As expected, Fannie Mae has turned into litigation city with the regulators now suing the mortgage giant's former leaders over their role in the multibillion dollar accounting scandal at the government-sponsored company, which finances one of every five home loans in the United States.

What's unusual here is that they are going for $115 million of bonus payments to former chairman and chief executive, Franklin D. Raines, its former chief financial officer, J. Timothy Howard and former controller, Leanne G. Spencer. The three allegedly manipulated the earnings in order to collect those generous bonuses.

The enormity of that alleged manipulation is mind-boggling and I examine some of the issues in a blog entry here. Earlier this month, Fannie Mae filed its long-awaited restatement saying $6.3 billion in past retained earnings will be wiped out.


Quite clearly, the Office of Federal Housing and Enterprise Oversight (Ofheo) is sending a signal that it wants to get tough but don't hold your breath. This baby's going to take years.

As will Fannie Mae's lawsuit against its auditors KPMG for $2 billion, or about 12 per cent of the accounting firm's earnings. Especially now that KPMG has hit back and plans to countersue Fannie Mae.