Franklin Raines
1949–

Federal government official, lawyer

Franklin Delano Raines was born on January 14, 1949, in Seattle, Washington. Raines was named after his father, Delno, but the hospital mistakenly recorded his name as Franklin Delano, assuming he was named after President Roosevelt. Having the initials F.D.R seemed to mark Raines for a special role in public service and government. Both his parents were employed as janitors. His mother held a steady job at Boeing, a fact Raines proudly acknowledged when he joined the company's board of directors. His father, who suffered from severe bouts of depression, worked intermittently for the Seattle parks department. During his frequent hospitalizations, the family was forced to seek welfare assistance. Raines is the fourth of six children. The family included a seventh child, a nephew under the guardianship of his parents. Although his childhood years were tough economically, the family managed to stay together. His parents taught by example, instilling core values of hard work and determination in their children. When his father was out of work, he would head to the fields south of Seattle to harvest beans. Raines would often accompany him, working alongside his father all day. His earnings from a job at the local grocery store also helped to supplement the family's income.

In his speeches, Raines often talks about the importance of home ownership. Owning a home allowed his family to meet their basic needs. He tells the story of how his father painstakingly built the family home over a five-year period with accumulated scrap materials salvaged from a home slated for demolition. At that time, his father's only option as a low-income wage earner was a high-interest loan. There were no special programs or agencies that offered affordable financial assistance. The experience taught Raines important lessons about home ownership and setting goals. When he became chairman of Fannie Mae, in charge of the company's overall financial policies, his perspective was deepened by his family's experience. It increased his sensitivity to people's needs and filled him with a determination to ease the burden of home ownership for low-income wage earners.

Just as his father had to arrange finances and gather materials and all the necessary tools to build his home, so it took education, experience, and integration into the power establishment for Raines to realize his goals. During the early years, he attended predominately black public schools. In high school Raines participated in a wide range of activities from academics to sports. He was captain of the football team, student government president, and a member of the debating team that won the state championship. Although he loved sports, he realized that academics had to be ranked higher. Franklin High School in Seattle, Washington was a racially diverse educational institution with an established tradition of praising stu-dent achievements. Raines was privileged to have good teachers and mentors who steered him in the right direction. He graduated with a perfect academic record in 1967. The philosophy espoused by the school was one he embraced and upheld throughout the years.

Raines's early career plans included law school but winning a scholarship and going to Harvard far exceeded his future expectations. Fortuitously, Harvard was recruiting students from the region to boost the school's status as a national university. Raines and his family were elated when he was awarded a Harvard national scholarship. During the summers he gained valuable government experience by working in various civic positions in the state of Washington. Raines, a moderate, joined the Young Democrats and the Young Republicans clubs on campus often participating in the rallies and protests on campus. In 1969, he was invited to intern for Senator Daniel Patrick Moynihan, who had been one of his college professors. Moynihan was serving in the Nixon administration as the adviser on urban affairs. Raines was asked to survey college campuses and report on the state of antiwar demonstrations. His middle ground centrist approach to the war was not always a popular one on the Harvard campus. He also served that year as a delegate to the White House Conference on Food, Nutrition and Health.

Raines believes that he is fortunate in birth order, as only the three youngest members of his family received a college education. He was the first to graduate from college when he matriculated magna cum laude in government studies from Harvard in 1971. He was a Rhodes scholar at Magdalen College, Oxford University, where he studied for a year. When he returned to the United States, he took a position as associate director of the Seattle Model Cities Program. After a year with the program, he entered Harvard law school, graduating with honors in 1976.

From Law Practice to Government Service

After law school, Raines took a position as an associate attorney for the Washington law firm of Preston, Thorgrimson, Ellis, Holman & Fletcher. Outside his law practice, he participated in a number of civic activities in the Seattle community that gained him public exposure. As expected he was invited to run for public office. He declined the offer, instead accepting a position with the Carter administration in 1977. He served for two years, first as the assistant director of the White House domestic policy staff, then as associate director for economics and government in the Office of Management and Budget. Although Raines moved back to the private sector in 1979, his brief entry into government service had spanned two administrations. With his reputation on the rise, it was expected that he would return to the government at some future point in his career.

From 1979 to 1991, Raines was employed at Lazard Freres & Company, a New York investment-banking firm. During his tenure at Lazard he progressed through the ranks from general vice president to senior vice president, and from general partner to limited partner. He was the first African American partner in a Wall Street firm in the 1980s. His responsibilities at Lazard included helping states, cities, and public authorities with the management of financial crises and advising on the financing of large capital programs. In particular, he worked closely with black mayors in large cities helping with financial management and cost reduction strategies. He proposed an innovative plan to strengthen District of Columbia government finances by replacing the city's federal subsidy with a better package of federal services. Raines garnered a lot of praise from this effort.

Chronology

1949

Born in Seattle, Washington on January 14

1967

Graduates from Franklin High School, Seattle, Washington

1971

Receives B.A. magna cum laude from Harvard College; Rhodes scholar, Magdalen College, Oxford University

1973

Serves as associate director, Seattle Model Cities Program; marries Wendy Farrow

1976

Receives J.D. cum laude, Harvard University; attorney with Preston, Thorgrimson, Ellis, Holman & Fletcher, Seattle, Washington

1977

Serves as assistant director, Domestic Policy Staff, Executive Office of the President

1978

Serves as associate director, U.S. Office of Management and Budget

1979

Joins Lazard Freres & Co., New York

1991

Serves as vice chairman of Federal National Mortgage Association (Fannie Mae)

1996

Serves as director of the Office of Management and Budget

1999

Becomes chairman of Fannie Mae

2004

Resigns from Fannie Mae

Raines married Wendy Farrow in 1982 and with a growing family wanted to spend more time at home. The opportunity came in 1991 when he was hired as vice chairman of Fannie Mae. Formerly known as the Federal National Mortgage Association, Fannie Mae had been rebuilt into the nation's largest home mortgage financing business. Its mission was to make home ownership possible for every American, and Raines wanted to help realize this dream for groups traditionally excluded from home ownership. Fannie Mae especially targeted minorities, immigrants, and single-parent families. Raines was given responsibility for the company's credit and finance policy and other corporate legal functions. As a shareholding company, Fannie Mae provided financial products and services to stimulate the availability and affordability of housing for low-income to middle-income Americans. With status as a quasi-governmental agency, Fannie Mae enjoyed virtual guaranteed market protection. Government charter also covered its nearest competitor, the Federal Home Loan Mortgage Corporation, or Freddie Mac. Raines stayed with the company for five years.

Becomes Budget Mogul

Raines had declared as a Democrat but worked well with both political parties. His association with vice president Al Gore through alumni work at Harvard pinpointed him as a possible Clinton cabinet appointee. After President Clinton's reelection in 1996, Raines was persuaded to leave his lucrative position at Fannie Mae to join the administration as director of the Office of Management and Budget (OMB). Some speculated that Clinton wanted to pad his cabinet with another minority appointment. Others were of the opinion that perhaps Fannie Mae's management wanted Raines in a position to protect the company's unique government status from scrutiny. Whatever the case, Raines took a drastic cut in pay and returned to an executive position. Raines's confirmation hearings unearthed no negatives in his record. With his varied experience in the private sector he was hailed as best qualified for the position and was confirmed without difficulty. The first African American to serve as OMB director, he was faced with the burden of negotiating a balanced-budget deal before the burgeoning deficit got out of control. Although well known in Wall Street circles, he was viewed as a Washington outsider. Yet he was well respected by both African American and white colleagues. Raines's bi-partisanship and diplomacy on Capital Hill were seen as great advantages to the fiscal restraint required during the financial management reform process.

While the main task at hand was to advise the president on strategies to balance the budget and help shape economic and domestic policy matters, there were other areas of responsibility as well. These included the management and preparation of the administration's budget and increasing government efficiency and effectiveness through improved management policies and revenue expenditures, regulations, and legislation. During congressional budget negotiations Raines worked equally well with both parties. He became one of the first directors in recent history to succeed in moving the budget from a deficit to a surplus balance, a feat that seemed almost unattainable. His success led to speculation that were he to remain in government, he would be a contender for chief of White House staff, or perhaps secretary of the treasury. In 1998, after a brief two-year stint at OMB, he was offered what he considers the opportunity of a lifetime to return to Fannie Mae as its president and CEO.

Returning to Fannie Mae was the realization of a dream for Raines. He realized that the agitations of the 1960s had put systems in place that now made it possible for his generation to rise to the top. He also recognized the importance of gaining access to property as well as education and civil and political rights. He saw his appointment not only as a personal best but also as an opening for other qualified blacks to move into top-level positions. He regarded successes of this type as catalysts to provide positive role models outside professional sports for minority youth. With mentoring and other programs in place to recruit, train, and develop minority staff, Fannie Mae had built a reputation as a leader in the areas of diversity and minority recruitment. Under his leadership, minority hiring increased, filling more than a third of the highest paid positions.

Raines believed that Fannie Mae, as the nation's largest source of home mortgage financing in the country, should set the standard for socially responsible lending. As mortgage rates fell to the lowest in forty years, the housing market ballooned, pumping billions of dollars into the economy. One of Raines's main goals at Fannie Mae was to address the problems facing low-income families caused by years of economic repression. For him the key was to keep expanding horizons not just personally but also for others. His responsibility was to make people aware of the housing opportunities provided to benefit them. He strongly believed that affirmative action is a commitment necessary to the process of catching up. Like the analogy of the miracle of compound interest, success for one means success is possible for many more if they desire it. To increase home ownership affordability, Raines introduced creative financing, new lending programs, and cooperative partnerships with housing development projects such as Hope VI. He realized that society and neighborhoods benefited from increased home ownership and resulting in improved communities, better schools, more jobs, less crime, and more participation in the political process.

Raines encouraged lenders to reach out into poor neighborhoods, even the ones with high default rates. For those lenders who were hesitant to venture into such markets, Raines believed it was Fannie Mae's responsibility to help them with the marketing. Raines mounted an aggressive campaign to expand housing opportunities to entice minorities to enter the home ownership market. He believed the minority housing market was the key to Fannie Mae's continued growth. He was instrumental in developing the Access Program, designed to increase minority participation in Fannie Mae's securities business. He urged promotion of additional incentives to neighborhoods through financing incentives, such as the timely payment reward system that would offer families with slightly impaired credit a mortgage rate two points below the sub-prime rate. Another program introduced to increase affordable home buying was called Fannie's Neighbors.

Raines is very proud of his accomplishments at the company, especially since many more families in the early 2000s could afford to purchase a home. The company's earnings have risen each year and its share prices have remained at the same level since he rejoined the company. New and existing home sales reached record highs under his leadership, and the market remained strong and well able to meet the demands for home ownership. Under his leadership, the company experienced double-digit growth and expanded benefits to families with lower incomes. A leader in mortgage technology, Fannie Mae committed more to investments to increase affordable rental housing and home ownership for more families.

Faces Accounting Scandal

In 2003 regulators found irregularities in the accounting at Fannie Mae's partner company Freddie Mac and accused the company of understating its profits. The scandal aroused fears that the U.S. housing market and the economy would be adversely affected. Fannie Mae's accounting became the subject of intense scrutiny as lawmakers responded by calling for an investigation into practices at both companies. A special investigation by Fannie Mae's regulatory agency, the Office of Federal Housing Enterprise Oversight (OFHEO) alleged that company executives manipulated accounting rules to hide earnings acquisitions and executive compensation. The $245 million in cash bonuses doled out to executives was viewed suspiciously, eliciting much criticism about the company's special status as a government-sponsored enterprise. Raines denied the charges that accounting irregularities existed in the company in testimony before the congressional subcommittee on banking. He termed the charges unfair since OFHEO had no documents or proof to substantiate them. He pledged that if any irregularities were found he would hold himself personally responsible. The Securities and Exchange Commission (SEC) and the Department of Justice also conducted inquiries.

Unfortunately, Raines was unable to weather the storm of controversy and was forced to leave Fannie Mae in late December 2004. The SEC's report determined that the accounting irregularities, originally thought to be slight, were in actuality significant. Also resigning were Fannie Mae's chief financial officer, Timothy Howard, and Leland Brendsel, the CEO of Freddie Mac. The blowout was perhaps inevitable in the wake of increasing criticism echoing from banking competitors shut out of the mortgage market. Government officials were also concerned about Fannie Mae's growing mortgage portfolio. Some believed that Raines's continued focus on consistent earnings growth contributed to the company's problems and his subsequent downfall. Raines continued firm in his defense of the company's accounting. Critics viewed his performance with skepticism, but Raines's supporters believed he was fair in his dealings and acted with integrity by taking the responsibility for the misstatements. Raines was expected to face more legal battles over whether the company's action to permit him to retire was proper. His lifetime pension was also thought to be in jeopardy. Some think that politics was partly to blame for Raines's ouster since he was a Democrat in a Republican administration. In 2006 Fannie Mae remained under ongoing investigations by OFHEO, the Justice Department, and the Securities and Exchange Commission.

Raines is credited with instituting technological improvements to help lenders streamline the processing of mortgage applications, creating the Desk Top Home Counselor, an electronic system to help prospective homebuyers with finance preparation before purchasing. Raines also established new mortgage standards and instituted a series of incentives and perks to reduce the costs associated with the acquisition of mortgages.

Raines serves on numerous corporate boards, including Boeing, Pfizer, PepsiCo, the National Urban League, and AOL Time Warner. Raines has acted as a financial advisor to several states, cities, commissions, and other authorities. From 1994 to 1995 he served on the Commission on the Roles and Missions of the Armed Forces that examined the important issues surrounding the future of the United States armed services. He was elected a Fellow of the American Academy of Arts and Sciences and a member of the Council of Foreign Relations, the Trilateral Commission and the National Academy of Social Insurance.

REFERENCES

Books

Betzold, Michael. "Franklin Raines." Newsmakers: The People Behind Today's Headlines. Ed. Sean R. Pollock. Detroit, Mich.: Gale Research, 1997.

Gates, Henry Louis, Jr. Behind the Color Line. New York: Warner Books, 2004.

Johnson, Anne Janette. "Franklin Delano Raines." Contemporary Black Biography: Profiles from the International Black Community. Eds. L. Mpho Mabunda and Shirelle Phelps. Detroit, Mich.: Gale Research, 1997

Periodicals

Cope, Debra. "Talking with Fannie Mae's Franklin Raines." Community Banker (October 2003): 14-20.

Davenport, Todd. "What's Next For Fannie? A Primer on the Issues." American Banker 189 (30 September 2004): 1-2.

Dymi, Amilda. "Raines Most Proud of Fannie Low-Moderate Effort." National Mortgage News (9 June 2003): 8.

Harris, Hamil R. "Franklin Reigns" Black Enterprise 29 (August 1998): 103-06.

McClean, Bethany, and Oliver Ryan. "The Fall of Fannie Mae." Fortune 151 (24 January 2005): 122-33.

Peterson, James. "Fannie Mae's Franklin Raines: 'We Believe in Big Goals.'" ABA Banking Journal 92 (January 2000): 35-39.

Superville, Darlene. "Fannie Mae CEO's Ouster Surprised Many." The Toronto Star, 2 January 2005.

Other

U.S. Senate. Committee on Governmental Affairs. Nomination of Franklin D. Raines. Washington, D.C.: Government Printing Office, 1997 (GPO microfiche Y4.G74/9:S.HRG.104-715).

                                    Janette Prescod