Franklin Raines

Franklin Raines on July 31, 2002

Franklin Delano Raines (born January 14, 1949 in Seattle, Washington) is the former chairman and chief executive officer of Fannie Mae who served as White House budget director under President Bill Clinton.

The son of a Seattle janitor , Raines graduated from Harvard University, 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, "the first black man to head a Fortune 500 company."

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 is 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 .

In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $50 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. The three executives agreed to pay fines totaling about $3 million, which will be paid by Fannie's insurance policies. Raines also agreed to donate the proceeds from the sale of $1.8 million of his Fannie stock and to give up stock options. The stock options however have no value. Raines also gave up an estimated $5.3 million of "other benefits" said to be related to his pension and forgone bonuses.

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

A statement issued by Raines said of the consent order, "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."

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.

In June 2008 The Wall Street Journal reported that Franklin Raines was one of several public officials who received below market rates loans at Countrywide Financial because the corporation considered the officeholders "FOA's"--"Friends of Angelo" (Countrywide Chief Executive Angelo Mozilo). He received loans for over $3 million while CEO of Fannie Mae.

Role in the subprime mortgage crisis

See also: Subprime mortgage crisis

In accordance with the mission of Fannie Mae to enable home ownership by a greater proportion of the population, Franklin Raines, while Chairman and CEO, began a pilot program in 1999 to issue bank loans to individuals with low to moderate income, and to ease credit requirements on loans that Fannie Mae purchased from banks. Raines promoted the program saying that it would allow consumers who were "A notch below what our current underwriting has required" to get home loans. The move was intended in part to increase the number of minority and low income home owners. Some observers have noted that the expansion of easy credit to home buyers with a lesser ability to pay them back was one of the major contributing factors to the subprime mortgage crisis. However, involvement of Fannie Mae in the subprime market was sought and achieved by Raines's successor Daniel H. Mudd. (See also Subprime lending.)

Washington Post articles referencing Raines and Obama

On July 16, 2008, The Washington Post reported that Franklin Raines had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters." . Also, in an editorial in August 27, 2008 titled "Tough Decision Coming", the Washington Post editorial staff wrote that "Two members of Mr. Obama's political circle, James A. Johnson and Franklin D. Raines, are former chief executives of Fannie Mae."

On September 18, 2008, John McCain's Campaign, published a campaign ad that quoted the Washington Post's claim that Franklin Raines advises Barack Obama on economic matters. The ad also notes that "Raines made millions and then left Fannie Mae while it was under investigation for accounting irregularities". Both Raines and the Obama Campaign claim that Raines is not an Obama advisor and has never advised Senator Obama.

In the New York Times John Steele Gordon wrote an opinion criticizing Raines' contribution to the 2008 financial crisis caused by the failure of Fannie Mae, "...Fannie C.E.O. from 1999 to 2004, had been budget director in the Clinton White House. He cooked the books at Fannie to increase his compensation (more than $50 million)."

In 2008 September U.S. Presidential candidate Senator John McCain has sought to tie Raines to McCain's opponent Barack Obama, in an effort to discredit Obama on economic issues. McCain quoted the Washington Post articles stating that Raines advises Obama. Raines and Obama state that he does not. When the claim that Raines was an Obama advisor first appeared in the Post months before the McCain ad, the Obama campaign didn't seek a correction at the time.

The Washington Post characterizes John McCain's attempts to connect Sen. Obama with Franklin Raines based on their reporting as "a stretch." All reporting the Washington Post did about the matter stems from a single conversation a reporter had with Raines, in which she recalls Raines said "he had gotten a couple of calls from the Obama campaign."

See also

• Countrywide financial political loan scandal
• Federal takeover of Fannie Mae and Freddie Mac

The Washington Post is in the tank for Obama 08, and will gaurd againist attmepts to defame Obama..

External links

• OFHEO Director Testimony before US Senate - Franklin Raines conduct as Fannie Mae CEO
• Video Interviews - Franklin Raines With Stephen Shepard
• Article by Henry Blodget of Slate Magazine Defending Franklin Raines - October 7, 2004