Posted By: Mark Thatcher

By MARCY GORDON, AP Business WriterTue Nov 14, 7:45 PM ET

WASHINGTON - A former Fannie Mae chief executive who was ousted two years ago in the mortgage giant's accounting scandal will receive $2.6 million from the company under a deal disclosed Tuesday that largely resolves a pay dispute.
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Fannie Mae, which finances one of every five home loans in the United States, reported the agreement signed last week with Franklin Raines in a filing with the Securities and Exchange Commission.

The government-sponsored company is reworking its accounting back to 2001 in the wake of the scandal that forced out Raines and former finance chief Timothy Howard, and brought a record $400 million civil fine in a settlement with federal regulators.

Raines, who had been in negotiations with Fannie Mae that led to bringing in an outside arbitrator, had maintained that he was owed more money under his employment contract. He left with a $19 million severance package in December 2004.

Howard and Raines, who was a White House budget director under President Clinton, were among some 30 current and former Fannie Mae executives and directors under review by the company for possible disciplinary action or termination.

James B. Lockhart, head of the federal agency that oversees Fannie Mae and Freddie Mac, its smaller government-sponsored sibling in the multitrillion-dollar home mortgage market, has said his agency was considering suing former executives to recover tainted bonus money if Fannie Mae failed to recoup it.

A report issued in May by the agency, the Office of Federal Housing Enterprise Oversight, said company employees manipulated accounting to hit quarterly earnings targets so that senior executives could pocket hundreds of millions in bonuses from 1998 to 2004.

Raines earned more than $90 million from 1998 to 2003, according to OFHEO's report — including some $52 million in bonuses directly tied to the company hitting earnings targets.

He has denied any wrongdoing.

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