Franklin Raines

Franklin Delano Raines (born January 14, 1949), also known as Frank Raines, is an American business executive.

He is the former chairman and chief executive officer of the Federal National Mortgage Association, commonly known as Fannie Mae, who served as White House budget director under President Bill Clinton.

His role leading Fannie Mae has come under scrutiny.

He has been called one of the "25 People to Blame for the Financial Crisis" according to Time magazine.

Raines was born in Seattle, Washington, the son of a janitor.

Raines graduated from Harvard College, Harvard Law School; and Magdalen College, Oxford University, as a Rhodes Scholar.

In 1969, Raines first worked in national politics, preparing a report for the Nixon administration on the causes and patterns of youth unrest around the country related to the Vietnam War.

He served in the Carter Administration as associate director for economics and government in the Office of Management and Budget and assistant director of the White House Domestic Policy Staff from 1977 to 1979.

Then he joined Lazard Freres and Co., where he worked for 11 years and became a general partner.

In 1991 he became Fannie's Mae's vice chairman, a post he left in 1996 in order to join the Clinton Administration as the director of the U.S. Office of Management and Budget, where he served until 1998.

In 1999, he returned to Fannie Mae as CEO.

In 2003 alone, Raines's compensation was over $20 million.

A statement issued by Raines said of the consent order, it "is consistent with my acceptance of accountability as the leader of Fannie Mae and with my strong denial of the allegations made against me by OFHEO".

On December 21, 2004, Raines accepted what he called "early retirement" from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities.

He was accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.

The OFHEO charges were repeated in a class action securities fraud lawsuit filed on September 23, 2004, by the Ohio Attorney General on behalf of Ohio state pension funds and other investors.

In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $90 million in payments made to Raines based on the overstated earnings, initially estimated to be $9 billion but have been announced as $6.3 billion.

Civil charges were filed against Raines and two other former executives by the OFHEO in which the OFHEO sought $110 million in penalties and $115 million in returned bonuses from the three accused.

On April 18, 2008, the government announced a settlement with Raines together with J. Timothy Howard, Fannie's former chief financial officer, and Leanne G. Spencer, Fannie's former controller dismissing its charges.

The three executives maintained their denial of the charges but agreed to the payment of fines totaling about $3 million, which were paid by Fannie's insurance policies.

Raines also agreed to donate to charity the proceeds from the sale of $1.8 million of his Fannie stock newly issued to him by the company and to give up stock options, which were valued at $15.6 million when issued.

The stock options however had no value.

The OFHEO press release said Raines also gave up an estimated $5.3 million of "other benefits" said to be related to his pension and forgone bonuses.

Raines denied that he gave up any such benefits or paid any money out of pocket for the settlement.

A 2008 editorial in The Wall Street Journal called it a "paltry settlement" which allowed Raines and the other two executives to "keep the bulk of their riches".

In June 2008, The Wall Street Journal reported that Franklin Raines was one of several people who may have received below market rates loans at Countrywide Financial because the corporation considered the officeholders "FOA's"--"Friends of Angelo" (Countrywide Chief Executive Angelo Mozilo).

But the article acknowledged that it had insufficient data to confirm whether the rates were below market.

He received loans for over $3 million while CEO of Fannie Mae.

Raines has denied that he received any loan terms from Countrywide other than those for which he qualified based on his credit standing.

Whether the GSEs (Government-Sponsored Enterprises) caused or greatly contributed to the financial crisis of 2008 is controversial.

The overwhelming consensus of those who have examined the issue find that their connection in to the crisis was minor at best.

On September 20, 2012, Federal District Court Judge Richard Leon granted summary judgment to Raines and dismissed him from the suit.

The judge noted that over its eight-year history "the parties produced nearly 67 million pages of documents, deposed 123 fact witnesses, and engaged 35 expert witnesses".

Despite all of that discovery, Judge Leon found, "plaintiffs have not identified any evidence that Raines knew or, indeed had any reason to know, that Fannie Mae's accounting violated GAAP (Generally Accepted Accounting Principles). Further, plaintiffs have not identified any evidence that Raines intentionally misled investors through his statements concerning the implementation and operation of these accounting policies."

The judge also refused to give any credence to the original OFHEO reports.

He wrote, "the OFHEO reports were part of an effort to prepare administrative charges against the individual defendants and raise substantial questions of trustworthiness."

(Memorandum Opinion September 20, 2012, Judge Richard Leon, United States District Court for the District of Columbia, In re Fannie Mae Securities Litigation MDL No. 1668, Consolidated Civil Action No. 04-1639)

In a settlement with OFHEO and the Securities and Exchange Commission, Fannie paid a record $400 million civil fine.

Fannie, which is the largest American financier and guarantor of home mortgages, also agreed to make changes in its corporate culture and accounting procedures and ways of managing risk.

The SEC and the Justice Department never brought any charges against Raines.