The choice of Fannnie Mae's vice chairman, Franklin D. Raines, for a big White House job has created two knotty issues for the agency.
First, it would have to replace a leader who has spearheaded the development of its underwriting technology, which Fannie Mae sees as key to cutting credit costs and gaining market share.
Second, it would have to decide how generous to be in dealing with as much as $4 million of unvested benefits he stands to lose after five years on the job.
The other side of the coin is that the surprise choice of Mr. Raines, 47, to be director of the Office of Management and the Budget could be a big plus politically for the company.
As a heavily regulated, government-sponsored enterprise, Fannie Mae - formally the Federal National Mortgage Association - relies on its enviable access to decision-makers in the administration and Congress to make sure that government rules do not eat too heavily into profits. Mr. Raines' presence in the White House would solidify that clout, Washington insiders said.
They expect that as budget director Mr. Raines would strongly influence debate within the administration on the thorny issue of whether Fannie Mae and its main rival, the Federal Home Loan Mortgage Corp., should pay user fees on the securities they issue.
Mr. Raines also might help, at least indirectly, with the complex risk- based capital standards now being drafted for Fannie and Freddie by the Office of Federal Housing Enterprise Oversight.
One task of the budget office is to review all government regulations. Though Mr. Raines might formally exclude himself from the process, observers say he would still exert important influence.
"Fannie always had a lot of clout, but clearly they are going to have more," said one Washington source, who asked not to be identified.
Advocates say user fees would enable the government to recoup the funding advantage Fannie Mae and rival Freddie Mac enjoy through their government charters.
Fannie Mae and Freddie Mac oppose user fees, saying they would be passed on to homebuyers as higher mortgage rates.
Budget hawks such as Rep. John Kasich, R-Ohio, chairman of the House budget committee, proposed user fees last year. The idea was shot down by Speaker Newt Gingrich, R-Ga., but resurfaced in the President's budget this year. The administration has suggested that risk-based user fees could help the government manage its increased exposure to losses as Fannie and Freddie gain a bigger share of the market.
Meanwhile, who would replace Mr. Raines at Fannie Mae?
One candidate, Washington insiders said, would be Robert B. Zoellick, executive vice president and general counsel at Fannie Mae. Mr. Zoellick, 42, was a key aide to Secretary of State James Baker in the Reagan administration. His Republican credentials would complement the Democratic ties of Fannie Mae Chairman James A. Johnson.
Another possibility, lenders said, is that Mr. Johnson would go outside Fannie Mae for a technology bigwig to help sell mortgage bankers on using its technology, which has been difficult so far.
Even before finding a successor, Fannie would have to decide what, if anything, to do to soften the financial sacrifice that the job change would require of Mr. Raines.
Last year, Mr. Raines earned a salary $551,250, a bonus of $315,794, and a long-term incentive payout of $1.4 million. He was also awarded stock options valued at $753,469.
As budget czar, Mr. Raines would earn $148,400.
As of Dec. 31, Mr. Raines had exercisable options on 62,141 shares of Fannie Mae stock, worth $3.6 million. In addition, he owns options that he may not yet exercise on another 87,979 Fannie Mae shares. These options are valued at $3.6 million. He also owns unvested stock worth $792,800.
According to Fannie Mae's most recent proxy statement, its board of directors can decide to accelerate the vesting. But compensation expert Carl D. Jacobs said boards usually don't do that.
"In a typical scenario, unvested shares of stock options and unvested restricted stock would essentially be lost," said Mr. Jacobs, president of Carl D. Jacobs & Associates Inc., Woodland Hills, Calif. But he added that the board might choose to allow faster vesting in light of the prestige of Mr. Raines' appointment.
Fannie Mae spokesman David Jeffers said the agency would not address these matters for some time.
Mr. Raines' formal nomination is awaiting the completion of an FBI background check. A spokeswoman for the Senate committee that will consider the nomination said the process could take a couple of months.