Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight, has launched a probe into the bonuses and compensations received by the two top executives fired earlier this week.

Fannie Mae has announced firing of Chief Executive Officer Franklin Raines and Chief Financial Officer J. Timothy Howard yesterday in the wake of the accounting scandal that led to restatements of $9 billion in profit. Raines’ removal was provoked by loss of confidence in the management that kept reiterating that Fannie Mae’s records were clean in the height of the scandal. Raines insisted during his testimony in Congress that the accusations had no ground.

Company sources report that Raines’s compensation included $10.6 million in annual bonuses and $25.7 million in long-term incentive plan payouts in the period from 2001 through 2003. The payouts were dependent on the achievement of financial targets.

The management ouster at Fannie has created prerequisites for the creation of a stronger regulatory agency supervising both government agencies reselling pools of mortgages to investors, Fannie Mae and Freddie Mac. Bush administration is currently pushing in Congress for legislature that will create a new agency to oversee both as critics claim the Office of Federal Housing Enterprise Oversight, or Ofheo, was not efficient.
The SEC ruled Friday that Fannie Mae is guilty of violating the accounting standards and needs to restate its earnings for the past four years. Fannie Mae has agreed to comply with the decision and will recognize $9 billion of losses on interest-rate risk hedging derivatives in its next quarterly earnings statement.

The case is also ruinous for the company’s reputation as a moral institution helping poor families to get access to housing.