updated 4/18/2008 3:06:07 PM ET 2008-04-18T19:06:07

Former Fannie Mae chief Franklin Raines and two other top executives are paying a total of nearly $31.4 million in a settlement with the government announced Friday over their roles in a 2004 accounting scandal.

Raines, former Fannie chief financial officer Timothy Howard and former controller Leanne Spencer were accused in a civil lawsuit in December 2006 with manipulating earnings over a six-year period at the company, the largest U.S. financer and guarantor of home mortgages.

Raines, a prominent Washington figure who was President Clinton’s budget director, has agreed to pay $24.7 million, including a $2 million fine and relinquishing of company stock options valued at $15.6 million.

Howard is paying $6.4 million and Spencer $275,000.

The deal was announced by the Office of Federal Housing Enterprise Oversight, the agency that oversees Fannie Mae and Freddie Mac, the two big government-sponsored mortgage finance companies.

“OFHEO’s mission is to ensure that (Fannie and Freddie) operate in a safe and sound manner,” the agency’s director, James B. Lockhart, said in a statement. “That cannot occur without corporate management providing prudent and responsible leadership and setting the appropriate ethical and overall ’tone at the top’.”

Fannie and Freddie both had multibillion-dollar accounting scandals that stunned Wall Street and brought record civil fines against them in settlements with the government.

The amounts that Raines, Howard and Spencer are paying under the settlement are far less than what the government was seeking when it sued them in December 2006. OFHEO sought fines of around $100 million against the three and restitution totaling more than $115 million in bonus money tied to an improper accounting scheme.

The regulators alleged an accounting fraud at Washington-based Fannie Mae that included manipulations to reach quarterly earnings targets so that Raines, Howard, Spencer and other company executives could pocket hundreds of millions in bonuses from 1998 to 2004.

Raines and Howard were swept out of office in December 2004 in the accounting fiasco at Fannie Mae. Two years later, the company announced a restatement for 2001 through June 30, 2004, that erased $6.3 billion in previously reported profit.

Raines’ total compensation from 1998 through 2004 was $91.1 million, including some $52.6 million in bonuses, according to OFHEO. Howard earned $30.8 million during the period, including $16.8 million in bonuses; Spencer received $7.3 million, of which some $3.5 million was bonus money.

Fannie Mae paid a record $400 million civil fine in a settlement with OFHEO and the Securities and Exchange Commission. It also agreed to make top-to-bottom changes in its corporate culture, accounting procedures and ways of managing risk.

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