The Office of Federal Housing Enterprise Oversight (OFHEO), the division of the Department of Housing and Urban Development that oversees and regulates Freddie Mac and Fannie Mae, has reached a notable settlement with three of Fannie Mae's former executives.
The settlement, announced late Friday, will end enforcement actions against the three officers arising out of accounting and internal control problems at the two government sponsored enterprises (GSEs) in 2004. It took Freddie Mac and Fannie Mae three years to revise their financial reporting to clear the problems and cost them a substantial part of their autonomy.
The Consent Orders were announced by OFHEO Director James B. Lockhart and dealt with former Fannie Mae Board Chairman and Chief Executive Officer Franklin D. Raines, former Chief Financial Officer J. Timothy Howard and former Controller Leanne Spencer.
OFHEO had filed an administrative Notice of Charges against the three on December 18, 2006, alleging that they had, among other charges, inappropriately managed earnings, failed to ensure that adequate internal controls were put in place, permitted the accounting function to operate without adequate resources, and released misleading financial reports. OFHEO charged that the above represented misconduct and unsafe and unsound practices that led to losses suffered by Fannie Mae.
The Consent Order requires that Mr. Raines pay Fannie Mae a total of $24.7 million. $3.8 million will be obtained from the sale of Fannie Mae stock of which $1.8 million will be allocated as a donation to programs and initiatives to assist homeowners facing the loss of their homes or other homeownership related initiatives approved by OFHEO. The remaining $2 million will be paid to the U.S. Government.
Mr. Raines will also surrender stock options that were valued at $15.6 million at the time they were issued and will relinquish other unnamed benefits estimated at $5.3 million.
Mr. Howard will pay $950,000 from the sale of his Fannie Mae stock, $200,000 of which will be donated to OFHEO approved homeownership programs and the remaining $750,000 paid to the U.S. Government. He will relinquish $5.2 million in stock options and an additional $240,000 in other benefits.
Ms. Spencer will pay $275,000 to the U.S. Government and waive any claims against Fannie Mae for compensation.
The three have also agreed that they will not work at Fannie Mae or any firm doing business with the GSE unless their compensation at such a firm is not tied to work or relationships with Fannie Mae.
In a press release issued by OFHEO, Mr. Lockhart stated "OFHEO's mission is to ensure that the Enterprises operate in a safe and sound manner. That cannot occur without corporate management providing prudent and responsible leadership and setting the appropriate ethical and overall 'tone at the top.' The Consent Orders announced today represent a satisfactory conclusion to the enforcement actions against these individuals. OFHEO continues to work with the current leadership of the Enterprises to ensure they meet the highest standards for corporate governance and corporate integrity."
OFHEO previously entered into a Consent Order with Fannie Mae that included a $400 million civil money penalty and revision of major internal controls, restructuring the company's organization, and changes in accounting practices and corporate governance.