial results -- which in turn triggered executive bonuses.
Created by Congress during the Great Depression to help keep money flowing to the housing market, Fannie Mae buys mortgages from banks and other lenders, providing money for them to make more loans. It holds some of those mortgages as investments but packages most of them into securities that it sells to investors around the world. Along with rival Freddie Mac, it finances nearly half of the home mortgages in the United States.
Until the various reports and investigations are complete, Mudd will face doubts about his own culpability. Prior to becoming chief executive, Mudd's high-ranking position under then-chief executive Franklin D. Raines prompted people inside and outside the company to question his credentials for challenging the status quo.
"He seems earnest and well intentioned. He's trying hard to do all the right things and turn the company around. But the jury is still out on whether he will be successful, and it's still not clear whether he played a role in the misdeeds," said former OFHEO director Armando Falcon Jr.
Mudd would not comment directly on issues likely to be discussed in the Paul Weiss report except to say, "This has been historically a very siloed organization where everyone has a set of roles and responsibilities in their area and more or less stays in their area."
It was a structure that Mudd said frustrated him at the time but may insulate him from the fallout of the company's accounting problems.
As chief operating officer, Mudd oversaw systems technology, back-office operations and customer relations, while as chief financial officer, J. Timothy Howard oversaw accounting and finance. Raines was more focused on dealing with Congress, the White House and federal agencies.
Raines recruited Mudd from General Electric Co., where he had risen quickly from a line management job to chief executive of GE Capital in Japan. Though GE was vastly more complex than Fannie Mae, with hundreds of businesses in dozens of countries, Mudd found it easier at GE to move quickly and invest in new businesses and ideas.
"I found it very frustrating to get things done at Fannie Mae because I think that [its] approach to being deliberative in some cases translated itself into being bureaucratic and slow-moving," he said.
When Mudd was appointed chief executive on an interim basis, investigators had not uncovered any evidence he was involved in the accounting trouble, Fannie Mae board Chairman Stephen B. Ashley said.
In his role as chief operating officer, Mudd was "very much focused on the business units, not on the finance side, not on the controller's side," Ashley said. Though it is still months away from an accurate accounting of its business for the past three to four years, the company has an adequate amount of capital on hand to cover potential losses, according to OFHEO.
The board certainly seems confident of Mudd's performance so far and granted him a 12 percent raise this week, making his annual pay $950,000.
Ashley said those who question Mudd's ability to clean house need only look at the amount of turnover: One-third of Fannie Mae's senior executives and 8 percent of its total workforce have left this year. Mudd also recently landed as chief financial officer Robert T. Blakely, who is credited with fixing the accounting at MCI Inc., formerly WorldCom Inc.
But his strongest contribution may have less to do with accounting and more to do with his political skills and temperament -- and the contrast he poses to Raines, who was forced to leave the company.
Raines, while charismatic and inspiring, also had a tendency to lecture his peers in the housing industry and even federal regulators and members of Congress. In what turned out to be his last appearance before a congressional committee, Raines refused to acknowledge Fannie Mae had violated accounting rules. Mudd, in his first appearance before Congress as chief executive of Fannie Mae, apologized.
Raines did not hesitate to call on the company's army of lobbyists and political allies to fight legislation he perceived as hindering its business. Mudd toned down the lobbying effort, laid off 20 managers in several regional offices and scaled back the company's political activity.
With Mudd, "I don't feel I'm being hyped or sold a bill of goods," said Rep. Barney Frank, (D-Mass.). "Frank [Raines] was arguing too hard. It was difficult to get information rather than advocacy."
Frank said Fannie Mae, to its detriment, fought reasonable legislation such as giving a federal regulator the ability to put the company in receivership if it ran into trouble. That provision is part of a bill now co-sponsored by Baker and Rep. Michael G. Oxley (R-Ohio) that was passed by the House last month -- legislation that Fannie, under Mudd, has generally favored.
"We need to realize that not every contrary opinion is a direct attack on the company," Mudd said. "And if all we ever do is talk to those who share our views, we're just preaching to the choir and we'll lose sight of the whole picture."
Mudd may be a break with past Fannie Mae chief executives in other ways. Whereas his three predecessors held the job for a decade each, Mudd, when asked how long he planned to stay, said that he took things "day by day" and that the company has a lot more to do.
He has an idea of what he hopes to say when he leaves. "I want to say that . . . we fixed the company by aligning our mission and business . . . and we fixed and built a stronger, better company culture."
Chief executive Daniel H. Mudd describes Fannie Mae as "historically a very siloed organization where everyone . . . more or less stays in their area."