Fannie Mae Foundation to close after 18 years.

Emerging from an accounting scandal that resulted in a record, multimillion-dollar payout, mortgage-buying giant Fannie Mae has found itself amidst what it calls an overall re-evaluation and restructuring. The latest move: the company will close the doors of its charitable foundation and open a new office of corporate giving.

The Fannie Mae Foundation will cease the bulk of its operations by April 30, said Stacey D. Stewart, the foundation's now-former president and CEO. Stewart joins the company as senior vice president to head the new office.

Peter Beard, the foundation's senior vice president of communications, strategy and information, was appointed executive director to oversee the foundation's "wind-down activities."

The new Office of Community and Charitable Giving will be part of Fannie Mae, and according to the company's Web site, will build on the foundation's mission, strengthen and coordinate the corporation's philanthropic commitment, and deepen its relationships rooted in Washington, D.C.

According to Stewart, the decision to close the foundation was made in light of how the company and the foundation have been organized since 1996, when the foundation was spun off from the company as a separate, independent entity. "We're unlike any other corporation in America, in that we have our philanthropy being done outside of the company," said Stewart. "We realized we could be much more effective by aligning all of our resources together under one umbrella, and bring the philanthropy back in-house. In doing that, the company is able to, going forward, be a much more effective partner with nonprofit organizations and other entities that are working on issues (we're interested in)."

The government-sponsored Fannie Mae, which finances one of every five home loans in the United States, has during the past few years found itself in negative view of the public eye. After the accounting scandal that erupted in September 2004, the company let go top executives and last year agreed to pay a record $400 million civil fine in a settlement with federal regulators.

Also last year, the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mac and Freddie Mac, issued a report alleging the accounting fraud unrelated to the foundation lasted six years. The report said the company's quarterly reports of profit growth during that time were "illusions deliberately and systematically created" by the company's senior management, resulting in the $10.6 billion accounting scandal.

In May 2005, Fannie Mae cut the foundation's budget from around $92 million to $72 million, and closed offices in Chicago and Atlanta. When asked whether the foundation's downsizing was a ripple effect of the troubles at corporate Fannie Mae, said Stewart, "That came as a result of some of the company being put into a financial position where it couldn't really commit additional resources to the foundation."

Fannie Mae's political ties are another source of speculation. In a statement released on February 23, Sen. Chuck Grassley (R-Iowa) ranking member of the U.S. Senate's Committee on Finance, called the foundation's closure and creation of the new office "a positive step toward more transparency and accountability from Fannie Mac for its charitable activities." Grassley maintained he will continue to look into whether foundations, including Fannie Mae's, engage in inappropriate activity for nonprofits, such as political activity.

Stewart maintains that neither the legal nor financial troubles at the company led to the foundation's closing. The primary reason for the move, she said, was that management at Fannie Mae and the foundation rarely met to "talk back and forth about things we were up to or doing or supporting." With the two arms working side by side, "we can do a better job of complementing the work of our business, and vice versa."

The foundation will honor the estimated $60 million in commitments it's made for the remainder of 2007, said Stewart. Many of the foundation's signature initiatives will continue, she said, but the focus at the new office will be on three top priority areas: affordable housing and community development; preventing and ending home-lessness; and, addressing the issues of affordable housing, homelessness and education in Fannie Mae's hometown of Washington, D.C. The foundation and the company also made a commitment to helping to rebuild the Gulf Coast after Hurricane Katrina.

Stewart said no decision has been made about the eventual size of the new office, however she expects the new office to maintain, not only in Washington, D.C., but overall the level of support prior to consolidation. "We're going to aim for more over time, if possible."