Some members of Fannie Mae's board of directors are trying to engineer a solution to the company's accounting problems that would satisfy regulators and still save the job of chief executive and board chairman Franklin D. Raines, according to sources familiar with the situation.
Board members have met at least twice, without resolution, since the SEC's top accountant last week determined that Fannie Mae had violated two major accounting rules and should correct its financial statements, a move that could wipe out $9 billion of profit posted since 2001. Instead of following requirements, the SEC official wrote, "Fannie Mae internally developed its own unique methodology."
Fannie Mae directors have concluded that Chief Financial Officer J. Timothy Howard must go, sources said, and are considering other changes, such as replacing their outside auditing firm, KPMG LLP, in hopes that would be enough for regulators to allow Raines to stay on.
Regulators at the Office of Federal Housing Enterprise Oversight have made it clear to the company that they think both Howard and Raines should be ousted to take responsibility for the accounting irregularities, according to sources.
The terms of an executive's departure determine how much compensation he would get and whether he would have to give any back.
OFHEO issued a scathing report in September accusing the company of violating accounting rules. Raines and Howard defended the accounting.
The agency, headed by Armando Falcon Jr., forced Freddie Mac, another government-sponsored housing finance company, to oust a chief executive last year after an accounting controversy at the McLean-based company. OFHEO also has challenged the severance payments of some Freddie officials.
Raines, 55, took the helm of Fannie Mae in 1999 after serving as director of the Office of Management and Budget in the Clinton administration. Before his stint at the OMB, he was vice chairman of Fannie Mae. Last year, his compensation, including stock options that the company valued at $3 million, totaled about $20 million.
Howard, 56, joined Fannie Mae in 1982 and has served as chief financial officer since 1990. He has overseen Fannie's accounting. His compensation last year totaled about $7.7 million, including stock options valued at about $2.4 million.
Raines and Howard declined requests for comment, Fannie Mae spokesman Charles Greener said. Greener also declined to comment.
Fannie Mae, based in the District, was chartered by the government to provide funding for home mortgages. It plays a behind-the-scenes role, buying mortgages from lenders and packaging them into securities that can be sold to investors.
Staff writer David S. Hilzenrath contributed to this report.
