ACU Calls for Investigation into former Clinton Budget Director Franklin Raines' Role in Fannie Mae & Mortgage Meltdown

WASHINGTON, DC — The ACU today is calling for a full investigation of the role Franklin D. Raines played in the current national mortgage crisis and in the troubles that exist at Fannie Mae that have some calling for the federal government's intervention.

“When you examine Raines’ resignation from Fannie Mae amidst charges of accounting irregularities and previous practices he may have encouraged, including those that helped lead to the mortgage crisis we face today, Congress needs to conduct a full and fair investigation to see if his actions contributed to the need cited for a Fannie Mae bailout,” said David A. Keene, ACU Chairman, "We should know if they were done deliberately to grow Fannie’s balance sheet just to further his executive bonuses."

Following his tenure in Democrat Bill Clinton's White House as Budget Director, Raines returned to Fannie Mae where he served as Chairman and Chief Executive Officer prior to being forced out over accounting fraud allegations that federal authorities claimed were used to pad his own pocket with tens of millions of dollars in un-earned bonuses on top of his multi-million dollar pay.  Raines and other top executives drew multi-million dollar salaries at Fannie Mae for many years.

Although he claimed no wrong doing, Raines agreed to settle the suit with the federal government just this year and agreed to pay back a few million of the near $50 million it had been alleged he obtained illegally through bonuses not due from Fannie Mae.   

"Franklin Raines walked away with tens of millions of dollars from an organization that was supposed to be independent, but as we learned this week, many believed was backed by the American taxpayers. It appears Raine's may have used this perceived backing to push Fannie into acquiring risky mortgages that led to a spree of risky lending nationwide.  The question remains was this all in an effort to personally pocket more money," said Dennis E. Whitfield, ACU Executive Vice President. 

An article in Business Week magazine from 2002 sounded an early alarm about Raines' tenure at Fannie Mae when they reported on the unusually brisk real estate sales figures.  This article signaled the trouble that was coming for market and the American people. 

Article Excerpts:

BUSINESS WEEK MAGAZINE, MARCH 11, 2002
""The Homes Keep Selling" - Even Realtors are surprised by the market's strength. But will it last?
… Moreover, gains in home prices are outstripping wage gains. That creates a gold-rush mentality in which potential homebuyers rush to grab a house as quickly as possible, even if they overpay. And mortgage lenders are willing to oblige, even in the case of buyers who might not have qualified before. .. Countrywide is even willing to lend homebuyers 103% of the value of their new home to cover their closing costs, too. In part, the aggressive tactics of mortgage lenders have been made possible by the automated underwriting systems developed in recent years by the Federal National Mortgage Association (Fannie Mae)….  The new underwriting systems being used by Fannie Mae … allow for higher loan-to-income ratios than in the past to encourage home buying. …but the relaxed ratios could pose serious problems in the future. For one, there is already evidence that defaults are rising… For Fannie Mae … which only began expanding into subprime mortgages two years ago, deteriorating credit quality may be a new and unpleasant experience.

"It is clear that as Chairman of Fannie Mae, Franklin Raines changed the way business was done in an effort to increase the size of his organization.  His actions may have influenced those of Freddie Mac.  Fines have been paid, new regulations have been put in place and legally settlements have been signed over his actions.  Now the question needs to be answered… did he change the way business was done, to encourage risky loan behavior, in an effort to increase his balance sheets and further pad his own pockets with tens of millions of dollars in perceived taxpayer-backed organization funds," said Dennis Whitfield.

The ACU points out that this is an even more important question when put in context with the recently uncovered news of the Countrywide program to provide special loans to connected individuals. 

It has been reported Raines was part of this secretive program.  At the time, reports have stated Fannie Mae was Countrywide's largest purchaser of loans.  Raines loans reportedly totaled more than $3.5 million from Countrywide.

The Countrywide project deemed, "friends of Angelo" or FoA, standing for Friends of Countrywide Chief Executive Angelo Mozilo, apparently provided special loan rates for connected officials.  These included Raines, James Johnson (a Democratic party activist and adviser to Sen. Barack Obama who was named to a panel to help choose Obama's Vice Presidential running mate), Democrat Chairman of the Senate Banking Committee, Senator Christopher Dodd, and the chairman of the Senate Budget Committee, Democrat Kent Conrad.

"Dodd should recuse himself of involvement in this investigation due to his personal involvement with Countrywide and allow a full and fair investigation to go forward," said Dennis Whitfield, "Only then will the American people have confidence that any potential conspiracy to encourage risky loan behavior and the subsequent mortgage market's troubles is investigated thoroughly."

The ACU will be encouraging its members nationwide to call on Congress to initiate an investigation.

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