Fannie Mae named its general counsel, Timothy Mayopoulos, as its next chief executive officer after he agreed to a sharp pay cut imposed by the mortgage-finance company's federal regulator.
Mr. Mayopoulos 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. (BAC) as its general counsel on the eve of the bank's acquisition of Merrill Lynch & Co. in 2008 to make room for Brian Moynihan, the general counsel who later became Bank of America's chief executive.
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Mr. Mayopoulos, 53 years old, now will be in a position where he may have to interact with Mr. Moynihan and other Bank of America executives. In his job as Fannie's general counsel, Mr. Mayopoulos recused himself from dealing with any issues involving Bank of America.
Mr. Mayopoulos said he won't personally get involved with making decisions relating to issues on which 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 Tuesday.
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 cut to $600,000 in line with 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.
The executive-pay issue had complicated a search that began after Michael Williams, the departing CEO, announced in early January that he planned to leave the company. Mr. Mayopoulos said in an interview Tuesday that he accepted the job, which he will assume June 18, despite the pay cut because "I thought it'd be an extremely exciting opportunity."
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Edward DeMarco, the FHFA's acting director, acknowledged that it is unusual for an executive to be promoted and forgo a pay increase, much less take a pay cut. But he noted that the Fannie CEO job has "a public service attribute." Fannie's relationship with Bank of America, which became 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 in defaulted mortgages. Fannie stopped accepting new sales of loans from Bank of America this year after a failure to resolve the disagreement.
The housing bust hit Fannie hard, and the company posted 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.…We are undertaking a huge turnaround here," Mr. Mayopoulos said in the interview. Heidrick & Struggles International Inc. handled Fannie's CEO search.
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.
The firms also have conflicting objectives: to both limit losses and take on more risks to help stabilize the housing market. Those competing mandates make the firms, already deeply unpopular for bailouts that have cost taxpayers $146 billion, a frequent target of criticism.
Mr. Mayopoulos signaled that he was unlikely to yield to growing political pressure from the White House and Democrats in Congress to write down loan balances for some homeowners. Current loan modifications reduce monthly payments but don't forgive debt. "From my perspective, I don't believe we need principal reduction to modify loans and make [modifications] work for homeowners," Mr. Mayopoulos said.
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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.
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 dismissed concerns that Mr. Mayopoulos might not have the right CEO temperament. "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 him.
While at Bank of America, Mr. Mayopoulos earned a reputation for being "a man of integrity" for being willing to challenge executives, according to one acquaintance who knew him during that time. "He came out smelling like a rose," the person said.
On the other hand, bank colleagues regarded Mr. Mayopoulos as eccentric and iconoclastic. "He marches to his own drummer," the acquaintance said.
Mr. Mayopoulos's final days at BofA have factored into various shareholder lawsuits against the bank. While he initially recommended that ballooning losses at Merrill Lynch weren't large enough to disclose, he later testified in a deposition that he was surprised when he learned several days later that the losses had gone even higher.
But before he had a chance to communicate his concerns to senior executives or board members, he was fired and escorted from the building. Officials wouldn't even let him take family photos on his desk, although he was able to sneak away a birthstone ring from his grandfather that was stashed in his desk.
—Dan Fitzpatrick contributed to this article.
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