updated 6/8/2006 8:55:45 PM ET 2006-06-09T00:55:45

The government will pursue some Fannie Mae executives to recover bonus money they reaped in an accounting scheme — if the mortgage giant itself fails to do so.

At his confirmation hearing Thursday to become permanent director of the Office of Federal Housing Enterprise Oversight, James B. Lockhart also assured senators he would maintain his independence as the chief regulator of embattled Fannie Mae and its smaller government-sponsored sibling, Freddie Mac.

Lockhart, a longtime friend of President Bush, is now acting director of OFHEO.

He appeared before the Senate Banking Committee with three other Bush nominees for positions with independent regulatory agencies: Sheila Bair as chairman of the Federal Deposit Insurance Corp., Federal Reserve Gov. Donald Kohn as vice chairman of the central bank and Banking Committee aide Kathleen Casey as a member of the Securities and Exchange Commission.

Senate approval of all four is not in doubt.

The FDIC is considering the application of Wal-Mart Stores Inc., the world’s largest retailer, to establish a federally insured bank to handle the hundreds of millions of credit, debit card and electronic check payments it processes each year. Wal-Mart’s bid prompted an unprecedented wave of opposition from the banking industry, unions, lawmakers, and consumer and community groups.

Bair, a former assistant Treasury secretary, was not asked her views on the matter at Thursday’s hearing nor on the broader issue of whether commercial companies should be allowed to own banks.

The FDIC over the years has approved about 60 banks of the type Wal-Mart seeks to establish, known as industrial loan corporations. Wal-Mart is looking to use the regulatory loophole that allows any type of company to own an ILC.

In the House on Thursday, 98 lawmakers from both parties asked the FDIC to halt any new approvals of such banks to give Congress a chance to consider legislation that would close the ILC loophole. The request came in a letter to acting FDIC chairman Martin Gruenberg.

Bair’s family owns between $1,001 and $15,000 of Wal-Mart stock in her son’s custodial account, according to the financial disclosure form she submitted to the committee. She told the panel in a questionnaire that she will sell the shares within 90 days of her confirmation by the Senate “to avoid any appearance of conflict” of interest.

The OFHEO, which Lockhart would head if confirmed, last month issued a scathing report alleging a six-year accounting fraud at Fannie Mae, the largest U.S. buyer and guarantor of home mortgages. It said employees manipulated accounting to hit company quarterly earnings targets so senior executives could pocket hundreds of millions in bonuses from 1998 to 2004.

“The first line of defense is that the board of Fannie Mae should go after these individuals and try to get restitution” of some of the bonus money, Lockhart testified. The directors owe the shareholders no less, he said, and if they fail to do so his agency will pursue the executives.

Lockhart did not name any current or former Fannie Mae executives. But at a hearing Tuesday by a House panel, he blamed ousted former chief executive Franklin Raines by name and other senior company officials for the massive accounting failures and alleged manipulations designed to enrich executives.

Raines, a prominent Washington figure who was a White House budget director in the Clinton administration, earned more than $90 million from 1998 to 2003, according to the report — including some $52 million in bonuses directly tied to the company hitting earnings targets. He is one of 30 current and former executives and employees who are under review by the Fannie Mae board for possible disciplinary action, termination or forfeiture of their bonuses.

Also being reviewed is the current president and CEO, Daniel Mudd, and the former chief financial officer, Timothy Howard, who was ousted with Raines by the board in December 2004.

Mudd told The Wall Street Journal that he will return some of his past compensation if the board determines that he should. “I’ll abide by their decision,” he was quoted as saying in a story published online Thursday.

Mudd earned a total of $26.3 million from 2000 through 2003, according to OFHEO’s report.

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