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Report Details Raines's Clout at Fannie Mae

But Raines signed off on the expense delay, too, and as chief executive later promoted Howard to the No. 2 spot in the company.

While the report suggests that Raines was not aware that many company practices violated standard accounting procedure, the episode may change the legacy that grew around Raines as he progressed from Seattle to Harvard Law School to the center of Washington society.

Howard's attorney, Steve Salky, said he and his client "reject the report's mischaracterization of Mr. Howard's motives and conduct." Spencer's attorney, David Krakoff, said he and his client "vigorously dispute the speculative allegations in the investigation by the special review committee."

Raines declined to be interviewed. But in a written release, his attorney, Robert B. Barnett, said Raines "strongly believes that, as the leader of Fannie Mae, he should be accountable for what happened within the organization, regardless of his personal involvement or fault."

'A Superstar'

Raines had the ideal mix of business and political credentials to lead the company. Responsible to investors hungry for returns, Fannie Mae is also closely watched by Congress and federal regulators because of its government-chartered role in the housing markets.

A lawyer by training and a longtime investment banker, Raines was familiar with the ways of Washington after working in the Carter administration and, notably, helping negotiate a balanced-budget agreement in the Clinton years.

When President Jimmy Carter was in office, "Frank made a number of presentations to the president," said former presidential aide Stuart Eisenstadt. "He did it with great aplomb. It took me a week to realize I had a superstar."

Raines had toyed with running for office, and at one point called former law school classmate Kurt Schmoke, then mayor of Baltimore, to inquire what Schmoke's day was like. Though Raines was an inspiring presence at a podium, by the time he became OMB director, he had lost interest in running for elected office. He was, at heart, an introvert.

When he was tapped to run Fannie Mae in 1998, he inherited a company shaped by his two predecessors, David O. Maxwell and James A. Johnson. Maxwell saved the company from bankruptcy in the early 1980s. Johnson turned the company into a political and business juggernaut.

Fannie was created by Congress to make money available for home loans by buying mortgages from banks and other lenders. For decades, it held mortgages until they were paid off. But after a spike in interest rates in the late 1970s and early 1980s nearly pushed Fannie Mae into bankruptcy, it began pooling more mortgages into securities and selling them.

Under Johnson, the company began keeping more mortgages and mortgage-backed securities for investment purposes, a lucrative but potentially risky strategy because it left the company susceptible to interest rate swings. By the time Raines took over in 1999, Fannie Mae's investment portfolio had more than doubled in value, to $523 million in just five years.

As a government-chartered enterprise, Fannie was always vulnerable to attempts to reign it in through legislation. Under Maxwell and Johnson, the company learned to thwart such attacks using an extensive political machine underwritten by the company's growing profit.

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