The Fannie Mae Foundation, the charitable arm of the scandal-plagued Fannie Mae corporation (FNM), may slash spending during its 2005-06 year because of the sinking stock and financial problems of its corporate donor.

The foundation also has tentatively stopped accepting grant applications from hundreds of non-profit community and housing groups that rely on it for funding. The foundation will resume the grant process in the coming weeks after its budget is revised, spokeswoman Beverly Barnes says.

Glen Howard, the foundation's general counsel, says the non-profit is looking at all areas for possible cutbacks, "because Fannie Mae is doing significant cost cutting across the board, and the foundation is a Fannie Mae expense."

Since last fall, Fannie Mae has been shaken by an accounting scandal that led to several federal investigations, a $9 billion restatement of earnings from 2001 to 2004 and the resignations of CEO Franklin Raines and chief financial officer Timothy Howard. Raines also was foundation chairman.

Over the past decade, Fannie Mae has funded its foundation with $650 million in its common stock. In 2003, the foundation was the second-largest U.S. corporate foundation, with $300 million in assets.

But since the accounting scandal broke publicly in mid-September, Fannie Mae's stock has fallen 21% to $56.08. As the foundation continued to disburse grant money to charities, it received no fresh infusion of Fannie Mae stock or cash.

The value of the foundation's Fannie Mae stock fell to $51 million as of Dec. 31 from $104 million the year before, Howard said. The foundation's assets dropped to $179 million from $300 million.

Foundation staff will present recommendations to directors on April 21. It's unclear whether any of the foundation's 90 employees will lose their jobs or how much might be cut from the budget.

Janice Walker, a Fannie Mae spokeswoman, says Fannie Mae officials "remain committed to the foundation" and its mission. She would not comment on whether the company would soon help the foundation with new stock or cash.

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