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WASHINGTON (Reuters) - The regulator of Fannie Mae and Freddie Mac on Wednesday proposed new rules for the U.S. mortgage finance companies that would include regular auditor changes and executive compensation tied in part to legal compliance.

The amendments to current governance regulations, put forward by the Office of Federal Housing Enterprise Oversight in the wake of their 2003 review of an accounting scandal at Freddie Mac, would also include separating the roles of chief executive and chairman and term limits for directors.

"As government-sponsored enterprises, Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) should be held to the highest standards of business conduct and corporate governance requirements," OFHEO Director Armando Falcon said in a statement.

OFHEO said separating the CEO and chairman roles was sound both because the enterprises were government-sponsored and dominant in their markets but "also in light of the recent experience at Freddie Mac."

"Separating the functions of chairperson and chief executive officer is prudent for safe and sound operations because it would strengthen board independence and oversight of management on behalf of shareholders," OFHEO said.

Freddie Mac head Richard Syron serves in both capacities as did his ousted predecessors, Greg Parseghian and Leland Brendsel.

Under the proposed rule changes, directors would be limited to 10-year terms and would have to leave at age 72, committees would be required to meet more often and the board would get better information on such subjects as the companies' growth strategies and risk management resources.

The auditor rotation amendment would see the individual partner in the auditing firm handling the companies' books change every five years and the firm itself change every 10.

Executive compensation would have to be "appropriate and reasonable," and based on stability and legal compliance.

After publication in the Federal Register, the standards will be open for public comment for 60 days and then finalized.

The Senate Banking Committee passed legislation earlier this month to create a new regulator for Fannie Mae, Freddie Mac and the 12 regional Federal Home Loan Banks.

However, chances for the legislation waned after the Bush administration on Friday opposed the bill, saying it was too weak to do the job properly.

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