Washington (April 12, 2004) -- The Office of Federal Housing Enterprise Oversight, the regulator that oversees Freddie Mac and Fannie Mae, proposed new corporate governance standards it says will address weaknesses and help prevent future misconduct at the mortgage concerns, including the separation of the chief executive and chairman functions and the establishment of term and age limits for the boards of directors.

The proposed rule would limit directors to 10 years of service and an age limit of 72; would require audit partner rotation every five years and auditor rotation every 10 years; would require the board and committees to meet more frequently; and would require a review of codes of conduct at least every three years. In addition, the OFHEO proposed additional rules related to the independence of board members and would require the boards to "remain informed of the companies’ growth plans and resources to manage risks."

The rule changes stem, in part, from the findings and recommendations of the OFHEO’s special examination of accounting and management problems at Freddie Mac. Last month, the OFHEO hinted at a possible restatement for Fannie Mae.

Director Armando Falcon Jr. said that the OFHEO’s investigation of Fannie Mae’s accounting policies and practices is proceeding with "a broad review of all accounting matters but has also been intensely focused on several specific issues," including one that involves Fannie Mae’s accounting for impairments. Falcon said the agency's review of that matter, which is ongoing, has led to concerns that Fannie Mae "may not have applied the proper accounting guidance" in that area.

-- WebCPA staff

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