Fannie Mae replaces audit panel head

Fannie Mae has replaced the chairman of its board’s audit committee, a central part of the mortgage giant’s struggle to deal with the $11 billion accounting scandal that continues to haunt the company.

Accounting professor Dennis Beresford will replace audit committee chairman Thomas Gerrity, the company said Friday, just days before federal regulators are scheduled to release a major report on their extensive examination of the government-sponsored company. Gerrity will step down as a director and will leave the board by the end of 2006, Fannie Mae said.

The Office of Federal Housing Enterprise Oversight, which has a federal mandate to oversee Fannie Mae, is scheduled to release its report on Fannie Mae Tuesday. The report is widely expected to be sharply critical of Washington-based Fannie Mae, and the role of its board of directors in the accounting debacle is expected to be examined.

OFEO in September 2004 accused Fannie Mae of serious accounting problems. The Securities and Exchange Commission subsequently ordered the company to restate earnings back to 2001 — a correction expected to reach an estimated $11 billion.

Fannie said May 9 that still more errors had been found in its own government-ordered review of its accounting, and the mortgage giant doesn’t expect the review to be finished before the second half of the year.

In December 2004, Fannie Mae replaced Franklin Raines, its chairman and CEO, who announced he was taking early retirement, and Fannie Mae’s chief financial officer, Timothy Howard, resigned Dec. 21.

In early February of this year, the Bush administration said Congress should create a new regulator for Fannie Mae and Freddie Mac and direct it to cut the approximately $1.4 trillion investment portfolios held by the government-sponsored enterprises.

In March, Fannie Mae notified the Securities and Exchange Commission that it would miss the March 16 deadline to file its 2005 annual report.