Pay Deals at Fannie Reviewed

Fannie Mae’s chief regulator is reviewing whether the mortgage finance giant paid too much in severance and bonuses to former Chief Executive Franklin Raines and Chief Financial Officer J. Timothy Howard, who were ousted this week over alleged accounting mistakes.

At stake for Raines is as much as $30 million in stock and options and a $1-million-a-year pension. Howard’s package includes about $13 million in stock and options and a $559,000 annual pension, according to an analysis by the Corporate Library, a corporate-governance advisor.

“We will be reviewing their termination packages, and should it be deemed they were unjustly enriched, we have the enforcement tools at our disposal to seek recovery,” Corinne Russell, a spokeswoman for the Office of Federal Housing Enterprise Oversight, said Thursday in Washington.

The dismissals of Raines and Howard came after the oversight office and the Securities and Exchange Commission said Fannie Mae made mistakes in accounting for contracts designed to protect more than $900 billion of mortgage securities from interest rate swings.

Fannie Mae on Wednesday said it would restate profit for 2001 to mid-2004, and that the restatement might total as much as $9 billion.

One issue to be determined is whether Raines should have been allowed by the company’s board to take early retirement, or if he should have been dismissed for cause. If dismissed, Raines wouldn’t be able to take his options and stock, and his pension would be trimmed.

Raines said in a statement Tuesday that he was retiring in response to the SEC’s finding.

Fannie Mae spokesman Brian Faith declined to comment on the severance packages.

Separately Thursday, the oversight office approved Fannie Mae’s payment of preferred stock dividends this quarter, but said it would continue to review future proposed payments.

The office “is not prepared to issue an approval for subsequent periods and will continue to review dividend-payment requests,” Fannie Mae said in a statement.

Some analysts, including Edwin Groshans at Fox-Pitt, Kelton Inc. in New York, have said Fannie Mae may be forced into a “short-term suspension” of dividends on its common stock as it tries to rebuild its capital in light of the accounting issues.

The company’s common stock fell $2.30 to $69.62 on the New York Stock Exchange.