Franklin Delano "Frank" Raines (born January 14, 1949 in Seattle, Washington), was the first African-American CEO of a Fortune 500 company when he took the job in 1999. He is the former chairman and chief executive officer of the Federal National Mortgage Association, commonly known as Fannie Mae, and also served as White House budget director under President Bill Clinton. His role leading Fannie Mae has come under scrutiny.
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 $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. 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.
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. Although under Raines, Fannie Mae invested in some securities backed by subprime loans, it didn't start buying subprime and Alt-A loans directly (and bundling them into securities) until late 2004 after the accounting scandal. Purchasing of subprime and alt-A mortgages expanded exponentially under the guidance of Raines's successor Daniel H. Mudd.
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. "He cooked the books at Fannie to increase his compensation (more than $90 million)."