Bonuses eliminated for Fannie, Freddie bosses
A federal housing regulator for Fannie Mae and Freddie Mac will eliminate bonuses and cap pay for top executives at the mortgage giants in response to pressure from lawmakers to reduce compensation.
The Federal Housing Finance Agency said the plan nixes performance-based packages and limits salaries to $500,000 for 70 top employees, including two new chief executives being recruited to take over the government-controlled firms, which is well below previous levels.
{mosads}“I believe the new compensation program strikes the balance between prudent executive pay including the elimination of bonuses, with the need to safeguard quality staffing in order to protect the taxpayers’ investment,” said Edward DeMarco, the FHFA’s acting director.
DeMarco has repeatedly defended the salaries and bonuses, arguing that it is the only way for Fannie and Freddie to attract and retain top employees to oversee trillions in mortgage assets.
“A sudden and sharp change in pay from these levels would certainly risk a substantial exodus of talent, the best leaving first in many instances,” he said.
“A significant increase in safety and soundness risks and in costly operational failures would, in my opinion, be highly likely.”
Still, despite the changes in the pay scale, some top executives could receive upward of of $2 million to $3 million in pay this year.
DeMarco didn’t say when the new changes go into effect.
Last year, Michael Williams, Fannie’s chief executive who is leaving this year, earned $5.3 million while four other Fannie executives got more than $2 million, according to the FHFA.
Freddie’s chief Charles Haldeman, who is also slated to depart this year, earned $3.8 million, while three other Freddie executives received compensation of at least $2 million.
In 2012, Haldeman and Williams will each be paid $5.4 million.
Lawmakers have been applying pressure on DeMarco to reduce salaries and bonuses, especially following the revelation that 12 executives received more than $35.4 million in salary and bonuses in 2009 and 2010 — Williams received about $9.3 million during that time while Haldeman was paid $7.8 million.
Meanwhile, the mortgage firms have required more than $150 billion in taxpayer funding to keep them afloat.
One of the mortgage giants’ biggest critics, Rep. Spencer Bachus (R-Ala.), chairman the House Financial Services Committee and a critic of the firms who is pushing for legislation that would force pay reductions, called the changes “long overdue” and a “step in the right direction.”
“The taxpayer funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history,” he said. “The lavish compensation packages and million-dollar bonuses that have been given to top executives of these two failed companies are an outrage to the taxpayers whose assistance is the only thing keeping Fannie Mae and Freddie Mac afloat.”
After the firms were taken over by the government in 2008, pay was cut by about 40 percent, most of the top executives parted ways and some senior positions were eliminated.
Bachus’s panel approved a bipartisan bill in November that sets new pay standards. Under the proposal, top executives could have earned no more than $218,978 in compensation last year and would receive no bonus pay.
“The plan announced by the FHFA permits new CEO pay at $500,000 for Fannie and Freddie,” he said.
“That may be an appropriate level for the private sector, but as long as the GSEs live off the taxpayers these companies are owned by taxpayers and their staff should be paid accordingly.”
House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) said he was “encouraged” by the announcement.
“It is inappropriate for Fannie and Freddie executives to receive exorbitant pay that’s ultimately sponsored by taxpayers,” Issa said.
“The Oversight Committee will continue to monitor Fannie and Freddie to safeguard taxpayer funds and press for a solution to begin moving the federal government away from its outsized role in the mortgage business.”
On Friday, Freddie announced a $619 million profit in the fourth quarter — compared with a $113 million loss a year ago — and a request for $146 million more in government help to offset dividends paid to the Treasury Department.
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