The company filing said that OFHEO had asked the company not to pay any of the termination benefits to Raines or Howard until the regulators' review is complete. Fannie said it "will discuss these matters" with the regulator but didn't say it would not pay the benefits.
OFHEO sought to freeze severance payments to dismissed former executives of Freddie Mac after that company's accounting problems last year. But a federal court ruled against the regulator in a recent decision, saying it was "simply overreaching" when it tried to freeze most of a former Freddie Mac chief executive's exit pay.
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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Fannie's filing did say the company would take into consideration the effect of the possible $9 billion correction to profits in calculating whether Raines and Howard would get bonuses for 2004 and how much they would be. It didn't address whether the company would seek to have Raines or Howard return long-term incentive awards and bonuses paid in recent years.
Raines is disputing the board's waiver of a requirement in his contract that he give the board six months' notice before retiring. It is Raines's position that the board should not waive the six-month notice requirement.
"Mr. Raines believes that he and the company should follow the exact terms of the contract as written and as specifically approved by OFHEO," said Robert B. Barnett, a partner at Williams & Connolly LLP who is representing Raines.
Raines's suggestion that he had "good reason" for retiring would also mean he could keep options to purchase more than 69,000 shares at $80.95 a share until 2011. Fannie's stock closed yesterday at $69.72, up 10 cents, on the New York Stock Exchange. As it is, Raines will walk away with options on 1,996,890 shares. His exercisable options on Dec. 21 were worth more than $5 million.
The company said in the filing that any dispute would be settled by arbitration.
In addition to his pension benefits, Raines receives free health insurance for himself, his wife and dependent children for life. The company will also pay the premiums for the rest of Raines's life on a life insurance policy that would pay out $5 million until he is 60 and $2.5 million after that.
Howard will be able to participate in the same health insurance plan as other Fannie Mae retirees for life. Fannie will also pay the premiums on a life insurance policy that would pay $2 million until January 2009, and $1 million after that, for the rest of his life. A lawyer for Howard did not return a phone call to his office last night.
"The idea that a board in these times could even think about sending two executives out the door with the millions of dollars that are clearly on the table here, under these circumstances, seems pretty shocking," said Abe M. Friedman, chief policy officer at Glass, Lewis & Co. LLC, which advises institutional investors with nearly $8 trillion under management. He added that it was "surprising" that Raines's and Howard's departure would be classified "as something other than firing for cause."
Compensation consultant Brian Foley also expressed surprise at the amount of the benefits. If Raines, 55, lives for 30 more years, he could receive more than $40 million.
"If this guy were aces, and if he were leaving after years and years of service, you might feel one way," Foley said. "But this is someone who is leaving under a cloud the size of Vermont. So that casts it in a somewhat different light."
Staff writer David S. Hilzenrath contributed to this report.
