Three former Fannie Mae leaders, two of them top finance executives, have agreed to pay a combined $31 million to settle enforcement actions relating to the mortgage lender’s accounting scandal.
The Office of Federal Housing Enterprise Oversight (OFHEO) alleged that Fannie’s ex-chairman and chief executive Franklin Raines, ex-CFO J. Timothy Howard, and ex-controller Leanne Spencer “undertook inappropriate earnings management, failed to ensure that adequate internal controls were put in place, released misleading financial reports, and permitted the accounting function to operate without adequate resources.” These actions represented misconduct and unsafe and unsound practices that led to losses suffered by Fannie Mae, according to the OFHEO.
“OFHEO’s mission is to ensure that the Enterprises operate in a safe and sound manner,” said the office’s director James Lockhart in a statement. “That cannot occur without corporate management providing prudent and responsible leadership and setting the appropriate ethical and overall tone at the top.”
Under the settlement, Raines will give up $24.7 million. That includes proceeds from the sale of Fannie Mae stock valued at $1.8 million, to be donated to programs to assist homeowners threatened with the loss of their home or donated to other initiatives to assist homeownership, as approved by the OFHEO. Raines will also make a $2 million payment to the U.S. government and surrender claims related to stock options with a value of $15.6 million when they were issued. Other benefits to be surrendered amount to about $5.3 million.
Howard will pay a total of $6.4 million, including the sale of Fannie Mae stock valued at $200,000, again to be donated to homeownership programs. He will pay $750,000 to the government and surrender claims related to stock options with a value of $5.2 million when they were issued. Other benefits lost are estimated at $240,000. Spencer will pay the government $275,000.
All three orders provide that the individual will not work at or receive compensation from Fannie Mae or any firm that does business with Fannie Mae.
Earlier this decade, the mortgage giant made $7.9 billion in accounting errors related to its derivatives and hedging activities, and it underwent a massive restatement process in 2006.
Attorneys for the three former executives could not be reached by press time, and Fannie Mae did not immediately return a call.