Washington The chairman of Fannie Mae, the government-backed mortgage lender, on Wednesday described accusations of accounting misdeeds at his company as without merit.
In his first comments since the accounting troubles surfaced last month, Franklin Raines challenged an audit report that charged that Fannie Mae executives used an accounting sleight of hand to secure management bonuses.
Raines told members of a House of Representatives subcommittee that those accounting decisions were made in good faith and without concern for the bonus targets, and were consistent with acceptable practices.
On Sept. 22, the Office of Federal Housing Enterprise Oversight, a government regulator, said Raines received a $1.1 million bonus in 1998. In all, executives were paid $27.1 million that year.
The Securities and Exchange Commission is investigating Fannie Mae's accounting. The allegations of improprieties are related only to 1998.
The oversight agency's report noted that Fannie Mae pays management bonuses based on the publicly traded company's earnings per share. The audit contends that to reach the earning threshold for paying the bonuses, executives shifted expenses into another year, which boosted net income for 1998.
Raines said the appearance of shifting expenses was instead an acceptable practice of spreading out expenses over two years.
Armando Falcon Jr., the director of the oversight agency, said his organization ultimately might ask the Justice Department to file criminal charges against Fannie Mae executives.
"(Fannie Mae) willfully did not apply accounting principles properly," Falcon told the subcommittee. "They knew the rules and they chose not to follow them."
Fannie Mae is a government-sponsored company charged with raising homeownership rates by making mortgages more affordable, and as such it enjoys unique privileges, such as the ability to borrow directly from the U.S. Treasury.
As part of its assessment, the oversight agency recommended that Fannie Mae increase its capital surplus by 30 percent, or $3 billion. Fannie Mae has agreed to boost the surplus over the next nine months.
Raines and Timothy Howard, Fannie Mae's chief financial officer, said the move most likely would mean a decrease in Fannie Mae's market activities, and with it a decrease in its ability to serve lower-income homeowners.
Fannie Mae's stock, which was as high as $80.82 a share on the New York Stock Exchange in February, plummeted with the news of the report last month. It hit a 52-week low Friday, $62.95, and closed Wednesday at $67.45.
Despite saying there was no proof of improprieties, Raines said he would take responsibility if the accusations were shown to be accurate.
"If we have ... after a thorough review of all of the facts, determined that our company made significant mistakes, our board and shareholders will hold me accountable," Raines said. "And I will hold myself accountable. That comes with being CEO. I accepted that burden when I took the job, and I accept it today."