Fannie Mae Agrees to Second Set of Sweeping Changes

As part of a deal reached Monday with its regulator, mortgage giant Fannie Mae agreed to a number of corporate governance and management changes. The new practices, which supplement an earlier agreement meant to satisfy the Office of Federal Housing Enterprise Oversight regarding Fannie Mae's governance, include: * Separating the duties of the chairman and the chief executive officer; * Establishing a compliance and ethics office that can communicate directly with OFHEO; * Strengthening accounting rules; and, * Implementing policies to prevent the falsifying of signatures. Last year, OFHEO discovered significant problems with the mortgage giant's practices, including juggling the books to meet targets that triggered executive bonuses. The revelations led to the resignation of chairman and CEO Franklin Raines and chief financial officer Timothy Howard in December. The Securities and Exchange Commission said that from 2001 to mid-2004, Fannie Mae's accounting practices didn't comply with the requirements related to accounting for deferred purchase price adjustments and for derivatives and hedging activities, and advised the company that it should, among other things, restate its financial statements to eliminate the use of hedge accounting. In February, SEC chief accountant Donald Nicolaisen announced that the commission would conduct a thorough, top-down examination of the mortgage financing concern.