Fannie Mae’s board of directors dismissed its top two executives late Tuesday night in the wake of a growing accounting scandal.

CEO Franklin Raines announced his early retirement from the mortgage giant, while chief financial officer J. Timothy Howard announced his resignation. The departures come after days of board talks and less than a week after the Securities and Exchange Commission directed the company to make accounting corrections that could erase $9 billion of past profit.

Ann Korologos, the presiding director of the non-management members of the board, thanked Raines and Howard for their “many contributions” but said the board “takes these steps today to move the company forward to serve its critical mission in a safe and sound manner.”

Raines, who defended the company’s accounting practices at an October congressional hearing, said he would hold himself accountable if the SEC determined the company made significant mistakes in its accounting.

“Although, to my knowledge, the company has always made good faith efforts to get its accounting right, the SEC has determined that mistakes were made,” Raines said in a statement. “By my early retirement, I have held myself accountable.”

Fannie Mae is a shareholder-owned company chartered by Congress to maintain a steady flow of mortgage funds for the nation’s housing market. The company has been on the defensive since its federal regulator, the Office of Federal Housing Enterprise Oversight, released a scathing 211-page report alleging the company used improper accounting techniques.

Fannie faces an investigation by the Justice Department, a civil investigation by the SEC, an ongoing probe by OFHEO, and lawsuits from shareholders.

Effective immediately, board member Stephen Ashley will become the non-executive chairman of the board, vice chairman and chief operating officer Daniel Mudd will serve as interim CEO and executive vice president Robert Levin will serve as interim CFO. The board said it is working with an executive search firm. The board also announced that it has dismissed KPMG as the company’s independent auditor.

During his testimony at the October congressional hearing, Raines pointed out that KPMG had reviewed the application of the company’s accounting standards and concurred with them.


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