Fannie Mae Names Timothy Mayopoulos Its CEO

Fannie Mae named its general counsel, Timothy Mayopoulos, as its next chief executive after he agreed to a sharp pay cut imposed by the mortgage-finance company's federal regulator.

The Federal Housing Finance Agency will allow Mr. Mayopoulos to keep the compensation package that he had been pledged for 2012, valued at up to $2.66 million in base salary and deferred pay. But beginning next year, his total compensation will be reduced to $600,000 in order to satisfy a pledge the regulator made this year to reduce CEO pay in the wake of federal bailouts for Fannie Mae and its cousin company, Freddie Mac. Mr. Mayopoulos will assume his new job on June 18.

The executive-pay issue had complicated a search that began after Michael Williams, the departing chief executive, announced in early January that he planned to leave the company, where he has worked for 21 years.

(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)

Mr. Mayopoulos, 53, joined Fannie in April 2009 as general counsel and later added the position of chief administrative officer. His promotion to CEO caps a remarkable turnaround for the financial-services lawyer, who was unexpectedly fired by Bank of America Corp. on the eve of the bank's acquisition of Merrill Lynch & Co. in 2008 to make room for Brian Moynihan, who later became Bank of America's chief executive.

Since joining Fannie, Mr. Mayopoulos has recused himself from dealing with any issues involving the bank, but that will be more difficult now that he is the CEO.

Fannie's relationship with Bank of America, which had been the mortgage giant's top customer after its acquisition of Countrywide Financial in 2008, turned tense last year after BofA challenged Fannie's policies to force the bank to buy back billions of dollars of defaulted mortgages. Fannie stopped accepting new sales of loans from Bank of America this year after a failure to resolve the disagreement.

Mr. Mayopoulos said he won't personally get involved with setting specific strategies or making decisions relating to issues where he had special knowledge about Bank of America, but that it wouldn't be practical to continue his recusal. "I clearly need to be aware of anything that's going on at Fannie Mae as it relates to Bank of America," he said in an interview Tuesday.

The housing bust hit Fannie hard, and the company has reported net losses totaling $162 billion between 2008 and 2011. But for the first quarter of 2012, it posted a $2.7 billion profit, showing glimmers of the company's potential future profitability once the housing market recovers.

"When I came here three years ago, the company was losing a lot of money.... From my perspective, we are undertaking a huge turnaround here," Mr. Mayopoulos said in the interview.

Chief among Mr. Mayopoulos's challenges will be retaining employees. Fannie and Freddie can be hard places to work because regulators must sign off on major and minor business decisions and the firms face deeply uncertain futures. They also have conflicting objectives: to both limit losses and take on more risks to help stabilize the housing market. Those competing mandates make the companies, already deeply unpopular for federal bailouts that have cost taxpayers $146 billion, a frequent target of criticism.

Mr. Mayopoulos has spent the bulk of his career as a general counsel for large banks and hasn't previously served as the head of a company. General counsels don't always find it easy taking over the corner office. In December 2010, Jeffrey Kindler retired unexpectedly after 4 1/2 years of leading Pfizer Inc., the world's largest drug maker by sales, saying the demands of the job had worn him out. And Mr. Moynihan, another general counsel turned CEO, has come under criticism for his leadership of BofA.

Mr. Mayopoulos said his familiarity with the "unusual circumstances that we operate in" under federal conservatorship mean that "the learning curve for me is much lower" than for an outsider. "The fact of the matter is I've grown beyond the general counsel role," he added.

Some current and former colleagues played down concerns that Mr. Mayopoulos might not have the right temperament to be CEO. "It's the rare attorney who is both a great business person, leader and legal mind, and Tim is all of those things," said Michael Clement, a former Bank of America executive who worked closely with Mr. Mayopoulos.

While at Bank of America, Mr. Mayopoulos earned a reputation for being "a man of integrity," according to one acquaintance who knew him during that time. "He came out smelling like a rose." On the other hand, bank colleagues regarded Mr. Mayopoulous "as kind of eccentric and iconoclastic," the acquaintance said. "He marches to his own drummer."

Fannie Mae directors tapped an insider because "typically, the devil you know is better," said one person familiar with the situation. "There are fewer unknown unknowns."