U.S. covering millions in Fannie Mae executives’ legal costs

Federal regulators have authorized nearly $100 million in payments to cover the legal costs of three former Fannie Mae executives, including more than $37 million since the government seized the firms more than three years ago, a watchdog said Tuesday.

Fannie has received $112 billion in taxpayer bailout money, as of last Sept. 30, since being taken over by regulators in September 2008.

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Yet it has been forced to cover the legal costs of defending executives who led the firm as far back as 2000: former chief executive Franklin D. Raines, former chief financial officer J. Timothy Howard and former controller Leanne G. Spencer.

The executives have been defending themselves in court from a variety of legal actions related to their stewardship of the company.

The watchdog report, by the inspector general for the Federal Housing Finance Agency, which oversees Fannie Mae, said FHFA and Fannie “have some, albeit limited, tools available to curtail litigation.”

In particular, FHFA has asserted the ability to withhold payments to parties suing Fannie executives until taxpayers are repaid.

Given the magnitude of the taxpayer bailout, the inspector general’s report said, “for all practical purposes, it is unlikely that Fannie Mae and Freddie Mac will ever be in a position to pay litigation claims.”

Plaintiffs suing Fannie have disputed that claim, however, and a court has declined to accept it.

The $100 million in payments represents only a fraction of the legal fees paid by Fannie and Freddie Mae, another bailed-out mortgage firm. According to a congressional inquiry into the matter last summer, at least $162 million has been spent.

The watchdog said FHFA is torn.

“On the one hand, it is interested in avoiding potential losses by effectively defending ongoing lawsuits against Fannie Mae and Freddie Mac,” the report said. “On the other hand, FHFA has an interest in controlling significant costs, particularly the tens of millions of dollars of payments made to attorneys and others involved in representing former senior executives.”