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Exit Packages in Dispute at Fannie Mae

By Terence O'Hara
Washington Post Staff Writer
Tuesday, December 28, 2004; Page E01

Two top executives ousted from Fannie Mae last week appear headed for a fight with the company over the size of their multimillion-dollar benefits and the circumstances of their departure.

Former chief executive Franklin D. Raines and former chief financial officer J. Timothy Howard are disputing the timing and terms of their exit, according to a filing that the District-based mortgage finance company made last night with the Securities and Exchange Commission.

Former Fannie Mae chief executive Franklin D. Raines, left, and ex-chief financial officer J. Timothy Howard say they left the mortgage finance giant for "good reason" and therefore deserve full pay and benefits.

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The company said that under the terms of his contract, Raines's pension payment would amount to $1.373 million a year for the rest of his life. But Raines "has asserted" that his retirement won't take effect for another six months, allowing him to collect an additional $600,000 in salary and boosting his pension payment to $1.396 million a year, the filing said.

Both Raines and Howard contend they left their jobs for "good reason," a designation in executive compensation plans that typically means they were forced to relinquish their jobs despite having performed well.

Accepting that definition would allow Raines to hold onto some stock options he would otherwise have to forfeit.

Fannie Mae said in the filing that Howard's resignation would be effective Jan. 31. But Howard argued, according to the SEC filing, that because he resigned for "good reason," he is entitled to his salary through June 30, 2007, when his current employment agreement expires. That would equal an additional $1.7 million in salary for the two years. Also, because of his age and years of service at Fannie, Howard would receive $432,852 a year in retirement benefits.

Raines and Howard were forced out of the company last week after the SEC's chief accountant determined that the government-chartered company had not followed crucial accounting polices, instead making up its own accounting rules. The result could be a $9 billion reduction in net income from 2001 to 2004.

Both men had asserted for months that the company had applied its accounting methods in good faith. But a September report by its federal regulator, the Office of Federal Housing Enterprise Oversight, alleged that Fannie had willfully misapplied accounting rules in order to achieve smooth earnings growth and hit earnings targets.

OFHEO has said it will be reviewing the termination packages and seek recovery if it determined the two men "were unjustly enriched."

Fannie Mae spokesman Charles Greener declined to comment.

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