By David S. Hilzenrath
Washington Post Staff Writer
Friday, July 6, 2007
Former Fannie Mae chairman Franklin D. Raines has mounted a new challenge to the government's power over the federally chartered mortgage funding company, arguing that regulators have no authority to delay his receipt of a $3.9 million stock award.
Raines sued regulators this week to get the shares released, and yesterday a federal judge scheduled a hearing on the question for July 16.
The fresh challenge comes as legislative efforts to give federal regulators more power over the company have stalled.
Raines is one of many current and former Fannie Mae executives who have been waiting to receive payouts pegged to the company's performance from 2003 through 2006, including periods when Fannie Mae's earnings were misstated and, regulators allege, the company was mismanaged.
Raines left the company after the Securities and Exchange Commission ordered it in 2004 to correct years of financial reports that overstated profit by billions of dollars. In reaching a $400 million settlement with regulators last year, Fannie Mae agreed never to employ Raines again.
As the company worked on straightening out its books, it delayed deciding how much stock its executives should receive under certain incentive plans. Last month, Fannie Mae's board proposed releasing millions of dollars of awards -- subject to approval by the Office of Federal Housing Enterprise Oversight.
The agency has since sought more information from Fannie Mae about how it arrived at the amount of the awards and told the company to keep the payments on hold until it completes its review.
The agency has warned Fannie Mae that any stock awards it released "could prove irretrievable" and could leave the company liable if later found to be excessive, according to a document filed in court yesterday.
In determining the size of the stock awards, Fannie Mae's board gave executives 80 to 95 percent credit for achieving "qualitative" -- or subjective -- goals, Patrick Lawler, OFHEO's chief economist, said in a statement filed with the U.S. District Court for the District of Columbia. The board gave them no credit for quantitative achievements because the company fell short of specific earnings targets, Lawler said.
In a letter last month, OFHEO Director James B. Lockhart III told Fannie Mae Chairman Stephen B. Ashley that Fannie Mae's performance from 2003 to 2006 "was deficient in many areas beyond simply lack of attainment of earnings goals."
Fannie Mae should review whether the conduct of Raines, former chief financial officer J. Timothy Howard and two other former executives "should prevent any or all payments" to those individuals, Lockhart wrote.
However, it was unclear whether OFHEO was considering permanently blocking payments to particular individuals. In another court filing, OFHEO said it "is not reviewing individual employees' possible PSP [Performance Share Plan] payments."
"To the contrary, all employees under the plan will be subject to the same percentage in determining their individual benefits," the filing said.
OFHEO spokeswoman Corinne Russell declined to elaborate on that point.
Raines is seeking release of 58,812 shares, worth $3.9 million at yesterday's closing price. In a parallel action, Howard is seeking 7,823 shares worth $523,124.
In court papers, lawyers for Raines argued that OFHEO's effort to temporarily block the payments contradicted previous decisions in which the court ruled that OFHEO could not informally freeze payments to former executives of Fannie Mae's rival, Freddie Mac, while litigating disputes with them.
Government lawyers countered that the issues are different, partly because Fannie Mae has entered agreements with OFHEO that give the agency authority over executive compensation.