Fannie Mae's Former Chief Wants Earlier Hearing Date

By David S. Hilzenrath
Washington Post Staff Writer
Tuesday, February 6, 2007

Former Fannie Mae chairman and chief executive Franklin D. Raines, accused of manipulating the housing finance company's earnings, is challenging regulators to make their case against him beginning Feb. 16 instead of waiting until the end of the year.

Attorneys for Raines have argued that the Office of Federal Housing Enterprise Oversight, which issued administrative charges in December, is required by law to begin a hearing on the evidence within 60 days of that event.

The agency, however, has proposed a schedule that would have the two sides file pretrial statements in December. The agency's proposal did not say when the hearing should begin.

"It's a fundamental issue of fairness," said Mark Fabiani, a spokesman for Raines. "Frank Raines is ready to disprove OFHEO's allegations starting this month, and OFHEO is seeking to delay the proceedings until 2008."

A spokeswoman for OFHEO declined to explain the agency's reasons.

"We will respond in an appropriate filing as part of our routine communications in the administrative proceeding," spokeswoman Corinne Russell said.

The agency previously expressed concern about being overwhelmed by litigation related to Raines and the accounting scandal. In a lawsuit shareholders brought over Fannie Mae's accounting, the agency stated that complying with Raines's document requests could pose such a burden that it could divert regulators from their mission.

Raines's trial before an administrative law judge would be the culmination of a process regulators set in motion more than two years ago. In fall 2004, after an extended probe, OFHEO issued a report alleging that Fannie Mae used improper accounting. The Securities and Exchange Commission later agreed.

The ensuing storm drove Raines, a former federal budget director, into premature retirement.

District-based Fannie Mae, chartered by the federal government to promote affordable housing, ultimately determined that it overstated past profits by $6.3 billion.

In December, OFHEO issued administrative charges against Raines and two other former executives seeking to recoup more than $115 million of compensation they allegedly received while the earnings were misstated. The agency also is seeking penalties that could exceed $100 million.

All three former executives have denied the charges. The other executives, former chief financial officer J. Timothy Howard and former controller Leanne G. Spencer, back Raines's effort to force an administrative trial this month, their lawyers said.

At the trial's conclusion, an administrative law judge is to make a recommendation to the OFHEO director.

The three former executives say that the OFHEO director has prejudged the matter. An attorney for Raines has argued that the director, James B. Lockhart III, is using Raines as a prop in a campaign to persuade Congress to expand the powers of Fannie Mae's regulators.

As Raines seeks to begin the administrative trial sooner rather than later, he and the other former executives are seeking to move the case to federal court.

© 2007 The Washington Post Company