Posted on 09/17/2008 8:38:12 AM PDT by johncocktoasten
WASHINGTON - The former Fannie Mae accountant who raised questions about the mortgage giant’s bookkeeping said Wednesday that he took his concerns directly to chief executive Franklin Raines in 2002 and asked him to investigate.
The disclosure by Roger Barnes, who left Fannie Mae last November, came as Raines and chief financial officer Timothy Howard defended the company’s accounting and told Congress that regulators’ allegations of earnings manipulation represent an interpretation of complex rules.
(Excerpt) Read more at msnbc.msn.com ...
I didn’t catch the date. I thought this was a new story. Good info just the same. McCain should tie this around his neck.
The article makes no linkage at all to Obama or his campaign.
If indeed there is a linkage, it will be up to the McCain campaign, the RNC, and 527s to let the public know about it. The media simply will not link the two. 1,000 voices will drown out the 100 conservative media voices. Unless Drudge sirens it.
A growing need - Fannie Mae ‘s Franklin Raines says immigrant and minority ownership are changing the face of the industry.
Star Tribune: Newspaper of the Twin Cities (Minneapolis, MN) - May 1, 2002
Author: Neal Gendler; Staff Writer
RSEC: If the United States is to meet the anticipated demand for housing, last year’s strong rate of 1.6 million new homes will have to continue for a decade, Franklin Raines , CEO of Fannie Mae , said Tuesday.
Speaking at the Minnesota Meeting public forum in downtown Minneapolis, Raines , who leads the nation’s largest source of residential mortgage funding, said the housing boom that helped sustain the economy through the recession was fueled by immigration, which in the 1990s was the highest in 90 years. About 16 million new homes will have to be built by 2010 to keep up with demand, he said.
``We find among immigrants the same desire for homeownership as among native-born Americans,’’ Raines said.
In an interview, Raines said an estimated 85 percent of U.S. households would like to own their homes. About 74 percent of white households already do, so the home-selling and mortgage-lending growth potential is in bringing up minority ownership. ``It’s not a `good deed’ anymore; it’s where the heart of the business is,’’ he said.
``Among black families, less than half own a home,’’ said Raines , a Rhodes scholar who served for two years in President Clinton’s cabinet as director of the Office of Management and Budget. ``We’re getting close to 50 percent, which is an achievement. But we’ve got to get beyond that, and the farther you go, the harder it gets’’ because the easier problems have been solved.
Between 1993 and 2001, Fannie Mae ‘s financing for black home buyers rose 194 percent _ and 205 percent for Hispanics. So if things are so good, why is the disparity still so wide?
``We’re coming from a low level,’’ he said. ``Ownership has grown faster among racial minorities than any other group in the 1990s. But it was coming from 44 percent and we got it up to 47, 48 percent. . . . We have a long way to go.’’
Fannie Mae does not lend directly to consumers but buys loans from lenders, packages them for mortgage-backed securities and uses the proceeds to make more loans. The government-chartered firm has been a leader in making mortgages more widely available by lowering down-payment requirements, widening income-to-debt ratios acceptable for a market-rate loan, and expanding criteria to prove credit-worthiness.
Six months ahead of schedule, Fannie Mae completed a 1994-2000 program to fund $1 trillion to increase homeownership among underserved populations. It now is two years into an ``American Dream Commitment’’ of $2 trillion to fund ownership for 18 million targeted households by 2010.
(snip)
FANNIE MAE BOSS IGNORED WARNINGS , EX-STAFFER SAYS
New York Post (NY) - October 7, 2004
Author: RICHARD WILNER
The whistle-blower who revealed alleged accounting irregularities at Fannie Mae yesterday charged CEO Franklin Raines with ignoring his warnings of balance-sheet shenanigans, then retaliating by forcing him out of the company.
Roger Barnes, who worked in the controller’s division, said he sent an e-mail to Raines in September 2002 alerting the CEO that the way the nation’s No. 1 holder of mortgage debt was dealing with amortizing debt violated accounting rules.
Raines never responded, Barnes said.
The whistle-blower, who said he was forced from his Fannie Mae job last summer, spoke out for the first time about his role in alerting Fannie Mae ‘s regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), to the irregularities.
His testimony came in the form of a written statement submitted to the House Finance Services Committee, which held a hearing yesterday concerning giving OFHEO increased muscle.
The explosive testimony could cost Raines his job and spur the Justice Department to open a full-fledged criminal probe of the matter.
According to Barnes, Fannie Mae CFO J. Timothy Howard and other top brass fully endorsed accounting measures that “managed” expenses and profits.
One year after Barnes went public with his accusations, OFHEO released a 200-page report ripping into Fannie Mae ‘s financial practices, calling them “cookie jar” accounting.
Fannie Mae deferred expenses and income in order to produce steadily growing profits which allowed Raines and Howard to line their pockets with millions in bonuses, the report found.
“It became a joke that the Controller’s division could produce any income statement that the Company wanted,” Barnes said in his testimony. Last year, Raines earned $20 million in total compensation, including $7 million in bonuses.
Earlier in the day, Raines , fighting for his job and political future, told lawmakers at the hearing that he did nothing wrong. The 55-year-old Washington veteran said Fannie Mae did its best to follow “highly complex” accounting rules.
It was the first time Raines , on the short list of choices to become Treasury Secretary in a possible Kerry administration, has addressed charges he and Howard promoted a policy to cook Fannie Mae ‘s books.
OFHEO Director Armando Falcon, Jr., led off a short list of witnesses by continuing his blistering attack on Fannie Mae .
It goes back further than that
http://www.washingtonpost.com:80/wp-dyn/articles/A32845-2005Apr6.html
Gorelick keeps showing up, like a bad penny. It’s an incestuous little world there in Washington, D.C. She may not be an accountant, but she’s a first-rate Washington influence peddler.
Email this to Drudge and others..
A little more about Frankie (from Wikipedia - I know, not always a reliable source). Guess details were below his ‘pay grade’ - and a good one it was at that. I didn’t know (or had forgotten) that he also rec’d a ‘friends’ loan from Countrywide.
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 [1], Raines graduated from Harvard University, Harvard Law School; and Magdalen College, Oxford University as a Rhodes Scholar. 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.”[1]
On December 21, 2004 Raines accepted what he called “early retirement” [2] 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 [3].
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 [4] initially estimated to be $9 billion but have been announced as 6.3 billion.[2].
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.[5] 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.[6]
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.” [7] In 2003 alone, Raines’s compensation was over $20 million.[3]
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.”[4]
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. [8]
In June 2008 Wall Street Journal reported that Franklin Raines was one of several politicians 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. [5]
http://en.wikipedia.org/wiki/Franklin_Raines
The media will gloss over this.
A link courtesy of deathbya1000papercuts.com mentioning Raines role in advising 0bama on mortgage and housing policy.
Jim Johnson, former Fannie Mae CEO prior to Raines reign, was one of the three principals on 0bama’s VP search team
That demonstrates a pretty serious misunderstanding of the requirements of Sarbanes-Oxley.
http://www.washingtonpost.com/wp-dyn/articles/A18127-2004Oct8.html
Timeline: Fannie Mae
Friday, October 8, 2004; 3:53 PM
http://findarticles.com/p/articles/mi_qn4188/is_20041007/ai_n11480491
CEO defends Fannie Mae’s accounting
Deseret News (Salt Lake City), Oct 7, 2004 by Marcy Gordon Associated Press
Fannie Mae accountant cites ‘threats, intimidation and reprisal’
USA TODAY (Arlington, VA) - October 7, 2004
Author: Edward Iwata and Jayne O’Donnell
Roger Barnes , a former accounting manager at Fannie Mae , says he felt the chill and humiliation after he started questioning the legality of the company’s accounting.
He says bosses stripped him of duties and excluded him from meetings. The CPA and MBA says they told him he didn’t understand accounting. A less-qualified person was promoted ahead of him, according to his congressional testimony Wednesday.
After years of alleged retaliation, Barnes got the chance to tell his tale to lawmakers looking into allegations of financial wrongdoing at the mortgage investment giant.
Barnes did not speak before lawmakers, but he submitted a 25-page statement to the House Committee on Financial Services and its subcommittee on capital markets.
His statement said he repeatedly alerted CEO Franklin Raines , Chief Financial Officer Timothy Howard and others to possibly fraudulent accounting involving “hundreds of millions of dollars.”
Barnes ‘ testimony says Fannie Mae was using “improper accounting practices” to “manipulate the level of income reported by Fannie Mae in its earnings statements and other public filings.”
Some of Barnes ‘ allegations arose in a report two weeks ago by the Office of Federal Housing Enterprise Oversight. Among other charges, the regulator said Fannie Mae failed to thoroughly investigate Barnes ‘ allegations, even after they were presented to the board’s audit committee Aug. 14, 2003.
According to his congressional testimony, in September 2002 Barnes wrote an anonymous memo — signed by a “Finance Division Manager” — to Raines and Howard about the accounting abuses. But nothing happened, he says.
“Neither Mr. Raines nor Mr. Howard, nor anyone from their staffs, investigated these concerns or took corrective action,” he says.
In July 2003, Barnes provided documents on the accounting problems to the company’s internal audit division. The audit unit’s response was “incomplete, perfunctory and ineffective,” Barnes says.
When auditors tried to get information, they were “stonewalled and drowned out” by managers eager to meet Fannie Mae ‘s earnings targets, according to Barnes .
Shortly after he wrote the memo, Barnes charges, Fannie Mae executives punished him and his staff, denying them promotions, giving poor performance reviews and trying to silence him.
“For the first time,” Barnes says, “my evaluation contained negative comments about my ‘communication’ and other interpersonal skills — completely subjective criticisms that were inconsistent with all of the company’s prior evaluations.”
Fannie Mae workers who did not agree with Raines and Howard also were “ostracized and subjected to retaliation,” while those who agreed to take part in the alleged improper accounting were promoted, according to Barnes .
Barnes described Fannie Mae — long praised as one of the country’s most successful and admired corporations — as “plagued by a corporate culture that uses threats, intimidation and reprisal” against employees who raise red flags.
Fannie Mae claims to practice good corporate governance and treat its employees fairly, Barnes said. “The reality, however, is far different,” he wrote.
Barnes left Fannie Mae in October 2003, claiming he had been forced out. He urged lawmakers to protect other Fannie Mae employees who step forward to disclose financial problems at the company. The accountant said he fears he will “suffer further retaliation” after telling his story to the committee.
Barnes is “a very serious, conscientious, community-oriented person who is dedicated to work in his church,” says his attorney, Debra Katz of Bernabei & Katz in Washington, D.C. “He has a strong sense of what’s right and not right.”
Barnes , who did not respond to phone calls or a visit to his home seeking comment, has been doing part-time consulting work.
He lives with his wife and three children in an upscale development in a Maryland suburb about 50 miles from Washington.
Katz, who specializes in employment discrimination and whistle-blower cases, says Barnes is not suing Fannie Mae . Barnes plans to meet with the Justice Department and the Securities and Exchange Commission next week.
Katz says Barnes has not sought the limelight: “He’s a private person who has not tried to insinuate himself into the middle of this.”
Fannie Mae spokeswoman Janice Daue said the company and its auditor, KPMG, investigated Barnes ‘ allegations and that when he left the company, Barnes said in writing and informally to colleagues that he believed his concerns had been addressed appropriately. Any employee who retaliated or threatened retaliation would be disciplined or fired, she said.
Welcome to FR and good job discovering this.
John McCain introduced a bill in 2005, which warned of the coming crash of Fannie Mae and other financial institutions. It actually predicted this exact scenario, but the Democrats ignored it.
thanks. pleased to participate in the best news/opinion forum in the world
I saw that, too...I love Neil Cavuto....I loved it when he told ‘the mouth’....”what you’re burning is the truth”....blabberlips didn’t know how to handle the situation....
Bizarre. I knew about the looming problems - that would absolutely lead to collapse - in 1998/99 and all I did was read the Wall Street Journal, which carped on and on and on about what was happening at Mae.
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