Fannie Mae Takes New Approach in Crisis

By Jeffrey H. Birnbaum and David A. Vise
Washington Post Staff Writers
Monday, September 27, 2004; Page A01

Fannie Mae, one of Washington's largest and most influential companies, is facing a serious crisis. Federal regulators have accused the mortgage-finance giant of cooking its books, in part to make room for huge bonuses for its top executives.

When confronted with emergencies in the past -- legislative efforts to tax the company or to end federal ties that give it a competitive advantage -- Fannie Mae has used a brass-knuckles approach. Its political machine, comprised of hired lobbyists, executives and directors of both political parties and grassroots groups nurtured by donations from its foundation, has long been able to run over its adversaries.

But this time, Fannie Mae is acting differently. While whispering to Wall Street that all the fuss is nothing more than a difference over accounting interpretations, the company's board has commissioned an independent probe led by former Sen. Warren Rudman (R-N.H.), making it clear that the directors want to put the matter behind the firm even if it means throwing some top executives overboard.

'I don't think they have ever faced a crisis like this. Political muscle is not going to fix this problem,' said Washington attorney Bill Lightfoot, who tangled with Fannie Mae over tax issues while a member of the D.C. Council."