Fannie Mae‘s board of directors has decided to keep Daniel H. Mudd as chief executive, the chairman said in a statement Thursday, but he will not head an internal review of executives prompted by the company’s $10.6 billion accounting scandal.

“The board conducted a thorough review of every reference to Dan in the report…The review is complete and, with the unanimous support of the board, a decision has been made that Dan will remain as the president and CEO of Fannie Mae. The board has full confidence in Dan’s leadership,” Stephen B. Ashley, chairman of the board, said.

“I have also asked the board to create a special committee of board members who joined the board after the period in time covered in the report who will oversee the personnel review agreed to in the settlement agreement with OFHEO,” Ashley said.

The Office of Federal Housing Enterprise Oversight, which has a federal mandate to oversee Fannie Mae, released a sharply critical report of Washington, D.C.-based Fannie Mae Tuesday. Fannie Mae agreed to pay $400 million in fines and implement corrective measures as part of settlements with OFHEO and the Securities and Exchange Commission.

“The committee will employ the board’s counsel, Bob Joffe, presiding partner of Cravath, Swaine & Moore, to conduct the review with the assistance of the company’s new General Counsel, Beth Wilkinson,” Ashley said.

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.

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Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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