Mortgage giant Fannie Mae said Friday it was replacing the chairman of its board’s audit committee, a key position as the company struggles to emerge from an $11 billion accounting scandal.
The announcement by Fannie Mae that the board had named accounting professor Dennis Beresford to replace audit committee chairman Thomas Gerrity came a few days before federal regulators are scheduled to release a major report on their extensive examination of the government-sponsored company. The report due out Tuesday 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 touched on.
Gerrity also will step down as a director, the company said.
The regulators, in the Office of Federal Housing Enterprise Oversight, in September 2004 accused Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street targets. The Securities and Exchange Commission subsequently ordered the company to restate earnings back to 2001 — a correction expected to reach an estimated $11 billion. The Justice Department is pursuing a criminal investigation.
Fannie Mae, which finances or guarantees one of every five home loans in the United States, disclosed earlier this month that its government-ordered review had turned up additional accounting errors. The company hasn’t filed an earnings report since late 2004.
In its announcement Friday, Fannie Mae said it was Gerrity’s decision to relinquish at this time the position he has held since 1999 as head of the audit panel.
“Over the past two years, Tom has indicated that, ... following the board’s corporate governance policies, this is the right moment to step down and allow the board to bring on new leadership talent and energy to guide the audit committee forward,” Fannie Mae Chairman Stephen Ashley said in a statement. “We accept his choice and decision.”
Gerrity, a former dean of the Wharton business school at the University of Pennsylvania, joined the Fannie Mae board in 1991. He also previously was the president of CSC Consulting, a vice president of Computer Sciences Corp., and chairman and CEO of Index Group Inc.
Beresford, a former chairman of the Financial Accounting Standards Board, teaches accounting at the University of Georgia in Athens. He also heads the audit committees at Kimberly-Clark Corp. and Legg Mason Inc.
A company-ordered report released in February detailed a breakdown in financial controls and found an arrogant corporate culture at Fannie Mae. It said that the company’s former finance chief and controller share primary responsibility for the accounting failures.
Fannie Mae and its smaller rival Freddie Mac were created by Congress to pump money into the $8 trillion home-mortgage market to keep interest rates low. They buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bunch them together into securities that are resold to investors worldwide.