Bonus Payouts Nixed by Fannie Board

Top officials at Fannie Mae won't be seeing their bonuses for award periods that date back to 2001.

Fannie Mae is withholding at least 36 bonuses from current and former officials, which in the aggregate are worth $44.4 million. According to a February 20 regulatory filing, the board of directors announced that Fannie Mae will not make bonus payouts under the mortgage lender’s long-term incentive performance share program that dates back to award cycles that started in 2001.

The company, which generates $52 billion in revenues, is still working through a massive $10.8 billion accounting scandal stemming from its derivatives and hedging activities. Last year, the company announced that it was spending more than $1 billion to prepare restatements covering the past few years. The restatement and related regulatory costs amount to roughly $850 million, while costs associated with the preparation of financials and related regulatory filings for periods after 2004 are estimated to exceed $200 million. In addition, the lender announced in May that it agreed to pay $400 million to settle charges related to its accounting problems with the Office of Federal Housing Enterprise Oversight (OFHEO) and the Securities and Exchange Commission.

The decision to nix the bonus awards followed a board review of the company’s performance during the scandal-ridden years that encompassed the award cycles. The board review also focused on Fannie Mae’s tardy 2004 annual report, which was not filed until December 6, 2006, and restated financial reports. By canceling the bonuses, Fannie Mae is able to increase its income by $44.4 million, an amount the company had previously expensed on a pre-tax basis.

Before the 2005 award cycle, Fannie Mae executives were promised bonuses for attaining certain board-set goals based on growth in core business earnings. Under the program, the compensation committee measured achievements against performance goals, and determined the award amount, which was disbursed in two steps. Half was paid out in January of the year following the end of the award cycle, the other half would be distributed a year later. Since January 2004, however, Fannie Mae’s board has not awarded these types of bonuses.

Furthermore, the company noted that because it lacks “reliable financial data for all years within the award cycles ended on December 31, 2005 and 2006,” the board will not earmark bonuses for those periods at this time.

Among the officials that will not receive bonuses for the years 2001 through 2004 are current Fannie Mae CEO Daniel Mudd and former CEO Franklin Raines, reports the Associated Press. The withheld bonuses announced in Tuesday’s filing are not related to an ongoing civil suit against Raines, former CFO Timothy Howard, and former controller Leanne Spencer, in which OFHEO is suing the individuals for the return of more than $115 million in bonus money. Fines in that case could exceed $100 million.

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