Fannie Mae's current and former executives should be forced to return any of the millions of dollars in bonuses they received since 2001 that were based on faulty bookkeeping, a congressional overseer of the housing finance company has told its regulator.
"I request your office take action to recapture all bonus payments from executives that were awarded based upon the faulty and deeply flawed earnings statements of the enterprise," Rep. Richard H. Baker (R-La.), chairman of the House Financial Services subcommittee that monitors government-chartered Fannie Mae, wrote in a Dec. 16 letter to Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight.
He noted that bonus plans were determined in part by the District-based company's profit and that the Securities and Exchange Commission chief accountant had ruled the day before that the company had violated two key accounting rules. That determination, Baker wrote, "invalidates the earnings on which millions of dollars in bonuses . . . were based."
The SEC officials directed Fannie to correct its financial statements back to 2001. Fannie has said that the correction could wipe out as much as $9 billion in previously reported profit.
Less than a week after the SEC ruling, Fannie's board of directors, under pressure from OFHEO, forced out chairman and chief executive Franklin D. Raines and Chief Financial Officer J. Timothy Howard. The two men are in a dispute with the company over the timing and financial terms of their departures.
OFHEO has not yet responded to Baker's letter.
Baker's request appears to apply not only to Raines and Howard, but to many other current and former top managers, including interim chief executive Daniel H. Mudd, who was the company's chief operating officer, and interim chief financial officer Robert J. Levin, who was an executive vice president.
In 2003, for example, Raines's total compensation of $5.41 million included $4.18 million in bonuses. Mudd's $2.1 million in compensation that year included $1.29 million in bonuses. Howard's $1.82 million in pay included $1.18 million in bonuses, and Levin's $1.37 million included an $800,000 bonus.
Raines's lawyer, Robert B. Barnett, and Howard's lawyer, Steven M. Salky, declined to comment on Baker's request.
Company spokesman Charles V. Greener declined to comment yesterday, so it could not be determined how many executives have been paid bonuses since 2001 or how much the awards total. At a hearing last fall, Baker released a list of the salary, bonuses and other compensation of 22 senior Fannie executives for 2002. For many, the bonus was larger than their annual pay.
Among those listed was Jamie S. Gorelick, a Fannie vice chairman and former deputy attorney general who left the company in 2003. She received a bonus of $911,250 in 2002.
The request to force repayment of past bonuses is in addition to calls from some in Congress that OFHEO limit future payments to Raines and Howard.
Spokesmen for the regulator have said the agency is reviewing the termination packages of Raines and Howard "and should it be determined that they have been unjustly enriched, we have enforcement tools at our disposal to seek recovery."
Fannie said in a regulatory filing describing the pensions and other details of Raines's and Howard's exit agreements that OFHEO had asked the company not to pay any of the benefits until the agency's review was complete. The company said it would "discuss these matters" with the regulator but did not promise not to pay the benefits.
The agency has tried to block Fannie's smaller rival, Freddie Mac, from paying millions of dollars in compensation to Leland C. Brendsel, who was ousted as Freddie Mac's chief executive in 2003 during an accounting scandal at that company. But it lost a court battle last summer when a federal judge said the regulator was "simply overreaching" when it tried to freeze most of Brendsel's exit pay.